##### 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, 2005

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.** | 















|                                                     |  |  |                 |    
|---------------------------------------------------- |  |  | --------------- | ---
|State-owned shares, par value
    RMB 1.00 per share |  |  | 157,922,077,818 |    
|H Shares, par value RMB 1.00
    per share           |  |  | 21,098,900,000  | ***



x o




o x




x o






|                           |                      |                          | 
|-------------------------- | -------------------- | ------------------------ | 
|Large Accelerated Filer  x | Accelerated Filer  o | Non-Accelerated Filer  o | 



o x




o 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 3,123,514,900 H Shares represented by
    American Depositary Shares.









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Table of Contents

|       |  |        |  |                                                           |  |                                                       |   |                                                  |     |  |     | 
|------ |  | ------ |  | --------------------------------------------------------- |  | ----------------------------------------------------- | - | ------------------------------------------------ | --- |  | --- | 
|       |  |        |  |                                                           |  | Page                                                  |  
|       |  |        |  |                                                           |  |                                                       |  
|       |  |        |  |                                                           |  |                                                       |   | Certain Terms
    and Conventions                |     |  | 3   | 
|       |  |        |  |                                                           |  |                                                       |   | Forward-looking
    Statements                   |     |  | 6   | 
|Part I |  | Item 1 |  | Identity of
    Directors, Senior Management and Advisors |  |                                                       | 8 |                                                 
|       |  |        |  | Item 2                                                    |  | Offer
    Statistics and Expected Timetable           |   |                                                  | 8   | 
|       |  |        |  | Item 3                                                    |  | Key
    Information                                   |   |                                                  | 8   | 
|       |  |        |  |                                                           |  |                                                       |   | Exchange
    Rates                               |     |  | 8   | 
|       |  |        |  |                                                           |  |                                                       |   | Selected
    Financial Data                      |     |  | 9   | 
|       |  |        |  |                                                           |  |                                                       |   | Risk
    Factors                                 |     |  | 14  | 
|       |  |        |  | Item 4                                                    |  | Information on
    the Company                        |   |                                                  | 19  | 
|       |  |        |  |                                                           |  |                                                       |   | Introduction                                     |     |  | 19  | 
|       |  |        |  |                                                           |  |                                                       |   | Exploration
    and Production                   |     |  | 26  | 
|       |  |        |  |                                                           |  |                                                       |   | Refining
    and Marketing                       |     |  | 37  | 
|       |  |        |  |                                                           |  |                                                       |   | Chemicals
    and Marketing                      |     |  | 44  | 
|       |  |        |  |                                                           |  |                                                       |   | Natural
    Gas and Pipeline                     |     |  | 48  | 
|       |  |        |  |                                                           |  |                                                       |   | Competition                                      |     |  | 51  | 
|       |  |        |  |                                                           |  |                                                       |   | Environmental
    Matters                        |     |  | 52  | 
|       |  |        |  |                                                           |  |                                                       |   | Legal
    Proceedings                            |     |  | 54  | 
|       |  |        |  |                                                           |  |                                                       |   | Properties                                       |     |  | 54  | 
|       |  |        |  |                                                           |  |                                                       |   | Regulatory
    Matters                           |     |  | 54  | 
|       |  |        |  | Item 4A                                                   |  | Unresolved
    Staff Comments                         |   |                                                  | 62  | 
|       |  |        |  | Item 5                                                    |  | Operating and
    Financial Review and Prospects      |   |                                                  | 63  | 
|       |  |        |  |                                                           |  |                                                       |   | General                                          |     |  | 63  | 
|       |  |        |  |                                                           |  |                                                       |   | Operating
    Results                            |     |  | 73  | 
|       |  |        |  |                                                           |  |                                                       |   | Liquidity
    and Capital Resources              |     |  | 82  | 
|       |  |        |  |                                                           |  |                                                       |   | Research
    and Development                     |     |  | 89  | 
|       |  |        |  |                                                           |  |                                                       |   | Trend
    Information                            |     |  | 90  | 
|       |  |        |  |                                                           |  |                                                       |   | Other
    Information                            |     |  | 90  | 
|       |  |        |  | Item 6                                                    |  | Directors,
    Senior Management and Employees        |   |                                                  | 95  | 
|       |  |        |  |                                                           |  |                                                       |   | Directors,
    Senior Management and Supervisors |     |  | 95  | 
|       |  |        |  |                                                           |  |                                                       |   | Compensation                                     |     |  | 102 | 
|       |  |        |  |                                                           |  |                                                       |   | Board
    Practices                              |     |  | 103 | 
|       |  |        |  |                                                           |  |                                                       |   | Employees                                        |     |  | 105 | 
|       |  |        |  |                                                           |  |                                                       |   | Share
    Ownership                              |     |  | 105 | 
|       |  |        |  | Item 7                                                    |  | Major
    Shareholders and Related Party Transactions |   |                                                  | 106 | 
|       |  |        |  |                                                           |  |                                                       |   | Major
    Shareholders                           |     |  | 106 | 
|       |  |        |  |                                                           |  |                                                       |   | Related
    Party Transactions                   |     |  | 106 | 
|       |  |        |  | Item 8                                                    |  | Financial
    Information                             |   |                                                  | 112 | 
|       |  |        |  | Item 9                                                    |  | The Offer and
    Listing                             |   |                                                  | 114 | 
|       |  |        |  | Item 10                                                   |  | Additional
    Information                            |   |                                                  | 116 | 
|       |  |        |  |                                                           |  |                                                       |   | Memorandum
    and Articles of Association       |     |  | 116 | 
|       |  |        |  |                                                           |  |                                                       |   | Material
    Contracts                           |     |  | 122 | 

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|                                                     |  |         |  |                                                     |  |                                                                            |     |                                                               |     |  |     | 
|---------------------------------------------------- |  | ------- |  | --------------------------------------------------- |  | -------------------------------------------------------------------------- | --- | ------------------------------------------------------------- | --- |  | --- | 
|                                                     |  |         |  |                                                     |  | Page                                                                       |    
|                                                     |  |         |  |                                                     |  |                                                                            |    
|                                                     |  |         |  |                                                     |  |                                                                            |     | Exchange
    Controls                                         |     |  | 122 | 
|                                                     |  |         |  |                                                     |  |                                                                            |     | Taxation                                                      |     |  | 123 | 
|                                                     |  |         |  |                                                     |  |                                                                            |     | Significant
    Differences in Corporate Governance Practices |     |  | 129 | 
|                                                     |  |         |  |                                                     |  |                                                                            |     | Documents
    on Display                                      |     |  | 129 | 
|                                                     |  |         |  | Item 11                                             |  | Quantitative
    and Qualitative Disclosures About Market Risk             |     |                                                               | 130 | 
|                                                     |  |         |  | Item 12                                             |  | Description of
    Securities Other Than Equity Securities                 |     |                                                               | 134 | 
|Part II                                              |  | Item 13 |  | Defaults,
    Dividend Arrearages and Delinquencies |  |                                                                            | 134 |                                                              
|                                                     |  |         |  | Item 14                                             |  | Material
    Modifications to the Rights to Security Holders               |     |                                                               | 134 | 
|                                                     |  |         |  | Item 15                                             |  | Controls and
    Procedures                                                |     |                                                               | 134 | 
|                                                     |  |         |  | Item 16A                                            |  | Audit
    Committee Financial Expert                                       |     |                                                               | 135 | 
|                                                     |  |         |  | Item 16B                                            |  | Code of
    Ethics                                                         |     |                                                               | 135 | 
|                                                     |  |         |  | Item 16C                                            |  | Principal
    Accountant Fees and Services                                 |     |                                                               | 135 | 
|                                                     |  |         |  | Item 16D                                            |  | Exemptions
    from Listing Standards for Audit Committees                 |     |                                                               | 136 | 
|                                                     |  |         |  | Item 16E                                            |  | Purchases of
    Equity Securities by the Issuer and Affiliated Purchasers |     |                                                               | 136 | 
|Part III                                             |  | Item 17 |  | Financial
    Statements                            |  |                                                                            | 136 |                                                              
|                                                     |  |         |  | Item 18                                             |  | Financial
    Statements                                                   |     |                                                               | 136 | 
|                                                     |  |         |  | Item 19                                             |  | Exhibits                                                                   |     |                                                               | 136 | 
|                                                     |  |         |  |                                                     |  |                                                                            |     | Consolidated
    Financial Statements                         |     |  | F-1 | 
|EX-1.2 ARTICLES OF ASSOCIATION                      
|EX-4.1 2006 MANAGEMENT PERFORMANCE CONTRACT         
|EX-4.2 CRUDE OIL MUTUAL SUPPLY FRAMEWORK AGREEMENT  
|EX-4.3 SECOND SUPPLEMENTAL AGREEMENT                
|EX-8.1 LIST OF SUBSIDIARIES                         
|EX-12.1 CERTIFICATION OF CEO REQUIRED BY SECTION 302
|EX-12.2 CERTIFICATION OF CFO REQUIRED BY SECTION 302
|EX-13.1 CERTIFICATION OF CEO REQUIRED BY SECTION 906
|EX-13.2 CERTIFICATION OF CFO REQUIRED BY SECTION 906



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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






|              |  |                                                                                                                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                                                                                                                   

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

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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 amounts and nature of future exploration, development and
    other capital expenditures;
    future prices and demand for crude oil, natural gas, refined
    products and chemical products;
    development projects;
    exploration prospects;
    reserves potential;
    production of oil and gas and refined and chemical products;
    development and drilling potential;
    expansion and other development trends of the oil and gas
    industry;
    the planned development of our natural gas operations;
    the planned expansion of our refined product marketing network;
    the planned expansion of our natural gas infrastructure;
    the anticipated benefit from our proposed acquisition of certain
    overseas assets from CNPC, our parent company;
    the plan to continue to pursue attractive business opportunities
    outside China;
    our future overall business development and economic performance;
    our anticipated financial and operating information regarding,
    and the future development and economic performance of, our
    business;
    our anticipated market risk exposure arising from future changes
    in interest rates, foreign exchange rates and commodity prices;
    and
    other prospects of our business and operations.The words anticipate, believe,
could, estimate, expect,
intend, may, plan,
seek, will and would and
similar expressions, as they related to us, are intended to
identify a number of these forward-looking statements.

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




    fluctuations in crude oil and natural gas prices;
    failure to achieve continued exploration success;
    failures or delays in achieving production from development
    projects;
    continued availability of capital and financing;
    acquisitions and other business opportunities that we may pursue;

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
    general economic, market and business conditions, including
    volatility in interest rates, changes in foreign exchange rates
    and volatility in commodity markets;
    liability for remedial actions under environmental regulations;
    impact of the PRCs entry into the World Trade Organization;
    the actions of competitors;
    wars and acts of terrorism or sabotage;
    changes in policies, laws or regulations of the PRC;
    the other changes in global economic and political conditions
    affecting the production, supply and demand and pricing of crude
    oil, refined products, petrochemical products and natural gas;
    and
    the other risk factors discussed in this annual report, and
    other factors beyond our control.You should not place undue reliance on any forward-looking
statement.

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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

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 7.9990 on June 15, 2006. 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 2005               |  |                  | 8.0808 |  |     |  | 8.0702 | 
|January 2006                |  |                  | 8.0702 |  |     |  | 8.0596 | 
|February 2006               |  |                  | 8.0616 |  |     |  | 8.0415 | 
|March 2006                  |  |                  | 8.0505 |  |     |  | 8.0167 | 
|April 2006                  |  |                  | 8.0248 |  |     |  | 8.0040 | 
|May 2006                    |  |                  | 8.0300 |  |     |  | 8.0005 | 
|June 2006 (through June 15) |  |                  | 8.0225 |  |     |  | 7.9985 | 



|     |  |                         
|---- |  | ------------------------
|     |  | Average noon buying rate
|     |  |                         
|     |  | (RMB per US$)           
|2001 |  | 8.2770                  
|2002 |  | 8.2772                  
|2003 |  | 8.2772                  
|2004 |  | 8.2768                  
|2005 |  | 8.1826                  

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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. In 2005, we retroactively
restated our prior years consolidated financial statements
to reflect the effect as if the refinery and petrochemical
operations of Ningxia Dayuan Refinery and Petrochemical Company
Limited (Dayuan), Qingyang Refinery and
Petrochemical Company Limited (Qingyang) we acquired
from CNPC, and the operations of Zhong You Kan Tan Kai Fa
Company Limited (Newco), of which we acquired 50%
interests and maintain effective control, from China National
Oil and Gas Exploration and Development Corporation
(CNODC, a wholly-owned subsidiary of CNPC) and its
subsidiaries, had always been combined since inception as a
result of the application of the accounting treatment to the
acquisition discussed below. The selected historical income
statement and cashflow data for the years ended
December 31, 2003, 2004 and 2005 and the selected
historical balance sheet data as of December 31, 2004 and
2005 set forth below are derived from our audited consolidated
financial statements included elsewhere in this annual report.
The selected historical income statement data and cashflow data
for the years ended December 31, 2001 and 2002 and the
selected historical balance sheet data as of December 31,
2001, 2002 and 2003 set forth below are derived from our
unaudited financial statements, not included in this annual
report. The financial information included in this section may
not necessarily reflect our results of operations, financial
position and cash flows in the future.

We have prepared our consolidated financial statements in
accordance with IFRS. IFRS differ materially from the generally
accepted accounting principals in the U.S., or US GAAP. For a
discussion of significant differences between IFRS and US GAAP,
see Note 37 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.

Pursuant to an acquisition agreement by and between our company
and CNPC dated March 28, 2005, we acquired the refinery and
petrochemical operations respectively owned by CNPCs
wholly-owned subsidiaries, Dayuan and Qingyang, from CNPC for
which we paid a cash consideration of RMB 9 million.

The acquisition is deemed a combination of entities under common
control since we and the refinery and petrochemical operations
of Dayuan and Qingyang 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 refinery and petrochemical operations
acquired are accounted for at historical cost to CNPC with net
liabilities of RMB183 million as at the effective date. Our
prior years consolidated financial statements were
restated to give effect to the acquisition in these periods as
if the operations of our company and these operations had always
been combined in these periods. The difference between the RMB
9 million acquisition price and the net liabilities
transferred from CNPC was adjusted against equity.

In August 2005, the shareholders of our company approved the
acquisition and transfer agreements relating to our acquisition
of a 50% interest of Newco. Newco was established in 2005 and
was wholly owned by CNODC and one of its subsidiaries. Under the
terms of the related agreements, CNODC transferred certain oil
and gas exploration operations into Newco and we contributed to
Newco our wholly-owned subsidiary, PetroChina International
Limited (PTRI), and cash in the amount of
approximately RMB20,162 million, which is the difference
between the cash contribution of RMB20,741 million payable
by us according to the acquisition agreement and the cash
consideration of RMB579 million for PTRI receivable by us.

Pursuant to the relevant equity transfer agreement, we shall
have the right to appoint four of the seven directors of Newco,
which will enable us to maintain effective control over Newco.

9



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##### Table of Contents

Similar to the accounting method applied in the treatment of the
refinery and petrochemical operations acquired by us, our
investment in Newco and related acquisition transactions will be
accounted for in a manner similar to a uniting of interests
since these transactions are among entities under the common
control of CNPC. Our prior years consolidated financial
statements were restated as if the operations of our company and
these operations had always been combined in these periods. The
difference between our cash payment of RMB 20,162 million
and the net assets of Newco, in an amount of RMB
35,551 million as at the effective date of the purchase and
transfer agreement (inclusive of RMB 20,162 million
contributed by us and RMB 50 million contributed by CNODC
and its subsidiaries as registered capital of Newco), was
adjusted against equity as the amount of RMB 20,162 million
was paid directly to Newco.

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##### Table of Contents



|                                              |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |         |          |          |   |         |          |          |  
|--------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------- | ------- | ------- | -------- | - | ------- | ------- | -------- | - | ------- | ------- | -------- | ---- | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                              |                                                                         | Year ended December 31,                |        
|                                              |                                                                         |                                        |        
|                                              |                                                                         | 2001(1)                                |         |         | 2002(1)  |   |         | 2003(2) |          |   | 2004(2) |         |          | 2005 |        
|                                              |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |        
|                                              |                                                                         | RMB                                    |         |         | RMB      |   |         | RMB     |          |   | RMB     |         |          | RMB  |        
|                                              |                                                                         | (in millions, except for per share and |        
|                                              |                                                                         | per ADS data)                          |        
|Income Statement Data                         |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |         |          |          |   |         |         
|IFRS                                          |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |         |          |          |   |         |         
|Revenues                                      |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |         |          |          |   |         |         
|                                              | Sales and other operating revenues                                      |                                        |         | 245,536 |          |   |         | 249,386 |          |   |         | 310,431 |          |      |         | 397,354  |          |   |         | 552,229  |         
|                                              |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |        
|Operating expenses                            |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |         |          |          |   |         |         
|                                              | Purchases, services and other                                           |                                        |         | (78,737 | )        |   |         | (71,383 | )        |   |         | (89,741 | )        |      |         | (114,249 | )        |   |         | (200,321 | )       
|                                              | Employee compensation costs                                             |                                        |         | (14,833 | )        |   |         | (16,665 | )        |   |         | (20,044 | )        |      |         | (22,934  | )        |   |         | (29,675  | )       
|                                              | Exploration expenses, including
    exploratory dry holes               |                                        |         | (7,361  | )        |   |         | (8,203  | )        |   |         | (10,624 | )        |      |         | (12,090  | )        |   |         | (15,566  | )       
|                                              | Depreciation, depletion and
    amortization                            |                                        |         | (34,139 | )        |   |         | (37,680 | )        |   |         | (42,163 | )        |      |         | (48,362  | )        |   |         | (51,305  | )       
|                                              | Selling, general and administrative
    expenses                        |                                        |         | (22,765 | )        |   |         | (23,930 | )        |   |         | (25,982 | )        |      |         | (28,302  | )        |   |         | (36,538  | )       
|                                              | Employee separation costs and
    shutting down of manufacturing assets |                                        |         | (487    | )        |   |         | (2,121  | )        |   |         | (2,355  | )        |      |         | (220     | )        |   |         |         |         
|                                              | Taxes other than income taxes                                           |                                        |         | (14,401 | )        |   |         | (15,366 | )        |   |         | (16,821 | )        |      |         | (19,943  | )        |   |         | (23,616  | )       
|                                              | Revaluation loss of property, plant
    and equipment                   |                                        |         |        |          |   |         |        |          |   |         | (391    | )        |      |         |         |          |   |         |         |         
|                                              | Other expenses, net                                                     |                                        |         | (32     | )        |   |         | (59     | )        |   |         | (598    | )        |      |         | (116     | )        |   |         | (3,037   | )       
|                                              |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |        
|                                              |                                                                         | Total operating expenses               |         |         | (172,755 | ) |         |         | (175,407 | ) |         |         | (208,719 | )    |         |          | (246,216 | ) |         |          | (360,058 | )
|                                              |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |        
|Income from operations                        |                                                                         |                                        | 72,781  |         |          |   | 73,979  |         |          |   | 101,712 |         |          |      | 151,138 |          |          |   | 192,171 |         
|                                              |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |        
|Income from equity affiliates                 |                                                                         |                                        | 247     |         |          |   | 169     |         |          |   | 933     |         |          |      | 1,621   |          |          |   | 2,401   |         
|Exchange gain (loss), net                     |                                                                         |                                        | 233     |         |          |   | (430    | )       |          |   | (36     | )       |          |      | 8       |          |          |   | 88      |         
|Interest income                               |                                                                         |                                        | 873     |         |          |   | 663     |         |          |   | 973     |         |          |      | 1,373   |          |          |   | 1,924   |         
|Interest expense                              |                                                                         |                                        | (5,104  | )       |          |   | (4,068  | )       |          |   | (2,889  | )       |          |      | (2,896  | )        |          |   | (2,762  | )       
|                                              |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |        
|Income before taxes                           |                                                                         |                                        | 69,030  |         |          |   | 70,313  |         |          |   | 100,693 |         |          |      | 151,244 |          |          |   | 193,822 |         
|Income taxes                                  |                                                                         |                                        | (23,617 | )       |          |   | (22,939 | )       |          |   | (28,796 | )       |          |      | (43,598 | )        |          |   | (54,180 | )       
|                                              |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |        
|Income for this year                          |                                                                         |                                        | 45,413  |         |          |   | 47,374  |         |          |   | 71,897  |         |          |      | 107,646 |          |          |   | 139,642 |         
|                                              |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |        
|Attributable to:                              |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |         |          |          |   |         |         
|Shareholders                                  |                                                                         |                                        | 45,431  |         |          |   | 46,766  |         |          |   | 69,835  |         |          |      | 103,843 |          |          |   | 133,362 |         
|Minority shareholders                         |                                                                         |                                        | (18     | )       |          |   | 608     |         |          |   | 2,062   |         |          |      | 3,803   |          |          |   | 6,280   |         
|                                              |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |        
|                                              |                                                                         |                                        | 45,413  |         |          |   | 47,374  |         |          |   | 71,897  |         |          |      | 107,646 |          |          |   | 139,642 |         
|                                              |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |        
|Basic and diluted net income per
    share    |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |         |          |          |   |         |         
|                                              | Attributable to shareholders for
    this
    year(3)                   |                                        |         | 0.26    |          |   |         | 0.27    |          |   |         | 0.40    |          |      |         | 0.59     |          |   |         | 0.75     |         
|Basic and diluted net income per
    ADS(4)   |                                                                         |                                        | 25.84   |         |          |   | 26.60   |         |          |   | 39.72   |         |          |      | 59.06   |          |          |   | 75.44   |         
|US GAAP                                       |                                                                         |                                        |         |         |          |   |         |         |          |   |         |         |          |      |         |          |          |   |         |         
|Net income                                    |                                                                         |                                        | 50,895  |         |          |   | 49,693  |         |          |   | 75,640  |         |          |      | 109,051 |          |          |   | 137,865 |         
|Basic and diluted net income per
    share(3) |                                                                         |                                        | 0.29    |         |          |   | 0.28    |         |          |   | 0.43    |         |          |      | 0.62    |          |          |   | 0.78    |         
|Basic and diluted net income per
    ADS(4)   |                                                                         |                                        | 28.95   |         |          |   | 28.26   |         |          |   | 43.02   |         |          |      | 62.02   |          |          |   | 77.99   |         

11



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##### Table of Contents



|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |         |         | 
|-------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | -------------------------------------- | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- | ---- | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|                                                                                             |                                                                                              | As of December 31,                     |        
|                                                                                             |                                                                                              |                                        |        
|                                                                                             |                                                                                              | 2001(1)                                |         |         | 2002(1) |  |         | 2003(1) |         |  | 2004(2) |         |         | 2005 |        
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|                                                                                             |                                                                                              | RMB                                    |         |         | RMB     |  |         | RMB     |         |  | RMB     |         |         | RMB  |        
|                                                                                             |                                                                                              | (in millions, except for per share and |        
|                                                                                             |                                                                                              | per ADS data)                          |        
|Balance Sheet Data                                                                           |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |        
|IFRS                                                                                         |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |        
|Assets                                                                                       |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |        
|Current assets                                                                               |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |        
|                                                                                             | Cash and cash equivalents                                                                    |                                        |         | 20,252  |         |  |         | 19,532  |         |  |         | 11,613  |         |      |         | 11,688  |         |  |         | 80,905  |        
|                                                                                             | Time deposits mature after three
    months but within 12 months                             |                                        |         | 3,262   |         |  |         | 2,621   |         |  |         | 2,648   |         |      |         | 1,425   |         |  |         | 1,691   |        
|                                                                                             | Investments in collateralized loans                                                          |                                        |         | 2,636   |         |  |         | 420     |         |  |         | 24,224  |         |      |         | 33,217  |         |  |         | 235     |        
|                                                                                             | Accounts receivable                                                                          |                                        |         | 8,265   |         |  |         | 6,544   |         |  |         | 4,115   |         |      |         | 3,842   |         |  |         | 4,630   |        
|                                                                                             | Inventories, at net book value                                                               |                                        |         | 29,117  |         |  |         | 29,352  |         |  |         | 30,064  |         |      |         | 47,377  |         |  |         | 62,733  |        
|                                                                                             | Prepaid expenses and other current
    assets                                                |                                        |         | 25,030  |         |  |         | 19,618  |         |  |         | 18,845  |         |      |         | 24,704  |         |  |         | 25,701  |        
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|                                                                                             |                                                                                              | Total current assets                   |         |         | 88,562  |  |         |         | 78,087  |  |         |         | 91,509  |      |         |         | 122,253 |  |         |         | 175,895 | 
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|Non-current assets                                                                           |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |        
|                                                                                             | Property, plant and equipment, less
    accumulated depreciation, depletion and amortization |                                        |         | 372,369 |         |  |         | 404,135 |         |  |         | 442,311 |         |      |         | 485,612 |         |  |         | 563,890 |        
|                                                                                             | Long-term investments, at net book
    value                                                 |                                        |         | 5,872   |         |  |         | 6,055   |         |  |         | 9,405   |         |      |         | 11,504  |         |  |         | 13,608  |        
|                                                                                             | Prepaid operating lease rentals                                                              |                                        |         | 5,404   |         |  |         | 6,267   |         |  |         | 7,286   |         |      |         | 12,307  |         |  |         | 16,235  |        
|                                                                                             | Intangible and other assets                                                                  |                                        |         | 2,379   |         |  |         | 2,769   |         |  |         | 3,027   |         |      |         | 3,020   |         |  |         | 5,011   |        
|                                                                                             | Time deposits mature after one year                                                          |                                        |         | 2,980   |         |  |         | 3,498   |         |  |         | 3,485   |         |      |         | 3,751   |         |  |         | 3,428   |        
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|                                                                                             | Total non-current assets                                                                     |                                        |         | 389,004 |         |  |         | 422,724 |         |  |         | 465,514 |         |      |         | 516,194 |         |  |         | 602,172 |        
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|                                                                                             |                                                                                              | Total assets                           |         |         | 477,566 |  |         |         | 500,811 |  |         |         | 557,023 |      |         |         | 638,447 |  |         |         | 778,067 | 
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|Liabilities and
    shareholders equity                                                     |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |        
|Current liabilities                                                                          |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |        
|                                                                                             | Short-term debt                                                                              |                                        |         | 28,011  |         |  |         | 23,185  |         |  |         | 34,328  |         |      |         | 34,937  |         |  |         | 28,689  |        
|                                                                                             | Accounts payable and accrued
    liabilities                                                 |                                        |         | 54,888  |         |  |         | 59,950  |         |  |         | 66,700  |         |      |         | 73,072  |         |  |         | 99,758  |        
|                                                                                             | Income tax payable                                                                           |                                        |         | 5,676   |         |  |         | 5,581   |         |  |         | 12,068  |         |      |         | 17,484  |         |  |         | 20,567  |        
|                                                                                             | Other taxes payable                                                                          |                                        |         | 8,895   |         |  |         | 5,767   |         |  |         | 9,251   |         |      |         | 5,032   |         |  |         | 4,824   |        
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|                                                                                             |                                                                                              | Total current liabilities              |         |         | 97,470  |  |         |         | 94,483  |  |         |         | 122,347 |      |         |         | 130,525 |  |         |         | 153,838 | 
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|Non-current liabilities                                                                      |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |        
|                                                                                             | Long-term debt                                                                               |                                        |         | 72,042  |         |  |         | 68,894  |         |  |         | 51,601  |         |      |         | 44,648  |         |  |         | 44,570  |        
|                                                                                             | Other long-term obligations                                                                  |                                        |         | 1,402   |         |  |         | 1,707   |         |  |         | 2,010   |         |      |         | 2,481   |         |  |         | 1,046   |        
|                                                                                             | Assets disposal obligations                                                                  |                                        |         | 544     |         |  |         | 585     |         |  |         | 735     |         |      |         | 919     |         |  |         | 14,187  |        
|                                                                                             | Deferred taxes                                                                               |                                        |         | 7,698   |         |  |         | 10,832  |         |  |         | 13,436  |         |      |         | 16,902  |         |  |         | 20,759  |        
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|                                                                                             |                                                                                              | Total non-current liabilities          |         |         | 81,686  |  |         |         | 82,018  |  |         |         | 67,782  |      |         |         | 64,950  |  |         |         | 80,562  | 
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|                                                                                             |                                                                                              | Total liabilities                      |         |         | 179,156 |  |         |         | 176,501 |  |         |         | 190,129 |      |         |         | 195,475 |  |         |         | 234,400 | 
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|Equity                                                                                       |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |        
|Shareholders equity                                                                         |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |        
|Share capital                                                                                |                                                                                              |                                        | 175,824 |         |         |  | 175,824 |         |         |  | 175,824 |         |         |      | 175,824 |         |         |  | 179,021 |        
|Retained income                                                                              |                                                                                              |                                        | 34,105  |         |         |  | 57,358  |         |         |  | 88,152  |         |         |      | 143,115 |         |         |  | 203,812 |        
|Reserves                                                                                     |                                                                                              |                                        | 81,835  |         |         |  | 84,456  |         |         |  | 93,952  |         |         |      | 108,834 |         |         |  | 132,556 |        
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|                                                                                             |                                                                                              |                                        | 291,764 |         |         |  | 317,638 |         |         |  | 357,928 |         |         |      | 427,773 |         |         |  | 515,389 |        
|Minority interest                                                                            |                                                                                              |                                        | 6,646   |         |         |  | 6,672   |         |         |  | 8,966   |         |         |      | 15,199  |         |         |  | 28,278  |        
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|Total equity                                                                                 |                                                                                              |                                        | 298,410 |         |         |  | 324,310 |         |         |  | 366,894 |         |         |      | 442,972 |         |         |  | 543,667 |        
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|                                                                                             |                                                                                              | Total liabilities and equity           |         |         | 477,566 |  |         |         | 500,811 |  |         |         | 557,023 |      |         |         | 638,447 |  |         |         | 778,067 | 
|                                                                                             |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |        
|Share capital, issued and
    outstanding, RMB 1.00 par value                                |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |        
|                                                                                             | State-owned shares                                                                           |                                        |         | 158,242 |         |  |         | 158,242 |         |  |         | 158,242 |         |      |         | 158,242 |         |  |         | 157,922 |        
|                                                                                             | H shares and ADSs                                                                            |                                        |         | 17,582  |         |  |         | 17,582  |         |  |         | 17,582  |         |      |         | 17,582  |         |  |         | 21,099  |        
|US GAAP                                                                                      |                                                                                              |                                        |         |         |         |  |         |         |         |  |         |         |         |      |         |         |         |  |         |        
|Property, plant and equipment, less
    accumulated depreciation, depletion and amortization |                                                                                              |                                        | 313,897 |         |         |  | 353,932 |         |         |  | 413,383 |         |         |      | 452,017 |         |         |  | 537,106 |        
|Total assets                                                                                 |                                                                                              |                                        | 431,511 |         |         |  | 457,065 |         |         |  | 528,685 |         |         |      | 605,018 |         |         |  | 752,663 |        
|Shareholders equity                                                                         |                                                                                              |                                        | 253,071 |         |         |  | 284,426 |         |         |  | 330,520 |         |         |      | 405,573 |         |         |  | 499,130 |        

12



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##### Table of Contents



|                                              |  |                    |         |   |         |  |         |         |  |  |          |   |  |      |          |   |  |  |          |  
|--------------------------------------------- |  | ------------------ | ------- | - | ------- |  | ------- | ------- |  |  | -------- | - |  | ---- | -------- | - |  |  | -------- | -
|                                              |  | As of December 31, |        
|                                              |  |                    |        
|                                              |  | 2001(1)            |         |   | 2002(1) |  |         | 2003(2) |  |  | 2004(2)  |   |  | 2005 |         
|                                              |  |                    |         |   |         |  |         |         |  |  |          |   |  |      |         
|                                              |  | RMB                |         |   | RMB     |  |         | RMB     |  |  | RMB      |   |  | RMB  |         
|                                              |  | (in millions)      |        
|Other Financial Data                          |  |                    |         |   |         |  |         |         |  |  |          |   |  |      |          |   |  |  |          |  
|Dividend per share                            |  |                    | 0.12    |   |         |  | 0.12    |         |  |  | 0.18     |   |  |      | 0.26     |   |  |  | 0.34     |  
|Dividend per ADS                              |  |                    | 11.98   |   |         |  | 12.00   |         |  |  | 17.82    |   |  |      | 26.34    |   |  |  | 33.80    |  
|Capital expenditures                          |  |                    | (62,092 | ) |         |  | (75,496 | )       |  |  | (86,373  | ) |  |      | (98,946  | ) |  |  | (124,801 | )
|Cash Flow Data                                |  |                    |         |   |         |  |         |         |  |  |          |   |  |      |          |   |  |  |          |  
|IFRS                                          |  |                    |         |   |         |  |         |         |  |  |          |   |  |      |          |   |  |  |          |  
|Net cash provided by operating
    activities |  |                    | 83,864  |   |         |  | 98,989  |         |  |  | 139,570  |   |  |      | 141,691  |   |  |  | 203,885  |  
|Net cash used for investing
    activities    |  |                    | (62,027 | ) |         |  | (73,732 | )       |  |  | (102,549 | ) |  |      | (102,276 | ) |  |  | (91,576  | )
|Net cash used for financing
    activities    |  |                    | (28,817 | ) |         |  | (26,488 | )       |  |  | (35,593  | ) |  |      | (39,586  | ) |  |  | (42,634  | )








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain financial data for these periods and as of these dates
    are derived from our unaudited consolidated financial
    statements, not included in this annual report, and were
    retroactively restated. See the paragraphs preceding these
    tables for a detailed description.                                                                                                                                                                                                                                                                                    
|   
|(2) | Certain financial data for these periods and as of these dates
    are derived from our audited consolidated financial statements,
    not included in this annual report, and were retroactively
    restated. See the paragraphs preceding these tables for a
    detailed description.                                                                                                                                                                                                                                                                                      
|   
|(3) | Historical income per share for the years ended
    December 31, 2001, 2002, 2003 and 2004 has been calculated
    by dividing the net profit by the number of 175,824 million
    shares issued and outstanding for the periods presented.
    Historical income per share for the year ended December 31,
    2005 has been calculated by dividing the net profit by the
    weighted average number of 176,770 million shares issued
    and outstanding for the period presented.                                                                                          
|   
|(4) | Historical income per ADS for the years ended December 31,
    2001, 2002, 2003 and 2004 has been calculated by dividing the
    net profit by the number of 175,824 million shares issued
    and outstanding for the periods presented, assuming each ADS
    represents 100 H shares. Historical income per ADS for the
    year ended December 31, 2005 has been calculated by
    dividing the net profit by the weighted average number of
    176,770 million shares issued and outstanding for the
    period presented, assuming each ADS represents
    100 H shares.

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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 based on the FOB Singapore,
    Rotterdam and New York gasoline and diesel trading prices.
    Historically, international prices for crude oil and refined
    products have fluctuated widely in response to changes in many
    factors, such as global and regional economic and political
    developments and global and regional supply and demand for crude
    oil and refined products. We do not have, and will not have,
    control over the factors affecting international prices for
    crude oil and refined products. A decline in crude oil prices
    will reduce our crude oil revenues derived from external
    customers. If crude oil prices remain at a low level for a
    prolonged period, our company has to determine and estimate
    whether our oil and gas assets may suffer impairment losses and,
    if so, the amount of the impairment losses. An increase in crude
    oil prices may, however, increase the production costs of
    refined products. In addition, a decline in refined products
    prices will reduce our revenue derived from refining operations.
    An increase in the refined products prices, however, will
    increase the production costs of chemical products which use
    refined products as raw materials.
    The crude oil and natural gas reserve data in this annual report
    are only estimates. The reliability of reserve estimates depend
    on a number of factors, assumptions and variables, such as the
    quality and quantity of our technical and economic data and the
    prevailing oil and gas prices applicable to our production, many
    of which are beyond our control and may prove to be incorrect
    over time. Results of drilling, testing and production after the
    date of the estimates may require substantial upward or downward
    revisions in our reserve data. Our actual production, revenues
    and expenditures with respect to our reserves may differ
    materially from these estimates because of these revisions.
    Our proved crude oil reserves decreased gradually and modestly
    from 2001 to 2003 because the decrease in the crude oil reserves
    in our Daqing and Liaohe oil regions could not be offset by the
    increase in the crude oil reserves in our oil regions in
    northwestern China, such as the Xinjiang oil region, the
    Changqing oil and gas region and the Tarim oil region. Although
    our proved crude oil reserves increased slightly in 2004 mainly
    as a result of the increases in the crude oil reserves in our
    Xinjiang and Changqing oil regions, we cannot assure you that we
    will be able to increase or maintain our crude oil reserves in
    the future by our exploration activities in China. We are
    actively pursuing business opportunities outside China to
    supplement our domestic resources. For instance, 2005, we
    acquired certain overseas crude oil and natural gas assets from
    CNPC. We cannot assure you, however, that we can successfully
    locate sufficient alternative sources of crude oil supply or at
    all due to the complexity of the international political,
    economic and other conditions. If we fail to obtain sufficient
    alternative sources of crude oil supply, our results of
    operations and financial condition may be materially and
    adversely affected.
    The United States Securities and Exchange Commission, as
    required by Section 404 of the Sarbanes-Oxley Act of 2002,
    adopted rules requiring every public company in the United
    States to include a management report on such companys
    internal controls over financial reporting in its annual report,
    which contains managements assessment of the effectiveness
    of the companys internal controls over financial
    reporting. In addition, an independent registered public
    accounting firm must attest to and report on managements
    assessment of the effectiveness of the companys internal
    controls over financial reporting. These requirements first
    apply to our annual report on
    Form 20-F for the
    fiscal year ending December 31,

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2006. Our management may conclude that our internal controls
    over our financial reporting are not effective. Moreover, even
    if our management concludes that our internal controls over
    financial reporting are effective, our independent registered
    public accounting firm may still be unable to attest to our
    managements assessment or may issue a report that
    concludes that our internal controls over financial reporting
    are not effective. In preparation for the implementation of the
    requirements of Section 404, we have contributed
    substantial financial resources and managements time and
    other resources to undertake company-wide documentation of
    internal controls, perform the system and process evaluation and
    test required. During the course of our evaluation,
    documentation and attestation, we have identified as of the date
    hereof certain deficiencies that could adversely affect our
    ability to record, process, summarize and report financial data
    consistent with our managements assertions in our
    financial statements. Although we have planned to commence
    remedial measures to make necessary improvements, we cannot
    assure you that we will be able to remedy those identified
    deficiencies in time to meet the deadline imposed by the
    Sarbanes-Oxley Act for compliance with the requirements of
    Section 404. We are also in the process of conducting
    further evaluation of our internal control over financial
    reporting and may identify other deficiencies that we may not be
    able to remedy in time by the deadline for compliance with
    Section 404. If we fail to achieve and maintain the
    adequacy of our internal controls, we may not be able to
    conclude that we have effective internal controls, on an ongoing
    basis, over financial reporting in accordance with the
    Sarbanes-Oxley Act. Moreover, effective internal controls are
    necessary for us to produce reliable financial reports and are
    important to prevent fraud. As a result, our failure to achieve
    and maintain effective internal controls over financial
    reporting could result in the loss of investor confidence in the
    reliability of our financial statements, which in turn could
    harm our business and negatively impact the trading prices of
    our ADSs or H shares.
    Exploring for, producing and transporting crude oil and natural
    gas and producing and transporting refined products and chemical
    products involve many hazards. These hazards may result in:


    fires;
    explosions;
    spills;
    blow-outs; and
    other unexpected or dangerous conditions causing personal
    injuries or death, property damage, environmental damage and
    interruption of operations.

Some of our oil and natural gas fields are surrounded by
    residential areas or located in areas where natural disasters,
    such as earthquakes, floods and sandstorms, tend to occur more
    frequently than in other areas. As with many other companies
    around the world that conduct similar businesses, we have
    experienced accidents that have caused property damage and
    personal injuries and death.Significant operating hazards and natural disasters may cause
    partial interruptions to our operations and property and
    environmental damage that could have an adverse impact on our
    financial condition. On November 13, 2005, an explosion
    occurred at a dianil plant of Jilin Petrochemical Company, our
    branch company in Jilin Province. The incident caused serious
    personal injuries and deaths, loss of property and water
    pollution of the Songhuajing River. The Chinese government is
    currently investigating the cause of this incident and we will,
    in accordance with the result of such investigation, take
    responsibility for this incident. We cannot assure you that the
    result of such investigation will not have a material adverse
    effect on our financial condition or results of operations.

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


    CNPC owns approximately 88.21% of our share capital. This
    ownership percentage enables CNPC to elect our entire board of
    directors without the concurrence of any of our other
    shareholders. Accordingly, CNPC is in a position to:

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

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


    In addition to its relationship with us as our controlling
    shareholder, CNPC by itself or through its affiliates also
    provides us with certain services and products necessary for our
    business activities, such as construction and technical
    services, production services and supply of material services.
    The interests of CNPC and its affiliates as providers of these
    services and products to us may conflict with our interests.
    Although we have entered into a Comprehensive Products and
    Services Agreement with CNPC and our transactions with CNPC over
    the past three years have been conducted on open, fair and
    competitive commercial terms, we have only limited leverage in
    negotiating with CNPC and its affiliates over the specific terms
    of the agreements for the provision of these services and
    products.
    The eastern and southern regions of China have a higher demand
    for refined products and chemical products than the western and
    northern regions. Most of our refineries and chemical plants are
    located in the western and northern regions of China. While we
    continue to expand the sales of these products in the eastern
    and southern regions of China, we face strong competition from
    Sinopec and China National Offshore Oil Corp, or CNOOC. In
    addition, we incur relatively higher transportation costs for
    delivery of our refined products and chemical products to
    certain areas of these regions from our refineries and chemical
    plants in western and northern China. As a result, we expect
    that we will continue to encounter difficulty in increasing our
    sales of refined products and chemical products in these regions.
    We are currently constructing and renovating several natural gas
    pipelines and plan to construct and renovate other natural gas
    pipelines. In addition, we may, subject to obtaining requisite
    licenses from the relevant authority, commence offshore crude
    oil and natural gas exploration and production activities, which
    could require substantial capital expenditures and investments.
    We cannot assure you that the cash generated by our operations
    will be sufficient to fund these development plans or that our
    actual future capital expenditures and investments will not
    significantly exceed our current planned amounts. If either of
    these conditions arises, we may have to seek external financing
    to satisfy our capital needs. Under such circumstance, our
    inability to obtain sufficient funding for our development plans
    could adversely affect our business, financial condition and
    results of operations.

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
    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 and product-specific taxes and fees
    and environmental and safety standards. As a result, we may face
    significant constraints on our ability to implement our business
    strategies, to develop or expand our business operations or to
    maximize our profitability. 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.
    Prior to 2005, our company performed capping or plugging on
    wellheads and surface facilities that could be salvaged for
    alternative use. For safety reasons, our company also performed
    capping or plugging on certain wells that were considered to be
    in areas with extensive human use at the time of the
    abandonment. Our company, however, did not perform capping or
    plugging on wells that were neither considered to be in areas
    with extensive human use nor could be salvaged for alternative
    use. Consequently, such wellheads and surface facilities were
    left at their original sites after the wells were retired.The Environmental Protection Regulation for Oil and Gas
    Exploration and Production Activities in Heilongjiang
    Province and the Environmental Protection Regulation for
    Oil and Gas Exploration and Production Activities in Gansu
    Province were issued in mid and late 2005. Based on our
    reading of the new provincial regulations and in consultation
    with the environmental administrative authorities in
    Heilongjiang and Gansu provinces, we believe that such
    regulations only apply to the oil and gas properties retired
    after these regulations were issued in 2005. Accordingly, our
    company established standard abandonment procedures, requesting
    that all of its branch and subsidiary companies recognize asset
    retirement provisions for their currently used oil and gas
    properties.Our company believes it had no obligation to adopt such
    abandonment procedures prior to the issuance of the new
    regulations in 2005. For the oil and gas properties that were
    retired prior to the issuance of such regulations, the
    activities required to retire these assets, at a level that
    would be in compliance with the regulations and our internal
    policy, have not been performed. The costs associated with these
    activities have not been included in the asset retirement
    obligations accrued during 2005. However, Heilongjiang Province
    and Gansu Province could enact new regulations, amend the
    current regulations or retroactively apply the relevant
    requirements. If any of these regulations is determined to be
    applicable to assets other than those that were retired
    subsequent to the dates that these regulations were issued in
    2005, we could be required to incur substantial costs associated
    with such asset retirement obligations. In addition, we cannot
    assure you that the provincial governments other than
    Heilongjiang Province and Gansu Province will not

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enact new regulations which will require our company to perform
    additional asset retirement activities related to the assets
    retired before the establishment of our companys internal
    policy and areas in which these assets were or continue to be
    located.We recently received comments from the Securities and Exchange
    Commission regarding the costs associated with our asset
    retirement obligation in our
    Form 20-F for the
    fiscal year ended December 31, 2004. We have responded to
    such comments and our last response letter was filed on
    May 24, 2006. As of the latest practicable date, we have
    not received any further comments.


    Because PRC laws, regulations and legal requirements dealing
    with economic matters are relatively new and continue to evolve,
    and because of the limited volume of published judicial
    interpretations and the non-binding nature of prior court
    decisions, the interpretation and enforcement of these laws,
    regulations and legal requirements involve some uncertainty. We
    have included the Mandatory Provisions and certain additional
    requirements that are imposed by the Hong Kong Stock Exchange
    Listing Rules in our Articles of Association for the purpose of
    reducing the scope of difference between the Hong Kong company
    law and the PRC Company Law. However, because the PRC Company
    Law is different in certain important aspects from company laws
    in the United States, Hong Kong and other common law
    jurisdictions and because the PRC securities laws and
    regulations are still at an early stage of development, you may
    not enjoy shareholders protections that you may be
    entitled to in other jurisdictions.
    In addition to the adverse effect on our revenues, margins and
    profitability from any future fall in oil and natural gas
    prices, a prolonged period of low prices or other indicators
    would lead to a review for impairment of our oil and natural gas
    properties. This review would reflect managements view of
    long-term oil and natural gas prices. Such a review could result
    in a charge for impairment which could have a significant effect
    on our results of operations in the period in which it occurs.See also Item 4  Information on the
Company  Regulatory Matters,
Item 5  Operating and Financial Review and
Prospects, Item 8  Financial
Information and Item 11 
Quantitative and Qualitative Disclosures About Market Risk.

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ITEM 4  INFORMATION ON THE COMPANY





Introduction

History and Development of the Company



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




    the exploration, development, production and sale of crude oil
    and natural gas;
    the refining, transportation, storage and marketing of crude oil
    and petroleum products;
    the production and marketing of basic petrochemical products,
    derivative chemical products and other chemical products; and
    the transmission and storage of crude oil, refined products and
    natural gas as well as the 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, 2005, we had total revenue
of RMB 552,229 million and net income of
RMB 133,362 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, 2005, we had
estimated proved reserves of approximately 11,536.2 million
barrels of crude oil and approximately 48,123.1 billion
cubic feet of natural gas. We believe that we hold production
licenses for a majority of Chinas proved crude oil
reserves and proved natural gas reserves. In the year ended
December 31, 2005, we produced 822.9 million barrels
of crude oil and 1,119.5 billion cubic feet of natural gas
for sale, representing an average production of
2.25 million barrels of crude oil and 3.07 billion
cubic feet of sales natural gas per day. In 2005, we sold
788.8 million barrels of crude oil and 1,052.2 billion
cubic feet of natural gas. Approximately 83% of the crude oil we
sold in the year ended December 31, 2005 was supplied to
our refineries.

We commenced limited refining activities in the mid-1950s, when
we began producing gasoline and diesel at refineries in the
Yumen oil region. We now operate 25 refineries located in
eight provinces, three autonomous regions and one municipality.
In 2005, our refineries processed approximately 752 million
barrels of crude oil or an average of 2.06 million barrels
per day. In the year ended December 31, 2005, we produced
approximately 66.39 million tons of gasoline, diesel and
kerosene and sold approximately 75.98 million tons of these
products. In the year ended December 31, 2005,
approximately 89% of the crude oil processed in our refineries
was provided by our exploration and production segment and
approximately 10% of the crude oil processed in our refineries
was imported. As of December 31, 2005, our retail
distribution network consisted of 15,908 service stations
that we own and operate, 427 service stations wholly owned
by CNPC or jointly owned by CNPC and third parties to which we
provide supervisory support and 1,829 franchise service
stations.

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

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

We are Chinas largest natural gas transporter and seller
in terms of sales volume. Our natural gas transmission and
marketing activities commenced in Sichuan in southwestern China
in the 1950s. In 2005, our sales of natural gas totaled
1,052.2 billion cubic feet, of which 888.8 billion
cubic feet was sold through our natural gas and pipeline
segment. As of December 31, 2005, we owned and operated
regional natural gas pipeline networks consisting of
20,340 kilometers of pipelines, of which
19,212 kilometers were operated by our natural gas and
pipeline segment. As of December 31, 2005, we owned and
operated a crude oil pipeline network consisting of
9,391 kilometers of pipelines with an average daily
throughput of approximately 2.39 million barrels of crude
oil. As of December 31, 2005, we also had a refined product
pipeline network consisting of 2,462 kilometers of
pipelines with an average daily throughput of approximately
32,630 tons of refined products.

We have increased our efforts to pursue attractive business
opportunities outside China as part of our business growth
strategy to utilize both domestic and international resources to
strengthen our competitiveness. In connection with this
objective, after our acquisition of Devon Energy Indonesia
Limited from Devon Energy Corporation for a price of
RMB 2,068 million in April 2002 and our acquisition of
a 50% equity interest in Amerada Hess Indonesia Holdings Limited
in April 2003, in June 2005, we entered into a capital
contribution agreement with CNODC, Central Asia Petroleum
Company Limited and Newco, pursuant to which, in December 2005,
we acquired a 50% interest in Newco, a subsidiary of CNODC, for
a consideration of RMB 20,741 million, which was paid
to Newco as our capital contribution. Under this agreement,
CNODC, a wholly owned subsidiary of CNPC, transferred certain of
its overseas oil and natural gas assets to Newco in November
2005. Following the completion of the transactions contemplated
by this agreement, each of CNODC and us obtained a 50% interest
in Newco. We have the right to appoint four of the seven
directors of Newco, which enables us to maintain effective
control over Newco. We also entered into a transfer agreement
with Newco in December 2005 to transfer all of our interest in
PTRI, the operating entity of our oil and natural gas assets in
Indonesia, to Newco for a consideration of
RMB 579 million.

Following the completion of the acquisition of Newco through
capital contribution, we obtained a 50% interest in the oil and
natural gas assets held by Newco in twelve countries, including,
among others, Kazakhstan, Venezuela and Peru. The consummation
of the transactions described above significantly expanded our
overseas operations, effectively increased the level of our oil
and gas reserves and production volumes, and streamlined our
existing overseas business in Indonesia with the acquired
businesses.

CNODC plans to transfer its 50% interest in Newco to CNPC, which
will result in CNPC holding the 50% interest in Newco directly.

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

In the year ended December 31, 2005, we imported
approximately 184.9 million barrels of crude oil, as
compared to 175.1 million and 123.9 million barrels of
crude oil in the years ended December 31, 2004 and 2003,
respectively.



AcquisitionsPursuant to our board resolutions dated October 26, 2005,
we made an offer to the holders of the A Shares of Jinzhou
Petrochemical Co., Ltd. or Jinzhou Petrochemical, to acquire at
the purchase price of RMB 4.25 per share 150 million
issued and outstanding Jinzhou Petrochemical A Shares. As
of December 31, 2005, we acquired 117,486,753 Jinzhou
Petrochemical A Shares, representing 14.92% of the total
share capital of Jinzhou Petrochemical, for a total cash
consideration of approximately RMB 500 million. After
the acquisition, we own 95.87% of the total

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share capital of Jinzhou Petrochemical. Jinzhou Petrochemical
was delisted on January 4, 2006 upon approval from the
China Securities Regulatory Commission.

Pursuant to our board resolutions dated October 26, 2005,
we made separate offers to the holders of the A Shares of
Jilin Chemical Industrial Company Limited (Jilin
Chemical) and the holders of the H Shares of Jilin
Chemical to acquire at the purchase price of RMB 5.25 per
share of 200 million outstanding A Shares, and to
acquire at the purchase price of HK$2.80 per Jilin Chemical
H Share 964.778 million outstanding H Shares
(including Jilin Chemical ADSs). By February 2006, we have paid
an aggregate of RMB 3,480 million for this
transaction. The tender offers were completed in February 2006.
The effect of the acquisition of Jilin Chemical will be
reflected in our consolidated financial statements ended as of
December 31, 2006. Jilin Chemical A Shares,
H Shares and ADSs were delisted from the Hong Kong Stock
Exchange, Shenzhen Stock Exchange and NYSE on January 23,
February 20 and February 15, 2006, respectively.

Pursuant to our board resolutions dated October 26, 2005,
we made an offer to the holders of A Shares of Liaohe Jinma
Oilfield Co., Ltd. or Liaohe Jinma, to acquire at the purchase
price of RMB 8.80 per share 200 million issued and
outstanding Liaohe Jinma A Shares. As of December 31,
2005, we acquired 172,315,428 Liaohe Jinma A Shares,
representing 15.67% of the total share capital of Liaohe Jinma
for a total consideration of approximately
RMB 1,519 million. Following the completion of this
acquisition, we would own 97.48% of the total share capital of
Liaohe Jinma. Upon the approval by China Securities Regulatory
Commission, Liaohe Jinma was delisted as at January 4, 2006.

On December 6, 2005, we executed two separate purchase
agreements with two wholly-owned subsidiaries of CNPC, Liaohe
Petroleum Exploration Bureau and China Petroleum Pipeline
Bureau, whereby, we would acquire from the two companies a
15.56% equity interest and a 20.17% equity interest,
respectively, in PetroChina Fuel Oil Company (the Fuel Oil
Company), a 55.43% subsidiary of our company, with a total
cash consideration of RMB 559 million. The Fuel Oil
Company principally engages in investing in and developing of
fuel oil in the upstream and downstream areas outside the PRC.
Upon completion of the above acquisitions, our companys
interest in the Fuel Oil Company will be increased and the
management of the Fuel Oil Company is expected to be
strengthened. This acquisition has been approved by the
State-owned Assets Supervision and Administration Commission of
the PRC (SASAC) and the relevant parties to the two
purchase agreements are in the process of closing the
transactions.



Our Corporate Organization and Shareholding
    StructurePetroChina 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 and liabilities 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. In September 2005,
PetroChina completed a follow-on offering of over 3 billion
H Shares at the price of HK$6.00 per share. Currently, CNPC
owns an approximate 88.21% interest in PetroChina.

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The following chart illustrates 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 and operated by
    such segment.(4)
    Includes PetroChina Planning & Engineering Institute,
    PetroChina Exploration & Development Research
    Institute, Newco, Foreign Cooperation Managing Division,
    PetroChina International Co., Ltd. and PetroChina
    Refining & Chemicals Technology Research Center.

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The following chart illustrates our management structure:

(CHART)





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

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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.

Launch of New Logo

Effective December 26, 2004, we began using a new logo
(PETROCHINA COMPANY LOGO)
that is jointly owned by us and CNPC. We have filed an
application to register the new logo as a trademark with the
State Trademark Bureau of the PRC.

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(MAP)

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Exploration and Production

We are engaged in crude oil and natural gas exploration,
development and production. Substantially all of our total
estimated proved crude oil and natural gas reserves are located
in China, principally in northeastern, northern, southwestern
and northwestern China. The Songliao basin, located in
Heilongjiang and Jilin provinces in northeastern China,
including the Daqing and Jilin oil regions, accounted for 44% of
our proved crude oil reserves as of December 31, 2005 and
45.6% of our crude oil production in 2005. 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 19.8% of our
proved crude oil reserves as of December 31, 2005 and 20.0%
of our crude oil production in 2005. Our proved natural gas
reserves and production are generally concentrated in
northwestern and southwestern China, specifically in the Erdos,
Tarim and Sichuan basins. Our overseas proved crude oil reserves
and proved natural gas reserves accounted for 5.2% of our proved
crude oil reserves and 1.7% of our proved natural gas reserves
as of December 31, 2005 and 5.5% of our crude oil
production and 4.2% of our natural gas production in 2005.

We currently hold exploration licenses covering a total area of
approximately 438.7 million acres and production licenses
covering a total area of approximately 16.2 million acres.
In 2005, our exploration and production segment had income from
operations of RMB 208,080 million.

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

Reserves

Our estimated proved reserves as of December 31, 2005
totaled approximately 11,536.2 million barrels of crude oil
and approximately 48,123.1 billion cubic feet of natural
gas. As of December 31, 2005, proved developed reserves
accounted for 79.7% and 41.3% of our total proved crude oil and
natural gas reserves, respectively. Total proved hydrocarbon
reserves on a barrels-of-oil equivalent basis increased by 2.7%
from approximately 19,042.7 million barrels-of-oil
equivalent as of the end of 2004 to approximately
19,556.7 million barrels-of-oil equivalent as of the end of
2005, taking account of our overseas crude oil reserves of
601 million barrels and overseas natural gas reserves of
799.8 billion cubic feet, totaling
734.3 barrels-of-oil equivalent. Natural gas as a
percentage of total proved hydrocarbon reserves increased from
39.6% as of December 31, 2004 to 41.0% as of
December 31, 2005.

The following table sets forth our estimated proved reserves
(including proved developed reserves and proved undeveloped
reserves) and proved developed reserves of crude oil and natural
gas as of December 31, 2003, 2004 and 2005. We prepared our
reserve estimates as of December 31, 2003, 2004 and 2005,
on the basis of a report prepared by DeGolyer & MacNaughton
and Gaffney, Cline & Associates, 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

26



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##### Table of Contents

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

|                                              |                                 |                       |          |         |                |  |          |                    |   |  |          |          |  
|--------------------------------------------- | ------------------------------- | --------------------- | -------- | ------- | -------------- |  | -------- | ------------------ | - |  | -------- | -------- | -
|                                              |                                 | Crude oil             |          |         | Natural gas(1) |  |          | Combined(1)        |  
|                                              |                                 |                       |          |         |                |  |          |                    |  
|                                              |                                 | (millions of barrels) |          |         | (Bcf)          |  |          | (BOE, in millions) |  
|Proved developed and undeveloped
    reserves |                                 |                       |          |         |                |  |          |                    |   |  |          |         
|Reserves as of December 31,
    2003          |                                 |                       | 11,494.9 |         |                |  | 41,786.5 |                    |   |  | 18,459.3 |         
|                                              | Revisions of previous estimates |                       |          | 141.6   |                |  |          | 82.8               |   |  |          | 155.4    |  
|                                              | Extensions and discoveries      |                       |          | 573.1   |                |  |          | 4,405.3            |   |  |          | 1,307.3  |  
|                                              | Improved recovery               |                       |          | 109.0   |                |  |          | 43.0               |   |  |          | 116.2    |  
|                                              | Production for the year         |                       |          | (817.4  | )              |  |          | (1,068.7           | ) |  |          | (995.5   | )
|Reserves as of December 31,
    2004          |                                 |                       | 11,501.2 |         |                |  | 45,248.9 |                    |   |  | 19,042.7 |         
|                                              | Revisions of previous estimates |                       |          | 156.8   |                |  |          | 212.9              |   |  |          | 192.3    |  
|                                              | Extensions and discoveries      |                       |          | 605.5   |                |  |          | 4,004.8            |   |  |          | 1,273.0  |  
|                                              | Improved recovery               |                       |          | 101.4   |                |  |          |                   |   |  |          | 101.4    |  
|                                              | Production for the year         |                       |          | (828.7  | )              |  |          | (1,343.5           | ) |  |          | (1,052.7 | )
|Reserves as of December 31,
    2005          |                                 |                       | 11,536.2 |         |                |  | 48,123.1 |                    |   |  | 19,556.7 |         
|Proved developed
    reserves                 |                                 |                       |          |         |                |  |          |                    |   |  |          |         
|                                              | As of December 31, 2003         |                       |          | 9,188.1 |                |  |          | 13,878.7           |   |  |          | 11,501.2 |  
|                                              | As of December 31, 2004         |                       |          | 9,067.9 |                |  |          | 17,254.5           |   |  |          | 11,943.6 |  
|                                              | As of December 31, 2005         |                       |          | 9,194.8 |                |  |          | 19,857.8           |   |  |          | 12,504.4 |  






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



|                     |       |                       |         |          |           |  |           |             |  |  |           |           |  |             |         |         |           |  |         |          |  |  |         |         | 
|-------------------- | ----- | --------------------- | ------- | -------- | --------- |  | --------- | ----------- |  |  | --------- | --------- |  | ----------- | ------- | ------- | --------- |  | ------- | -------- |  |  | ------- | ------- | 
|                     |       | As of December 31,    |        
|                     |       |                       |        
|                     |       | 2003                  |         |          | 2004      |  |           | 2005        | 
|                     |       |                       |         |          |           |  |           |             | 
|                     |       | 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               |       |                       | 4,832.3 |          |           |  | 4,407.7   |             |  |  | 4,615.0   |           |  |             | 4,122.3 |         |           |  | 4,396.9 |          |  |  | 3,863.9 |        
|Liaohe               |       |                       | 1,168.5 |          |           |  | 965.0     |             |  |  | 1,123.1   |           |  |             | 915.1   |         |           |  | 1,114.6 |          |  |  | 937.5   |        
|Xinjiang             |       |                       | 1,186.9 |          |           |  | 930.9     |             |  |  | 1,232.1   |           |  |             | 921.9   |         |           |  | 1,261.8 |          |  |  | 1,010.8 |        
|Changqing            |       |                       | 1,063.6 |          |           |  | 706.9     |             |  |  | 1,191.6   |           |  |             | 769.6   |         |           |  | 1,267.0 |          |  |  | 840.6   |        
|Jilin                |       |                       | 585.9   |          |           |  | 367.0     |             |  |  | 643.8     |           |  |             | 404.4   |         |           |  | 675.0   |          |  |  | 472.2   |        
|Dagang               |       |                       | 452.1   |          |           |  | 361.0     |             |  |  | 482.3     |           |  |             | 402.0   |         |           |  | 516.1   |          |  |  | 426.7   |        
|Tarim                |       |                       | 553.9   |          |           |  | 342.2     |             |  |  | 507.6     |           |  |             | 374.8   |         |           |  | 543.8   |          |  |  | 418.1   |        
|Huabei               |       |                       | 486.1   |          |           |  | 335.8     |             |  |  | 510.3     |           |  |             | 353.9   |         |           |  | 536.2   |          |  |  | 381.5   |        
|Qinghai              |       |                       | 229.7   |          |           |  | 182.8     |             |  |  | 226.1     |           |  |             | 181.2   |         |           |  | 243.0   |          |  |  | 185.5   |        
|Tuha                 |       |                       | 206.9   |          |           |  | 169.2     |             |  |  | 218.3     |           |  |             | 168.4   |         |           |  | 165.0   |          |  |  | 110.8   |        
|Sichuan              |       |                       | 7.1     |          |           |  | 3.9       |             |  |  | 8.6       |           |  |             | 5.3     |         |           |  | 8.0     |          |  |  | 5.5     |        
|Other
    regions(1) |       |                       | 721.9   |          |           |  | 415.7     |             |  |  | 742.4     |           |  |             | 449.0   |         |           |  | 808.8   |          |  |  | 541.7   |        
|                     |       |                       |         |          |           |  |           |             |  |  |           |           |  |             |         |         |           | 
|                     | Total |                       |         | 11,494.9 |           |  |           | 9,188.1     |  |  |           | 11,501.2  |  |             |         | 9,067.9 |           |  |         | 11,536.2 |  |  |         | 9,194.8 | 
|                     |       |                       |         |          |           |  |           |             |  |  |           |           |  |             |         |         |           | 

27



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##### Table of Contents



|                            |       |                    |          |          |           |  |           |             |  |  |           |           |  |             |         |          |           |  |          |          |  |  |         |          | 
|--------------------------- | ----- | ------------------ | -------- | -------- | --------- |  | --------- | ----------- |  |  | --------- | --------- |  | ----------- | ------- | -------- | --------- |  | -------- | -------- |  |  | ------- | -------- | 
|                            |       | As of December 31, |         
|                            |       |                    |         
|                            |       | 2003               |          |          | 2004      |  |           | 2005        | 
|                            |       |                    |          |          |           |  |           |             | 
|                            |       | Proved             |          |          |           |  | Proved    |             |  |  |           | Proved    |  |             |        
|                            |       | developed          |          |          |           |  | developed |             |  |  |           | developed |  |             |        
|                            |       | and                |          |          | Proved    |  |           | and         |  |  | Proved    |           |  | and         |         |          | Proved    | 
|                            |       | undeveloped        |          |          | developed |  |           | undeveloped |  |  | developed |           |  | undeveloped |         |          | developed | 
|                            |       |                    |          |          |           |  |           |             |  |  |           |           |  |             |         |          |           | 
|                            |       | (Bcf)              |         
|Natural gas
    reserves(2) |       |                    |          |          |           |  |           |             |  |  |           |           |  |             |         |          |           |  |          |          |  |  |         |         
|Sichuan                     |       |                    | 8,131.4  |          |           |  | 4,522.4   |             |  |  | 8,729.8   |           |  |             | 4,767.9 |          |           |  | 9,211.2  |          |  |  | 5,063.5 |         
|Changqing                   |       |                    | 12,976.3 |          |           |  | 3,847.6   |             |  |  | 14,932.7  |           |  |             | 4,091.3 |          |           |  | 15,765.6 |          |  |  | 4,089.8 |         
|Xinjiang                    |       |                    | 1,698.7  |          |           |  | 1,084.3   |             |  |  | 1,712.3   |           |  |             | 1,036.8 |          |           |  | 1,686.8  |          |  |  | 1,120.4 |         
|Daqing                      |       |                    | 1,122.9  |          |           |  | 946.5     |             |  |  | 1,060.6   |           |  |             | 879.4   |          |           |  | 1,936.8  |          |  |  | 813.3   |         
|Qinghai                     |       |                    | 3,379.7  |          |           |  | 889.9     |             |  |  | 4,603.6   |           |  |             | 1,583.4 |          |           |  | 4,534.1  |          |  |  | 1,528.0 |         
|Tarim                       |       |                    | 11,086.6 |          |           |  | 528.7     |             |  |  | 10,897.8  |           |  |             | 2,934.8 |          |           |  | 11,838.8 |          |  |  | 5,347.9 |         
|Liaohe                      |       |                    | 571.8    |          |           |  | 507.5     |             |  |  | 522.7     |           |  |             | 455.4   |          |           |  | 489.8    |          |  |  | 417.6   |         
|Tuha                        |       |                    | 711.6    |          |           |  | 430.1     |             |  |  | 705.3     |           |  |             | 427.8   |          |           |  | 677.4    |          |  |  | 367.8   |         
|Huabei                      |       |                    | 386.0    |          |           |  | 227.3     |             |  |  | 375.9     |           |  |             | 217.5   |          |           |  | 369.3    |          |  |  | 211.8   |         
|Dagang                      |       |                    | 609.5    |          |           |  | 201.9     |             |  |  | 599.5     |           |  |             | 186.8   |          |           |  | 586.9    |          |  |  | 207.8   |         
|Jilin                       |       |                    | 191.9    |          |           |  | 134.4     |             |  |  | 203.9     |           |  |             | 150.4   |          |           |  | 187.8    |          |  |  | 132.7   |         
|Other
    regions(1)        |       |                    | 920.1    |          |           |  | 558.1     |             |  |  | 904.8     |           |  |             | 523     |          |           |  | 838.6    |          |  |  | 557.2   |         
|                            |       |                    |          |          |           |  |           |             |  |  |           |           |  |             |         |          |           | 
|                            | Total |                    |          | 41,786.5 |           |  |           | 13,878.7    |  |  |           | 45,248.9  |  |             |         | 17,254.5 |           |  |          | 48,123.1 |  |  |         | 19,857.8 | 
|                            |       |                    |          |          |           |  |           |             |  |  |           |           |  |             |         |          |           | 






|    |                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the Jidong and Yumen oil regions and our overseas oil
    and gas fields as a result of our acquisition of overseas assets.
|   
|(2) | Represents natural gas remaining after field separation for
    condensate removal and reduction for flared gas.                      

28



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##### Table of Contents

Exploration and Development

We are currently conducting exploration and development efforts
in 11 provinces, two municipalities under the direct
administration of the central government and three autonomous
regions in China. In September 2002, the State Development
Planning Commission, the predecessor of the National Development
and Reform Commission, approved our proposal to explore, in
cooperation with foreign companies, fifteen additional crude oil
and natural gas fields with an aggregate area of
75,071 square kilometers located in Qaidam 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 |    
|     |  |                                      |  |        |       |  |          |  |       |        |  |  |           |  |  |        |       |  |        |  |     |         |  |  |           |  |  |       |    
|2003 |  | Net exploratory wells
    drilled(2) |  |        | 291   |  |          |  | 170   |        |  |  | 103       |  |  |        | 371   |  |        |  | 82  |         |  |  | 46        |  |  |       | 25  |  |  |  | 287   |  |  |  | 1,375  | 
|     |  | Crude oil                            |  |        | 140   |  |          |  | 115   |        |  |  | 57        |  |  |        | 128   |  |        |  | 49  |         |  |  | 25        |  |  |       | 0   |  |  |  | 99    |  |  |  | 613    | 
|     |  | Natural gas                          |  |        | 1     |  |          |  | 11    |        |  |  | 2         |  |  |        | 22    |  |        |  | 0   |         |  |  | 0         |  |  |       | 12  |  |  |  | 5     |  |  |  | 53     | 
|     |  | Dry(3)                               |  |        | 150   |  |          |  | 44    |        |  |  | 44        |  |  |        | 221   |  |        |  | 33  |         |  |  | 21        |  |  |       | 13  |  |  |  | 183   |  |  |  | 709    | 
|     |  | Net development wells
    drilled(2) |  |        | 2,986 |  |          |  | 1,363 |        |  |  | 547       |  |  |        | 1,677 |  |        |  | 244 |         |  |  | 202       |  |  |       | 61  |  |  |  | 1,192 |  |  |  | 8,272  | 
|     |  | Crude oil                            |  |        | 2,975 |  |          |  | 1,354 |        |  |  | 528       |  |  |        | 1,489 |  |        |  | 241 |         |  |  | 199       |  |  |       | 8   |  |  |  | 1,173 |  |  |  | 7,967  | 
|     |  | Natural gas                          |  |        | 4     |  |          |  | 4     |        |  |  | 8         |  |  |        | 134   |  |        |  | 0   |         |  |  | 3         |  |  |       | 36  |  |  |  | 17    |  |  |  | 206    | 
|     |  | Dry(3)                               |  |        | 7     |  |          |  | 5     |        |  |  | 11        |  |  |        | 54    |  |        |  | 3   |         |  |  | 0         |  |  |       | 17  |  |  |  | 2     |  |  |  | 99     | 
|2004 |  | Net exploratory wells
    drilled(2) |  |        | 221   |  |          |  | 153   |        |  |  | 68        |  |  |        | 427   |  |        |  | 96  |         |  |  | 53        |  |  |       | 32  |  |  |  | 355   |  |  |  | 1,405  | 
|     |  | Crude oil                            |  |        | 85    |  |          |  | 85    |        |  |  | 40        |  |  |        | 201   |  |        |  | 49  |         |  |  | 32        |  |  |       | 4   |  |  |  | 172   |  |  |  | 668    | 
|     |  | Natural gas                          |  |        | 3     |  |          |  | 0     |        |  |  | 0         |  |  |        | 22    |  |        |  | 0   |         |  |  | 0         |  |  |       | 17  |  |  |  | 9     |  |  |  | 51     | 
|     |  | Dry(3)                               |  |        | 133   |  |          |  | 68    |        |  |  | 28        |  |  |        | 204   |  |        |  | 47  |         |  |  | 21        |  |  |       | 11  |  |  |  | 174   |  |  |  | 686    | 
|     |  | Net development wells
    drilled(2) |  |        | 2,857 |  |          |  | 1,440 |        |  |  | 622       |  |  |        | 1,675 |  |        |  | 224 |         |  |  | 188       |  |  |       | 76  |  |  |  | 1,463 |  |  |  | 8,545  | 
|     |  | Crude oil                            |  |        | 2,853 |  |          |  | 1,440 |        |  |  | 605       |  |  |        | 1,597 |  |        |  | 223 |         |  |  | 184       |  |  |       | 6   |  |  |  | 1,387 |  |  |  | 8,295  | 
|     |  | Natural gas                          |  |        | 4     |  |          |  | 0     |        |  |  | 13        |  |  |        | 46    |  |        |  | 1   |         |  |  | 3         |  |  |       | 56  |  |  |  | 73    |  |  |  | 196    | 
|     |  | Dry(3)                               |  |        | 0     |  |          |  | 0     |        |  |  | 4         |  |  |        | 32    |  |        |  | 0   |         |  |  | 1         |  |  |       | 14  |  |  |  | 3     |  |  |  | 54     | 
|2005 |  | Net exploratory wells
    drilled(2) |  |        | 250   |  |          |  | 191   |        |  |  | 71        |  |  |        | 456   |  |        |  | 83  |         |  |  | 39        |  |  |       | 58  |  |  |  | 360   |  |  |  | 1,508  | 
|     |  | Crude oil                            |  |        | 78    |  |          |  | 92    |        |  |  | 47        |  |  |        | 200   |  |        |  | 53  |         |  |  | 22        |  |  |       | 0   |  |  |  | 152   |  |  |  | 644    | 
|     |  | Natural gas                          |  |        | 6     |  |          |  | 1     |        |  |  | 0         |  |  |        | 24    |  |        |  | 0   |         |  |  | 0         |  |  |       | 30  |  |  |  | 15    |  |  |  | 76     | 
|     |  | Dry(3)                               |  |        | 166   |  |          |  | 98    |        |  |  | 24        |  |  |        | 232   |  |        |  | 30  |         |  |  | 17        |  |  |       | 28  |  |  |  | 193   |  |  |  | 788    | 
|     |  | Net development wells
    drilled(2) |  |        | 3,722 |  |          |  | 1,608 |        |  |  | 563       |  |  |        | 2,608 |  |        |  | 250 |         |  |  | 192       |  |  |       | 101 |  |  |  | 2,587 |  |  |  | 11,631 | 
|     |  | Crude oil                            |  |        | 3,712 |  |          |  | 1,604 |        |  |  | 549       |  |  |        | 2,364 |  |        |  | 248 |         |  |  | 188       |  |  |       | 6   |  |  |  | 2,495 |  |  |  | 11,166 | 
|     |  | Natural gas                          |  |        | 10    |  |          |  | 4     |        |  |  | 12        |  |  |        | 195   |  |        |  | 2   |         |  |  | 4         |  |  |       | 83  |  |  |  | 88    |  |  |  | 398    | 
|     |  | Dry(3)                               |  |        | 0     |  |          |  | 0     |        |  |  | 2         |  |  |        | 49    |  |        |  | 0   |         |  |  | 0         |  |  |       | 12  |  |  |  | 4     |  |  |  | 67     | 






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

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##### Table of Contents

Oil-and-Gas PropertiesThe 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, 2005.

|                     |       |                                |        |         |             |  |       |             |  |  |             |         |  |           |         |         |             |  |       |         |  |  |         |         | 
|-------------------- | ----- | ------------------------------ | ------ | ------- | ----------- |  | ----- | ----------- |  |  | ----------- | ------- |  | --------- | ------- | ------- | ----------- |  | ----- | ------- |  |  | ------- | ------- | 
|                     |       | 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               |       |                                | 40,157 |         |             |  | 144   |             |  |  | 725.9       |         |  |           | 61.1    |         |             |  | 604.6 |         |  |  | 93.7    |        
|Liaohe               |       |                                | 17,043 |         |             |  | 594   |             |  |  | 170.7       |         |  |           | 28.0    |         |             |  | 119.0 |         |  |  | 12.9    |        
|Xinjiang             |       |                                | 16,931 |         |             |  | 75    |             |  |  | 322.9       |         |  |           | 38.2    |         |             |  | 66.8  |         |  |  | 12.9    |        
|Jilin                |       |                                | 14,909 |         |             |  | 45    |             |  |  | 293.6       |         |  |           | 19.5    |         |             |  | 238.3 |         |  |  | 25.3    |        
|Changqing            |       |                                | 11,305 |         |             |  | 665   |             |  |  | 356.5       |         |  |           | 1,013.9 |         |             |  | 391.6 |         |  |  | 2,054.9 |        
|Huabei               |       |                                | 5,023  |         |             |  | 87    |             |  |  | 103.4       |         |  |           | 9.3     |         |             |  | 103.0 |         |  |  | 6.6     |        
|Dagang               |       |                                | 3,223  |         |             |  | 59    |             |  |  | 93.9        |         |  |           | 19.2    |         |             |  | 72.9  |         |  |  | 20.7    |        
|Tuha                 |       |                                | 1,141  |         |             |  | 58    |             |  |  | 36.7        |         |  |           | 13.4    |         |             |  | 18.6  |         |  |  | 19.1    |        
|Tarim                |       |                                | 661    |         |             |  | 125   |             |  |  | 128.1       |         |  |           | 116.3   |         |             |  | 52.3  |         |  |  | 91.7    |        
|Sichuan              |       |                                | 404    |         |             |  | 1,084 |             |  |  | 356.6       |         |  |           | 398.7   |         |             |  | 17.6  |         |  |  | 110.2   |        
|Other
    regions(2) |       |                                | 3,487  |         |             |  | 221   |             |  |  | 75.2        |         |  |           | 35.8    |         |             |  | 18.4  |         |  |  | 20.7    |        
|                     |       |                                |        |         |             |  |       |             |  |  |             |         |  |           |         |         |             | 
|                     | Total |                                |        | 114,284 |             |  |       | 3,157       |  |  |             | 2,663.5 |  |           |         | 1,753.4 |             |  |       | 1,703.1 |  |  |         | 2,468.7 | 
|                     |       |                                |        |         |             |  |       |             |  |  |             |         |  |           |         |         |             | 






|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(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.                                                                              



Production




|                                                                              |  |                    |       |  |      |  |       |      |  |  |            |  |  |  |       | 
|----------------------------------------------------------------------------- |  | ------------------ | ----- |  | ---- |  | ----- | ---- |  |  | ---------- |  |  |  | ----- | 
|                                                                              |  | For the year ended |       |  |     
|                                                                              |  | December 31,       |       |  |     
|                                                                              |  |                    |       |  | % of | 
|                                                                              |  | 2003               |       |  | 2004 |  |       | 2005 |  |  | 2005 total | 
|                                                                              |  |                    |       |  |      |  |       |      |  |  |            | 
|Crude oil
    production(1)                                                   |  |                    |       |  |      |  |       |      |  |  |            |  |  |  |       | 
|(thousands of barrels per day,
    except percentages or otherwise indicated) |  |                    |       |  |      |  |       |      |  |  |            |  |  |  |       | 
|Daqing                                                                        |  |                    | 985.3 |  |      |  | 942.0 |      |  |  | 915.1      |  |  |  | 40.59 | 
|Liaohe                                                                        |  |                    | 253.6 |  |      |  | 245.4 |      |  |  | 238.2      |  |  |  | 10.57 | 
|Xinjiang                                                                      |  |                    | 217.2 |  |      |  | 227.1 |      |  |  | 238.8      |  |  |  | 10.59 | 
|Changqing                                                                     |  |                    | 142.8 |  |      |  | 164.6 |      |  |  | 191.4      |  |  |  | 8.49  | 
|Tarim                                                                         |  |                    | 107.5 |  |      |  | 109.9 |      |  |  | 122.8      |  |  |  | 5.45  | 
|Huabei                                                                        |  |                    | 88.4  |  |      |  | 87.6  |      |  |  | 88.4       |  |  |  | 3.92  | 

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|                                                                                |                  |                    |        |         |      |  |       |         |  |  |            |         |  |  |      |       |  
|------------------------------------------------------------------------------- | ---------------- | ------------------ | ------ | ------- | ---- |  | ----- | ------- |  |  | ---------- | ------- |  |  | ---- | ----- | -
|                                                                                |                  | For the year ended |        |         |     
|                                                                                |                  | December 31,       |        |         |     
|                                                                                |                  |                    |        |         | % of | 
|                                                                                |                  | 2003               |        |         | 2004 |  |       | 2005    |  |  | 2005 total |        
|                                                                                |                  |                    |        |         |      |  |       |         |  |  |            |        
|Jilin                                                                           |                  |                    | 96.7   |         |      |  | 102.6 |         |  |  | 112.1      |         |  |  | 4.97 |      
|Dagang                                                                          |                  |                    | 84.7   |         |      |  | 97.9  |         |  |  | 102.6      |         |  |  | 4.55 |      
|Tuha                                                                            |                  |                    | 50.7   |         |      |  | 48.4  |         |  |  | 45.2       |         |  |  | 2.01 |      
|Other(2)                                                                        |                  |                    | 188.3  |         |      |  | 199.1 |         |  |  | 200.0      |         |  |  | 8.87 |      
|                                                                                |                  |                    |        |         |      |  |       |         |  |  |            |        
|                                                                                | Total            |                    |        | 2,215.2 |      |  |       | 2,224.6 |  |  |            | 2,254.5 |  |  |      | 100.0 | %
|                                                                                |                  |                    |        |         |      |  |       |         |  |  |            |        
|Annual production (million barrels)                                             |                  |                    | 808.6  |         |      |  | 814.2 |         |  |  | 822.9      |         |  |  |      |      
|Average sales price                                                             |                  |                    |        |         |      |  |       |         |  |  |            |         |  |  |      |      
|                                                                                | (RMB per barrel) |                    |        | 225.2   |      |  |       | 279.1   |  |  |            | 396.2   |  |  |      |       |  
|                                                                                | (US$ per barrel) |                    |        | 27.2    |      |  |       | 33.72   |  |  |            | 48.37   |  |  |      |       |  
|Natural gas
    production(1)(3)                                                |                  |                    |        |         |      |  |       |         |  |  |            |         |  |  |      |      
|(millions of cubic feet per day,
    except percentages or otherwise indicated) |                  |                    |        |         |      |  |       |         |  |  |            |         |  |  |      |      
|Sichuan                                                                         |                  |                    | 849.0  |         |      |  | 905.7 |         |  |  | 1,107.9    |         |  |  | 36.1 |      
|Changqing                                                                       |                  |                    | 440.3  |         |      |  | 651.4 |         |  |  | 640.7      |         |  |  | 20.9 |      
|Daqing                                                                          |                  |                    | 136.2  |         |      |  | 135.4 |         |  |  | 133.8      |         |  |  | 4.4  |      
|Qinghai                                                                         |                  |                    | 122.5  |         |      |  | 145.5 |         |  |  | 172.8      |         |  |  | 5.6  |      
|Tuha                                                                            |                  |                    | 82.6   |         |      |  | 92.2  |         |  |  | 121.1      |         |  |  | 3.9  |      
|Xinjiang                                                                        |                  |                    | 75.9   |         |      |  | 95.7  |         |  |  | 109.8      |         |  |  | 3.6  |      
|Liaohe                                                                          |                  |                    | 57.6   |         |      |  | 58.7  |         |  |  | 56.0       |         |  |  | 1.8  |      
|Huabei                                                                          |                  |                    | 45.8   |         |      |  | 44.2  |         |  |  | 43.5       |         |  |  | 1.4  |      
|Tarim                                                                           |                  |                    | 34.7   |         |      |  | 89.2  |         |  |  | 479.5      |         |  |  | 15.6 |      
|Dagang                                                                          |                  |                    | 27.8   |         |      |  | 26.5  |         |  |  | 26.2       |         |  |  | 0.9  |      
|Other(4)                                                                        |                  |                    | 165.2  |         |      |  | 149.8 |         |  |  | 175.9      |         |  |  | 5.8  |      
|                                                                                |                  |                    |        |         |      |  |       |         |  |  |            |        
|                                                                                | Total            |                    |        | 2,037.6 |      |  |       | 2,394.3 |  |  |            | 3,067.2 |  |  |      | 100.0 | %
|                                                                                |                  |                    |        |         |      |  |       |         |  |  |            |        
|Annual production (Bcf)                                                         |                  |                    | 743.72 |         |      |  | 876.3 |         |  |  | 1,119.5    |         |  |  |      |      
|Average sales price                                                             |                  |                    |        |         |      |  |       |         |  |  |            |         |  |  |      |      
|                                                                                | (RMB per Mcf)    |                    |        | 19.37   |      |  |       | 21.11   |  |  |            | 23.35   |  |  |      |       |  
|                                                                                | (US$ per Mcf)    |                    |        | 2.34    |      |  |       | 2.55    |  |  |            | 2.85    |  |  |      |       |  






|    |                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Production volumes for each region include our share of the
    production from all of our cooperative projects with foreign
    companies in that region.                                  
|   
|(2) | Represents production from the Qinghai, Jidong and Yumen oil
    regions, the Sichuan gas region and our share of overseas
    production as a result of our acquisition of overseas assets.
|   
|(3) | Represents production of natural gas for sale.                                                                                                                                              
|   
|(4) | Represents production from the Jilin, Jidong and Yumen oil
    regions and our share of overseas production as a result of our
    acquisition of overseas assets.                          



31



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##### Table of Contents

prices based on the Singapore market FOB prices for crude oil.
See Item 5  Operating and Financial Review
and Prospects  General  Factors Affecting
Results of Operations  Crude Oil Prices for a
detailed discussion of the crude oil premium and discount
calculation agreement and its supplemental agreement. For the
years ended December 31, 2003, 2004 and 2005, the average
lifting costs of our crude oil and natural production were
US$4.39 per barrel-of-oil equivalent, US$4.60 per barrel-of-oil
equivalent and US$5.28 per barrel-of-oil equivalent,
respectively.

Principal Oil and Gas Regions



Daqing Oil RegionThe Daqing oil region, our largest oil and gas producing
property, is located in the Songliao basin and covers an area of
approximately one million acres. The successful discovery and
development of the oil fields in the Daqing oil region marked a
critical breakthrough in the history of both our company and the
PRC oil and gas industry. In terms of proved hydrocarbon
reserves and annual production, the Daqing oil region is the
largest oil region in China and one of the most prolific oil and
gas properties in the world. We commenced exploration activities
in the Daqing oil region in 1955 and discovered oil in the
region in 1959. Annual crude oil production volume in the Daqing
oil region reached one million barrels per day in 1976 and
remained relatively stable until 2002. In 2003, 2004 and 2005,
our crude oil production volume in the Daqing oil region fell
below one million barrels per day to 985.3 thousand barrels
per day, 942.0 thousand barrels per day and
915.1 thousand barrels per day, respectively. As of
December 31, 2005, we produced crude oil from 20 fields in
the Daqing oil region.

As of December 31, 2005, our proved crude oil reserves in
the Daqing oil region were 4,396.9 million barrels,
representing 38.1% of our total proved crude oil reserves.
The proved crude oil reserves in our Daqing oil region have
gradually decreased since 1996 because the crude oil production
exceeded the crude oil reserve additions in our Daqing oil
region in each year since 1996. As of December 31, 2003,
2004 and 2005, the proved crude oil reserves in our Daqing oil
region were 4,832.3 million barrels, 4,615.0 million
barrels and 4,396.9 million barrels, respectively. As a
result, we decreased the crude oil production in our Daqing oil
region over past years, and plan to continue to decrease the
crude oil production in our Daqing oil region each year in the
next few years. In 2005, our oil fields in the Daqing oil region
produced an average of 915.1 thousand barrels of crude oil
per day, representing approximately 40.6% of our total
daily crude oil production. The crude oil production in our
Daqing oil region decreased by 3.1% from 344.8 million
barrels in 2004 to 334.0 million barrels in 2005. In 2005,
the crude oil reserve-to-production ratio of the Daqing oil
region was 13.2 years, compared to 13.4 years in 2004.

The crude oil we produce in the Daqing oil region has an average
API gravity of 35.7 degrees. In 2005, the crude oil we
produced in the Daqing oil region had an average water cut of
89.78%, increased from the average water cut of 89.1% in
2004.

Because the crude oil in the Daqing oil region is primarily
located in large reservoirs with relatively moderate depths of
approximately 900 meters to 1,500 meters and with
relatively simple geological structures and most of the crude
oil produced at Daqing is medium viscosity oil, lifting costs in
the Daqing oil region are relatively low among our oil regions.
Crude oil produced using enhanced recovery techniques accounted
for 25.1%, 25.7% and 26.9% of our crude oil production from
the Daqing oil region in 2003, 2004 and 2005, respectively.

Because our oil fields in the Daqing oil region are relatively
mature, the difficulty of extracting crude oil from these fields
has increased in recent years and is likely to continue to
increase gradually in the future. As a result, our lifting costs
at these fields increased by 23.6% from US$4.16 per barrel for
the year ended December 31, 2004 to US$5.14 per barrel for
the year ended

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##### Table of Contents

December 31, 2005. However, we have adopted a number of
measures to contain the increase in our lifting costs at these
fields. Those measures include:




    terminating unprofitable or marginally profitable exploration
    and production activities;
    reducing expenditures on ancillary ground facilities in the
    outer areas of the Daqing oil region;
    increasing preventive maintenance to prolong the useful life of
    our production facilities; and
    applying new technologies to reduce energy consumption.Although we plan to continue to carry out these measures to
contain the increase in our lifting costs, we expect our lifting
costs at these fields will continue to increase gradually in the
future.

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

Daqings crude oil has a low sulfur and high paraffin
content. As many refineries in China, particularly those in
northeastern China, are configured to refine Daqing crude oil,
we have a stable market for the crude oil we produce in the
Daqing oil region. In 2005, we refined approximately 79.08% of
Daqing crude oil in our own refineries, exported approximately
1.19% and sold the remaining portion to Sinopec or local
refineries.



Liaohe Oil RegionThe Liaohe oil region is one of our three largest crude oil
producing properties 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.

As of December 31, 2005, proved crude oil reserves in the
Liaohe oil region were 1,114.6 million barrels,
representing 9.7% of our total proved oil reserves. In 2005, our
oil fields in the Liaohe oil region produced an average of 238.2
thousand barrels of crude oil per day, representing
approximately 10.6% of our total daily crude oil production. In
2005, the crude oil reserve-to-production ratio in the Liaohe
oil region was 12.8 years. In 2005, the crude oil we
produced in the Liaohe oil region had an average API gravity of
26 degrees and an average water cut of 76.44%. We have proved
crude oil reserves in 37 fields in the Liaohe oil region, all of
which are currently in production. We produce several varieties
of crude oil in the Liaohe oil region, ranging from light crude
oil to heavy crude oil and high pour point crude oil.

We have easy access to crude oil pipelines for Liaohe crude oil.
The pipelines linking Daqing to Dalian port and Qinhuangdao port
pass through the Liaohe oil region. In 2005, we sold about
approximately 90.16% of the crude oil we produced at the Liaohe
oil region to our own refineries.



Xinjiang Oil RegionThe Xinjiang oil region is one of our three largest crude oil
producing properties and is located in the Junggar basin in
northwestern China. We commenced our operations in the Xinjiang
oil region in 1951. The Xinjiang oil region covers a total area
of approximately 900 thousand acres.

As of December 31, 2005, our proved crude oil reserves in
the Xinjiang oil region were 1,261.8 million barrels,
representing 10.9% of our total proved crude oil reserves. In
2005, our oil fields in the Xinjiang oil region produced an
average of 238.8 thousand barrels of crude oil per day,
representing approximately 10.6% of our total crude oil
production. In 2005, the crude oil
reserve-to-production
ratio at the Xinjiang oil region was 14.5 years. In 2005,
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
73.54%.

33



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##### Table of Contents

Sichuan Gas RegionThe 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 22.8 years in 2005. As
of December 31, 2005, we had 90 natural gas fields under
development in the Sichuan gas region.

As of December 31, 2005, our proved natural gas reserves in
the Sichuan gas region were 9,211.2 billion cubic feet,
representing 19.1% of our total proved natural gas reserves and
an increase of 5.5% from 8,729.8 billion cubic feet as of
December 31, 2004. In 2005, our natural gas production for
sale in the Sichuan gas region reached 404.4 billion cubic
feet, representing 36.1% of our total natural gas production for
sale and an increase of 22.0% from 331.5 billion cubic feet
in 2004.

In 2002, we discovered and proved significant natural gas
reserves in Luojiazhai gas field in the Sichuan gas region. As
of December 31, 2005, Luojiazhai gas field had a total
proved natural gas reserve of 1,143.2 billion cubic feet.
Currently, Luojiazhai gas field is the largest gas field in the
Sichuan basin. We have developed a broad range of technologies
relating to natural gas exploration, production, pipeline
systems and marketing activities tailored to local conditions in
Sichuan. We intend to continue to increase our natural gas
reserves, annual natural gas production and revenues in the
Sichuan gas region by adopting advanced technologies.

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



Changqing Oil and Gas RegionThe 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 2005, we produced 69.9 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
15,765.6 billion cubic feet as of December 31, 2005,
representing 32.8% of our total proved natural gas reserves. In
January 2001, we discovered the Sulige gas field with total
proved natural gas reserves of 4,290.0 billion cubic feet.
In 2005 we produced 233.9 billion cubic feet of natural gas
for sale in the Changqing oil and gas region, representing a
decrease of 1.9% from 238.4 billion cubic feet in 2004. 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. The construction of an additional natural gas
pipeline from Shaanxi to Beijing, or the second Shaanxi to
Beijing natural gas pipeline, which is designed to have an
annual throughput capacity of 423.8 billion cubic feet of
natural gas, was completed ahead of schedule and it commenced
operation in July 2005. See  Natural Gas and
Pipeline  Expansion of Our Natural Gas Transmission
and Marketing Business for a discussion of this additional
Shaanxi to Beijing natural gas pipeline project.

34



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##### Table of Contents

Tarim Oil and Gas RegionThe Tarim oil and gas region is located in the Tarim basin in
northwestern China with a total area of approximately 590
thousand acres. As of December 31, 2005, our proved crude
oil reserves in the Tarim oil region were 543.8 million
barrels. The Kela 2 natural gas field, which we discovered in
1998 in the Tarim oil and gas region, had estimated proved
natural gas reserves of approximately 6,235.9 billion cubic
feet as of December 31, 2005. As of December 31, 2005,
the proved natural gas reserves in the Tarim oil and gas region
reached 11,838.8 billion cubic feet, representing 24.6% 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 2005, we produced 175.0 billion cubic feet of natural
gas for sale in the Tarim oil and gas region. We have completed
the construction of the pipelines to deliver natural gas in the
Tarim oil and gas region to the central and eastern regions of
China where there is strong demand for natural gas transmitted
through our West to East natural gas pipeline project. See
 Natural Gas and Pipeline  Expansion
of Our Natural Gas Transmission and Marketing Business for
a discussion of our West to East natural gas pipeline project.
The commencement of the operation of this West to East natural
gas pipeline significantly increased our natural gas production
in the Tarim oil and gas region.

35



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##### Table of Contents

(REFINING AND MARKETING SEGMENT MAP)

36



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##### Table of Contents

Refining and Marketing

We engage in refining and marketing operations in China through
25 refineries, 22 regional sales and distribution branch
companies and one lubricants branch company. These operations
include the refining, transportation, storage and marketing of
crude oil, and the wholesale, retail and export of refined
products, including gasoline, diesel, kerosene and lubricant.

In 2005, our refining and marketing segment had loss from
operations of RMB 19,810 million.

The following sets forth the highlights of our refining and
marketing segment in 2005:




    as of December 31, 2005, our refineries annual
    primary distillation capacity totaled 853.1 million barrels
    of crude oil per year, or 2,337.2 thousand barrels per day;
    we processed 752 million barrels of crude oil, or
    2.06 million barrels per day;
    we produced approximately 66.39 million tons of gasoline,
    diesel and kerosene and sold approximately 75.98 million
    tons of these products;
    as of December 31, 2005, our retail distribution network
    consisted of:


    15,908 service stations owned and operated by us,
    427 service stations wholly owned by CNPC or jointly owned by
    CNPC and third parties and to which we provide supervisory
    support, and
    1,829 franchise service stations owned and operated by third
    parties with which we have long-term refined product supply
    agreements; and


    in 2005, our service stations, which are located throughout
    China, sold approximately 38.1 million tons of gasoline and
    diesel, representing 51.5% of the total of these products sold
    through our marketing operations.Refining

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



Refined ProductsWe produce a wide range of refined products at our refineries.
Some of the refined products are for our internal consumption
and used as raw materials in our petrochemical operation. The
table below sets forth production volume for our principal
refined products for each of the three years ended
December 31, 2003, 2004 and 2005.

|           |       |                         |          |          |      |  |          |          |  |  |          |          | 
|---------- | ----- | ----------------------- | -------- | -------- | ---- |  | -------- | -------- |  |  | -------- | -------- | 
|           |       | Year ended December 31, |         
|           |       |                         |         
|Product    |       | 2003                    |          |          | 2004 |  |          | 2005     | 
|           |       |                         |          |          |      |  |          |          | 
|           |       | (in thousands of tons)  |         
|Diesel     |       |                         | 33,399.1 |          |      |  | 38,941.8 |          |  |  | 43,000.7 |         
|Gasoline   |       |                         | 18,727.4 |          |      |  | 20,606.1 |          |  |  | 21,414.6 |         
|Fuel oil   |       |                         | 4,571.3  |          |      |  | 4,290.2  |          |  |  | 3,816.3  |         
|Naphtha    |       |                         | 3,602.8  |          |      |  | 4,942.8  |          |  |  | 4,872.8  |         
|Asphalt    |       |                         | 1,870.5  |          |      |  | 1,946.8  |          |  |  | 1,484.7  |         
|Kerosene   |       |                         | 1,759.3  |          |      |  | 1,961.8  |          |  |  | 1,970.3  |         
|Lubricants |       |                         | 1,192.5  |          |      |  | 1,467.8  |          |  |  | 1,528.6  |         
|Paraffin   |       |                         | 984.9    |          |      |  | 1,140.0  |          |  |  | 1,139.3  |         
|           |       |                         |          |          |      |  |          |          | 
|           | Total |                         |          | 66,107.8 |      |  |          | 75,297.3 |  |  |          | 79,227.3 | 
|           |       |                         |          |          |      |  |          |          | 

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We generally adjust our product mix to reflect market demand and
to focus on the production of high margin products. This has
resulted in an overall modest increase in the production of
lighter refined products which generally are higher margin
products, such as gasoline. Our production volume of lubricants,
a high margin product, decreased 12.2% from
1,358.9 thousand tons in 2002 to 1,192.5 thousand tons in
2003, due primarily to the shutting down of inefficient
lubricant production facilities in Jilin Petrochemical and
Dagang Petrochemical and the maintenance of lubricant production
facilities in Daqing Refinery and Daqing Petrochemical. In 2004,
we increased our production volume of lubricants to 1,467.8
thousand tons to meet the growing market demands for lubricants.
As a result of the optimization of our product mix and the
increase in the production of high margin products, we produced
1,528.6 thousand tons of lubricants in 2005. We decreased the
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, 2003,
2004 and 2005, our capital expenditures for our refining and
marketing segment were RMB 12,758 million, RMB
17,684 million, and RMB 16,454 million, respectively.
These capital expenditures were incurred primarily in connection
with our refining facility upgrades and expansion of our refined
product retail marketing network and storage infrastructure. We
built or renovated 10 refining facilities in 2005, including,
among others, the regular pressure reducing unit at Dalian
Petrochemical with a designed annual capacity of 10 million
tons, the delayed coking unit at Lanzhou Petrochemical with an
annual capacity of 1,000 thousand tons and the catalytic
reforming unit at Jinzhou Petrochemical with an annual capacity
of 600 thousand tons. In 2005, we operated an aggregate of
18,164 service stations. In addition, we have also focused on
enhancing our processing technologies and methods. These efforts
have enabled us to improve the quality of refined products at
our refineries, particularly that of gasoline and diesel. We
believe that our refined products generally meet product
specification and environmental protection requirements as set
by the PRC government, including the specification limiting the
olefin and sulfur content in gasoline.



Our RefineriesMost 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,
2003, 2004 and 2005, our exploration and production operations
supplied approximately 86%, 84% and 89% respectively, of the
crude oil processed in our refineries.

38



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##### Table of Contents

The table below sets forth certain operating statistics
regarding our refineries as of December 31, 2003, 2004 and
2005.

|                                                                   |       |                    |       |         |         |  |       |         |         |  |         |         |         | 
|------------------------------------------------------------------ | ----- | ------------------ | ----- | ------- | ------- |  | ----- | ------- | ------- |  | ------- | ------- | ------- | 
|                                                                   |       | As of December 31, |      
|                                                                   |       |                    |      
|                                                                   |       | 2003               |       |         | 2004    |  |       | 2005    |        
|                                                                   |       |                    |       |         |         |  |       |         |        
|Primary distillation
    capacity(1)(thousand barrels per
    day) |       |                    |       |         |         |  |       |         |         |  |         |        
|Lanzhou
    Petrochemical(2)                                       |       |                    | 222.7 |         |         |  | 212.6 |         |         |  | 212.6   |        
|Dalian Petrochemical                                               |       |                    | 212.6 |         |         |  | 212.6 |         |         |  | 212.6   |        
|Fushun Petrochemical                                               |       |                    | 162.0 |         |         |  | 186.2 |         |         |  | 186.2   |        
|Daqing Petrochemical                                               |       |                    | 121.5 |         |         |  | 121.5 |         |         |  | 121.5   |        
|Jinzhou
    Petrochemical(3)                                       |       |                    | 113.3 |         |         |  | 127.5 |         |         |  | 131.6   |        
|Jinxi Petrochemical                                                |       |                    | 111.3 |         |         |  | 131.6 |         |         |  | 131.6   |        
|Jilin
    Petrochemical(4)                                         |       |                    | 101.2 |         |         |  | 107.3 |         |         |  | 141.7   |        
|Urumqi Petrochemical                                               |       |                    | 101.2 |         |         |  | 101.2 |         |         |  | 101.2   |        
|Other refineries                                                   |       |                    | 913.9 |         |         |  | 982.8 |         |         |  | 1,098.2 |        
|                                                                   |       |                    |       |         |         |  |       |         |        
|                                                                   |       | Total              |       |         | 2,059.7 |  |       |         | 2,183.3 |  |         |         | 2,337.2 | 
|                                                                   |       |                    |       |         |         |  |       |         |        
|Refining throughput(thousand barrels per
    day)                  |       |                    |       |         |         |  |       |         |         |  |         |        
|Lanzhou
    Petrochemical(2)                                       |       |                    | 140.5 |         |         |  | 166.4 |         |         |  | 178.7   |        
|Dalian Petrochemical                                               |       |                    | 187.7 |         |         |  | 242.3 |         |         |  | 223.7   |        
|Fushun Petrochemical                                               |       |                    | 172.2 |         |         |  | 181.7 |         |         |  | 194.4   |        
|Daqing Petrochemical                                               |       |                    | 115.5 |         |         |  | 119.2 |         |         |  | 125.5   |        
|Jinzhou
    Petrochemical(3)                                       |       |                    | 105.7 |         |         |  | 120.8 |         |         |  | 127.9   |        
|Jinxi Petrochemical                                                |       |                    | 108.2 |         |         |  | 123.9 |         |         |  | 129.2   |        
|Jilin
    Petrochemical(4)                                         |       |                    | 114.6 |         |         |  | 129.6 |         |         |  | 138.0   |        
|Urumqi Petrochemical                                               |       |                    | 72.7  |         |         |  | 81.8  |         |         |  | 85.3    |        
|Other refineries                                                   |       |                    | 712.3 |         |         |  | 773.6 |         |         |  | 858.4   |        
|                                                                   |       |                    |       |         |         |  |       |         |        
|                                                                   | Total |                    |       | 1,729.4 |         |  |       | 1,939.3 |         |  |         | 2,061.1 |        
|                                                                   |       |                    |       |         |         |  |       |         |        
|Conversion
    equivalent(5)(percent)                              |       |                    |       |         |         |  |       |         |         |  |         |        
|Lanzhou
    Petrochemical(2)                                       |       |                    | 41.9  |         |         |  | 41.9  |         |         |  | 53.3    |        
|Dalian Petrochemical                                               |       |                    | 54.3  |         |         |  | 54.3  |         |         |  | 54.3    |        
|Fushun Petrochemical                                               |       |                    | 70.7  |         |         |  | 70.7  |         |         |  | 68.5    |        
|Daqing Petrochemical                                               |       |                    | 61.0  |         |         |  | 76.7  |         |         |  | 76.7    |        
|Jinzhou
    Petrochemical(3)                                       |       |                    | 72.7  |         |         |  | 63.5  |         |         |  | 84.6    |        
|Jinxi Petrochemical                                                |       |                    | 70.9  |         |         |  | 60.0  |         |         |  | 66.2    |        
|Jilin
    Petrochemical(4)                                         |       |                    | 69.8  |         |         |  | 75.5  |         |         |  | 61.4    |        
|Urumqi Petrochemical                                               |       |                    | 50.0  |         |         |  | 62.0  |         |         |  | 62.0    |        
|Average of other refineries                                        |       |                    | 39.2  |         |         |  | 53.7  |         |         |  | 50.5    |        




|    |                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the primary distillation capacity of crude oil and
    condensate.                                                                                                                               
|   
|(2) | Includes Lanzhou Refinery, which was merged into Lanzhou
    Petrochemical in October 2000 as part of our ongoing
    restructuring.                                                                        
|   
|(3) | Includes a 19.05% minority interest held by unrelated third
    parties in Jinzhou Petrochemical Company Limited in the relevant
    periods.                                                               
|   
|(4) | Includes Jilin Chemical Industrial Company Limited, in which we
    held a 67.29% equity interest in the relevant periods. Data
    regarding the primary distillation capacity, refining throughput
    and

39



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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, 2003, 2004
and 2005, the average utilization rate of the primary
distillation capacity at our refineries was 85.6%, 93.2% and
95.5%, respectively. The average yield for our four principal
refined products (gasoline, kerosene, diesel and lubricants) at
our refineries was 64.5%, 65.6% and 66.7% 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 is processed. In each
of the three years ended December 31, 2003, 2004 and 2005,
the yield for all refined products at our refineries was 91.5%,
91.5% and 92.3% respectively.

Dalian Petrochemical, Fushun Petrochemical and Lanzhou
Petrochemical were our leading refineries in terms of both
primary distillation capacity and throughput in 2005. 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. Lanzhou Petrochemical has a strategic position in our
plan to expand our markets in refined product sales in the
southwestern and central regions of China. It is located in the
northwestern part of China, providing easy access to markets in
the southwestern and central regions in China. As of
December 31, 2005, these three refineries had an aggregate
primary distillation capacity of 223.2 million barrels per
year, or 611.4 thousand barrels per day, representing
approximately 26.2% of the total primary distillation capacity
of all our refineries as of the same date. In 2005, these three
refineries processed an aggregate of 217.8 million barrels
of crude oil, or 596.8 thousand barrels per day,
representing approximately 29.0% of our total throughput in the
same period.

Marketing

We market a wide range of refined products, including gasoline,
diesel, kerosene and lubricants, through an extensive network of
sales personnel and independent distributors and a broad
wholesale and retail distribution system across China. As of
December 31, 2005, our marketing network consisted of:




    approximately 792 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
    15,908 service stations owned and operated by us, 427 service
    stations wholly owned by CNPC or jointly owned by CNPC and third
    parties that exclusively sell refined products produced or
    supplied by us and to which we provide supervisory support under
    contractual arrangement, and 1,829 franchise service stations
    owned and operated by third parties.In 2005, we sold approximately 74.0 million tons of
gasoline and diesel. The PRC government and other institutional
customers, including railway, transportation and fishery
operators, are our long-term purchasers of the gasoline and
diesel that we produce. We sell gasoline and diesel to these
customers at the ex-factory median prices published by the PRC
government with an 8% floating range. See 
Regulatory Matters  Pricing  Refined
Products for a discussion of refined product pricing. In
2005, sales of gasoline and diesel to these customers accounted
for approximately 1% and 9% of our total sales of gasoline and
diesel, respectively. The following table

40



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sets forth our refined product sales volumes by principal
product category for each of the three years ended
December 31, 2003, 2004 and 2005.

|           |       |                         |          |          |      |  |          |          |  |  |          |          | 
|---------- | ----- | ----------------------- | -------- | -------- | ---- |  | -------- | -------- |  |  | -------- | -------- | 
|           |       | Year ended December 31, |         
|           |       |                         |         
|Product    |       | 2003                    |          |          | 2004 |  |          | 2005     | 
|           |       |                         |          |          |      |  |          |          | 
|           |       | (in thousands of tons)  |         
|Diesel     |       |                         | 36,680.7 |          |      |  | 43,178.3 |          |  |  | 47,811.0 |         
|Gasoline   |       |                         | 19,872.5 |          |      |  | 21,714.2 |          |  |  | 26,161.6 |         
|Fuel oil   |       |                         | 5,748.7  |          |      |  | 5,747.4  |          |  |  | 6,409.6  |         
|Naphtha    |       |                         | 4,836.2  |          |      |  | 5,325.9  |          |  |  | 5,574.1  |         
|Kerosene   |       |                         | 1,789.1  |          |      |  | 2,116.2  |          |  |  | 2,008.0  |         
|Lubricants |       |                         | 1,774.5  |          |      |  | 1,974.0  |          |  |  | 2,181.6  |         
|Asphalt    |       |                         | 1,711.3  |          |      |  | 2,348.7  |          |  |  | 2,475.6  |         
|Paraffin   |       |                         | 1,055.5  |          |      |  | 1,138.1  |          |  |  | 1,160.3  |         
|           |       |                         |          |          |      |  |          |          | 
|           | Total |                         |          | 73,468.5 |      |  |          | 83,542.8 |  |  |          | 93,781.8 | 
|           |       |                         |          |          |      |  |          |          | 



| |                    
| | -------------------
| | Wholesale Marketing







| |                 
| | ----------------
| | Retail Marketing








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Most of the service stations in our service station network are
concentrated in the northern, northeastern and northwestern
regions of China where we have a dominant wholesale market
position. However, the eastern and southern regions of China
have a higher demand for gasoline and diesel. We have made
significant efforts in recent years to expand our sales and
market share in those regions through expanding the number of
our service stations and storage facilities in those regions. As
part of our expansion initiatives, on May 14, 2004, we
entered into the Joint Venture Contract and the Articles of
Association with BP Global Investments Limited, a subsidiary of
BP Amoco p.l.c., to form BP PetroChina Petroleum Company
Limited in Guangdong Province. We and BP Global Investments
Limited hold 51% and 49% equity interests in BP PetroChina
Petroleum Company Limited, respectively. We expect that BP
PetroChina Petroleum Company Limited will build, acquire and
manage approximately 500 service stations in Guangdong Province
within three years from its establishment. As of
December 31, 2005, BP PetroChina Petroleum Company Limited
owned and operated 433 service stations in the eastern and
northern regions of Guangdong Province.

We invested a total of RMB 9,565 million in expanding our
service station network in 2005, of which 74.6% was invested in
the eastern and southern regions of China. In 2005, we sold
approximately 17,490 thousand tons of gasoline and diesel
through our owned and franchised service stations in these
regions, as compared to approximately 9,916 thousand tons and
approximately 13,130 thousand tons we sold in 2003 and 2004,
respectively.

In 2005, we acquired or constructed an aggregate of 1,247
service stations that are owned and operated by us, of which 995
are in the eastern and southern regions of China. We plan to
further increase our retail market share and improve the
efficiency of our retail operations, with a continued focus on
the eastern and southern regions of China. We plan to invest
approximately RMB 8,500 million in 2006 to expand our
service station network by adding approximately 910 new service
stations.

The following table sets forth the number of the service
stations in our marketing network as of December 31, 2005:

|                                                                           |       |  |        |        | 
|-------------------------------------------------------------------------- | ----- |  | ------ | ------ | 
|Owned and operated by
    us(1)                                            |       |  | 15,908 |       
|Wholly owned by CNPC or jointly
    owned by CNPC and third
    parties(2) |       |  | 427    |       
|Franchised                                                                 |       |  | 1,829  |       
|                                                                           |       |  |       
|                                                                           | Total |  |        | 18,164 | 
|                                                                           |       |  |       






|    |                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 433 service stations owned and operated by BP
    PetroChina Petroleum Company Limited.                                                           
|   
|(2) | These service stations exclusively sell refined products
    produced or supplied by us. We also provide supervisory support
    to these service stations.



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(MAP)

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##### Table of Contents

Chemicals and Marketing

Through 12 chemical plants, we produce basic petrochemical
products, derivative petrochemical products, and other chemical
products. As of December 31, 2005, our chemicals and
marketing segment had income from operations of RMB
3,276 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 marketing, and natural
gas and pipeline 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, 2003, 2004 and 2005.

|                              |                  |                                 |  |         |         |  |  |         |         |  |  |         |         | 
|----------------------------- | ---------------- | ------------------------------- |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                              |                  | Year ended December 31,         | 
|                              |                  |                                 | 
|                              |                  | 2003                            |  |         | 2004    |  |  | 2005    |        
|                              |                  |                                 |  |         |         |  |  |         |        
|                              |                  | (in thousand tons)              | 
|Basic petrochemicals          |                  |                                 |  |         |         |  |  |         |         |  |  |        
|                              | Propylene        |                                 |  | 1,833.7 |         |  |  | 1,969.1 |         |  |  | 2,493.5 |        
|                              | Ethylene         |                                 |  | 1,817.9 |         |  |  | 1,845.6 |         |  |  | 1,887.9 |        
|                              | Benzene          |                                 |  | 683.8   |         |  |  | 712.7   |         |  |  | 707.9   |        
|Derivative
    petrochemicals |                  |                                 |  |         |         |  |  |         |         |  |  |        
|                              | Synthetic resin  |                                 |  |         |         |  |  |         |         |  |  |         |        
|                              |                  | Polyethylene                    |  |         | 1,208.0 |  |  |         | 1,309.5 |  |  |         | 1,355.9 | 
|                              |                  | Polypropylene                   |  |         | 924.3   |  |  |         | 986.9   |  |  |         | 1,142.8 | 
|                              |                  | ABS                             |  |         | 208.7   |  |  |         | 228.1   |  |  |         | 223.0   | 
|                              |                  | Other synthetic resin products  |  |         | 35.1    |  |  |         | 27.6    |  |  |         | 35.2    | 
|                              | Synthetic fiber  |                                 |  |         |         |  |  |         |         |  |  |         |        
|                              |                  | Polyacrylic fiber               |  |         | 83.7    |  |  |         | 108.1   |  |  |         | 97.1    | 
|                              |                  | Terylene fiber                  |  |         | 116.6   |  |  |         | 94.3    |  |  |         | 86.2    | 
|                              |                  | Other synthetic fiber products  |  |         | 11.4    |  |  |         | 7.4     |  |  |         | 6.3     | 
|                              | Synthetic rubber |                                 |  |         |         |  |  |         |         |  |  |         |        
|                              |                  | Styrene butadiene rubber        |  |         | 147.3   |  |  |         | 190.2   |  |  |         | 194.4   | 
|                              |                  | Other synthetic rubber products |  |         | 98.8    |  |  |         | 95.6    |  |  |         | 87.0    | 
|                              | Intermediates    |                                 |  |         |         |  |  |         |         |  |  |         |        
|                              |                  | Alkylbenzene                    |  |         | 204.7   |  |  |         | 194.9   |  |  |         | 205.7   | 
|Other chemicals               |                  |                                 |  |         |         |  |  |         |         |  |  |        
|                              | Urea             |                                 |  | 3,579.6 |         |  |  | 3,652.3 |         |  |  | 3,577.6 |        
|                              | Ammonium nitrate |                                 |  | 46.5    |         |  |  | 32.0    |         |  |  | 5.4     |        



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ethylene production facilities at Daqing Petrochemical, Jilin
Petrochemical, Liaoyang Petrochemical, Dushanzi Petrochemical
and Lanzhou Petrochemical. As of December 31, 2005, we had
invested approximately RMB 9,660 million for these upgrade
projects. Except for the on-going project at Lanzhou
Petrochemical, we have completed all of the other upgrading
projects we implemented in 2001. As of December 31, 2005,
we had a total ethylene production capacity of 1,850 thousand
tons per year. In 2005, the production volume of ethylene
increased by 2.3% from 1,845.6 thousand tons in 2004 to 1,887.9
thousand tons. We are currently conducting further upgrading of
our ethylene production facilities. We expect to complete the
further upgrading of the ethylene production facilities at
Lanzhou Petrochemical, Jilin Petrochemical and Liaoyang
Petrochemical prior to 2007, which would result in an additional
production capacity of 860 thousand tons per year. We expect to
have a total ethylene production capacity of 2,710 thousand tons
per year in 2007. The expansion and upgrading of the ethylene
production facilities at Daqing Petrochemical has been postponed
due to changes to the upgrading plan. We expect that the
upgrading of the ethylene production facilities at Dushanzi
Petrochemical will be completed by 2008. The petrochemical
ethylene projects at Fushun Petrochemical and Sichuan
Petrochemical have been approved by the National Development and
Reform Commission.

In 2005, the monthly average capacity utilization rate at our
ethylene production facilities was 102%. The cost of ethylene
production is an important component of our overall chemical
production costs. Reduction of energy consumption and raw
material loss is a key factor in reducing ethylene production
costs. After we implemented a series of measures in 2003, 2004
and 2005 to reduce energy consumption, the average energy
consumption of our ethylene production facilities decreased from
754.1 kilograms of standard oil per ton in 2003 to 734.3
kilograms in 2004, and increased to 751.5 kilograms in 2005.
This is significantly higher than the world average of 500 to
690 kilograms of standard oil per ton. We plan to continue
to implement measures to reduce our energy consumption.

In addition, high ethylene percentage loss has also contributed
to the relative high cost of our ethylene production. In order
to reduce high ethylene percentage loss in our ethylene
production, we have implemented a series of measures at our
chemical plants in the past two years, such as improving our
process management of key units for ethylene production,
reducing unplanned temporary interruptions of our chemical
facilities and enhancing pyrolysis material composition and
production plans. As a result, the average ethylene percentage
loss at our chemical plants decreased from 0.57% in 2003 to
0.54% in 2004. The average ethylene percentage loss rate went up
to 0.61% in 2005, due to the significant losses resulting from
the trial of an upgraded ethylene production facility. However,
we believe that our measures will enable us to reduce the cost
of our ethylene production without incurring significant capital
expenditures.

We produce a number of synthetic resin products, including
polyethylene, polypropylene and ABS. As of December 31,
2005, our production capacities for polyethylene, polypropylene
and ABS were 1,712.5 thousand tons, 1,483.5 thousand tons and
220 thousand tons, respectively. In 2005, we produced 1,355.9
thousand tons and 1,142.8 thousand tons of polyethylene and
polypropylene, respectively, which respectively increased by
3.5% and 15.8% as compared with 2004. In 2005, we produced 223.0
thousand tons of ABS, representing a decrease of 2.2% of
production volume from 2004. Currently, China imports
significant volumes of these products to meet the domestic
demand due to an inadequate supply of high-quality domestically
produced polyethylene and polypropylene. We intend to increase
the production, and improve the quality, of these products. We
are currently building new production facilities with new
technology for the production of these products in Daqing
Petrochemical, Daqing Refining and Chemical, Jilin
Petrochemical, Lanzhou Petrochemical, Dalian Petrochemical and
other branch companies to meet this target.

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Sales and Marketing

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

The following table sets forth the sales volumes of our chemical
products by principal product category for each of the three
years ended December 31, 2003, 2004 and 2005.

|                              |                  |                          |  |         |         |  |  |         |         |  |  |         |         | 
|----------------------------- | ---------------- | ------------------------ |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                              |                  | Year ended December 31,  | 
|                              |                  |                          | 
|Product                       |                  | 2003                     |  |         | 2004    |  |  | 2005    |        
|                              |                  |                          |  |         |         |  |  |         |        
|                              |                  | (in thousands of tons)   | 
|Derivative
    petrochemicals |                  |                          |  |         |         |  |  |         |         |  |  |        
|                              | Synthetic resin  |                          |  |         |         |  |  |         |         |  |  |         |        
|                              |                  | Polyethylene             |  |         | 1,205.0 |  |  |         | 1,423.6 |  |  |         | 1,477.0 | 
|                              |                  | Polypropylene            |  |         | 717.2   |  |  |         | 793.3   |  |  |         | 972.3   | 
|                              |                  | ABS                      |  |         | 204.5   |  |  |         | 231.8   |  |  |         | 232.0   | 
|                              | Synthetic fiber  |                          |  |         |         |  |  |         |         |  |  |         |        
|                              |                  | Terylene fiber           |  |         | 132.9   |  |  |         | 103.6   |  |  |         | 103.3   | 
|                              |                  | Polyacrylic fiber        |  |         | 81.2    |  |  |         | 115.8   |  |  |         | 95.5    | 
|                              | Synthetic rubber |                          |  |         |         |  |  |         |         |  |  |         |        
|                              |                  | Butadiene styrene rubber |  |         | 144.7   |  |  |         | 187.8   |  |  |         | 202.2   | 
|                              | Intermediates    |                          |  |         |         |  |  |         |         |  |  |         |        
|                              |                  | Alkylbenzene             |  |         | 110.1   |  |  |         | 110.9   |  |  |         | 112.3   | 
|Other chemicals               |                  |                          |  |         |         |  |  |         |         |  |  |        
|                              | Urea             |                          |  | 3,766.8 |         |  |  | 3,662.8 |         |  |  | 3,413.8 |        
|                              | Ammonium nitrate |                          |  | 51.1    |         |  |  | 32.8    |         |  |  | 4.1     |        

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(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 26,214
million and total sales volume of 1,052.2 billion cubic
feet in 2005, of which 888.8 billion cubic feet was sold by
our natural gas and pipeline segment. In 2005, our natural gas
and pipeline segment had income from operations of
RMB 3,183 million. We sell natural gas primarily to
fertilizer and chemical companies, commercial users and
municipal utilities owned by local governments.

The following table sets forth the length of our natural gas
pipelines as of December 31, 2003, 2004 and 2005 and the
volume of natural gas sold by us in each of the three years
ended December 31, 2003, 2004 and 2005.

|                                                                         |  |                           |        |  |      |  |        |      |  |  |         | 
|------------------------------------------------------------------------ |  | ------------------------- | ------ |  | ---- |  | ------ | ---- |  |  | ------- | 
|                                                                         |  | As of December 31 or year |       
|                                                                         |  | ended December 31,        |       
|                                                                         |  |                           |       
|                                                                         |  | 2003                      |        |  | 2004 |  |        | 2005 | 
|                                                                         |  |                           |        |  |      |  |        |      | 
|Length of natural gas pipelines
    used by our natural gas segment (km) |  |                           | 14,017 |  |      |  | 17,868 |      |  |  | 19,212  | 
|Total length of natural gas
    pipelines (km)                           |  |                           | 15,144 |  |      |  | 18,995 |      |  |  | 20,340  | 
|Volume of natural gas sold by our
    natural gas segment (Bcf)          |  |                           | 543.4  |  |      |  | 657.3  |      |  |  | 888.8   | 
|Total volume of natural gas
    sold(1)(Bcf)                             |  |                           | 651.0  |  |      |  | 781.4  |      |  |  | 1,052.2 | 






|    |                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Including both the natural gas sold to third parties and the
    natural gas sold within our company for the production of other
    products.





Our Principal Markets for Natural Gas








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our natural gas trunk pipelines, and from the Huabei and Dagang
oil regions. Currently, we have 2,813 kilometers of natural gas
pipelines in these areas.

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

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

We have entered into long-term take-or-pay contracts with
16 municipalities and enterprises in Qinghai Province,
Gangsu Province, Shanxi Province and Tianjin Municipality,
25 municipalities and enterprises in Hubei Province and
Hunan Province, 17 municipalities in Shandong Province and
41 municipalities and enterprises in Henan Province, Anhui
Province, Shanghai Municipality and other provinces located in
the Yangtze River Delta. Under these take-or-pay contracts, we
have agreed in principle to supply natural gas to these
customers in the next 20 to 25 years at prices determined
based on the ex-factory
prices published by the National Development and Reform
Commission, formerly the State Development Planning Commission,
supplemented by the pipeline transportation tariffs. See
 Regulatory Matters 
Pricing  Natural Gas for a discussion of
natural gas pricing.

In 2005, we sold 799 billion cubic feet, or 89.9% 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 37% increase over 2004. We believe
that sales volume of our natural gas to customers not subject to
the government-formulated guidance supply plan as a percentage
of our total sales will continue to increase. See
 Regulatory Matters 
Pricing  Natural Gas for a discussion of the
government-formulated guidance supply plan.

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

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

Natural Gas Transmission Infrastructure

As of December 31, 2005, our natural gas and pipeline
segment owned and operated approximately 19,212 kilometers
of natural gas pipelines in China, which represented the vast
majority of Chinas onshore natural gas pipelines. Our
existing natural gas pipelines form regional natural gas supply
networks in northwestern, southwestern and northern China as
well as the Yangtze River Delta. 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

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in China in long distance pipeline design, construction and
automated operational communications. We believe that we will
continue to benefit from those technologies and skills in the
future expansion of our natural gas pipeline networks and their
ancillary facilities.

Expansion of Our Natural Gas Transmission and Marketing
Business

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

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

In October 2004, we completed the construction of the main line
of our West to East natural gas pipeline and commenced
commercial operation in December 2004. Our West to East natural
gas pipeline project is designed to link our natural gas fields
in Xinjiang and Changqing with Henan Province, Anhui Province,
Shanghai Municipality and other areas in the Yangtze River
Delta. The total length of the main line for the West to East
natural gas pipeline project is 3,786 kilometers. As of
December 31, 2005, we had invested RMB 31,383 million
in this project. We are currently constructing and will continue
in the next few years the construction of the branch pipelines
and connecting pipelines for the West to East natural gas
pipeline project, including the pipeline connecting our West to
East natural gas pipeline with the second Shaanxi to Beijing
natural gas pipeline. This connecting pipeline starts at
Qingshan in Jiangsu Province and ends at Anping in Hebei
Province with a total length of 910 kilometers. We commenced the
construction of this connecting pipeline at the end of 2004 and
completed the construction of the main part of this pipeline in
the end of 2005. As of May 31, 2006, we had entered into
take-or-pay contracts with 41 subscribers and distributors
to supply them with natural gas through the West to East natural
gas pipeline. We believe that the successful completion of this
natural gas pipeline and associated storage facilities will
substantially enhance our ability to capitalize on anticipated
growth in demand for natural gas in these regions.

The Zhong County to Wuhan City natural gas pipeline is designed
to link the Sichuan gas region with Wuhan City, the other areas
in Hubei province and Hunan Province, and has a designed annual
throughput capacity of 105.9 billion cubic feet of natural
gas. We commenced the construction of the pipeline in August
2003. In December 2004, we completed the construction and
commenced commercial operation of the main line of the Zhong
County to Wuhan City natural gas pipeline and its Xiangfan
branch pipeline and Huangshi branch pipeline. We completed the
construction and commenced commercial operation of the Xiangtan
branch line in July 2005. As of May 31, 2006, we had
entered into take-or-pay contracts with 25 municipalities
and enterprises in Hubei Province and Hunan Province to supply
them with natural gas to be transmitted through the main line
and branch lines of the Zhong County to Wuhan City pipeline.

We completed constructing the second natural gas pipeline from
Shaanxi to Beijing Municipality in July 2005. This second
Shaanxi to Beijing natural gas pipeline has a total length of
860 kilometers and can be used to deliver natural gas from our
Changqing oil and gas region to Shaanxi Province, Shanxi
Province, Hebei Province and Beijing Municipality with a
designed annual throughput capacity of 423.8 billion cubic
feet of natural gas.

Crude Oil and Refined Product Transportation and Storage
Infrastructure

In order to improve management effectiveness, operating
efficiency and safety of our crude oil and refined product
transportation and storage businesses, we transferred the
pipeline operations and some storage infrastructure related to
the pipeline operations for our crude oil and refined

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products from the refining and marketing segment to the natural
gas segment on January 1, 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, 2005, our crude oil transportation and
storage infrastructure consisted of:




    9,391 kilometers of crude oil pipelines with an average daily
    throughput of approximately 2.39 million barrels; and
    crude oil storage facilities with an aggregate storage capacity
    of approximately 15.9 million cubic meters.We deliver crude oil to customers through our pipeline and
storage facility network, through crude oil storage facilities
that we lease from third parties and by ships leased by
customers. In 2005, approximately 85.74% of our crude oil
production was delivered to refineries through our crude oil
pipeline network. We believe that our crude oil pipeline network
is sufficient for our current and anticipated transportation
needs. During the past three years, we have not experienced any
delays in delivering crude oil due to pipeline capacity
constraints.

Our transportation and storage infrastructure also includes:




    2,462 kilometers of refined product pipelines with an average
    daily throughput of approximately 32,630 tons; and
    refined product storage facilities with a total storage capacity
    of approximately 15.9 million cubic meters.Most of our refineries are located in the northeastern and
northwestern regions of China. Our ability to distribute
products through our own product distribution infrastructure to
the eastern and southern regions will provide us with greater
flexibility in supplying refined products to the domestic
markets across China. We plan to continue to enhance our product
distribution infrastructure in the northeastern, northwestern,
northern and southwestern regions where we already have a
significant market share, and to expand our product distribution
infrastructure in the eastern and southern regions by acquiring
and constructing transportation storage facilities and
distribution storage facilities in these regions.

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





Competition

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

Exploration and Production Operations

We are the largest onshore oil and gas company in China in terms
of proved crude oil and natural gas reserves as well as crude
oil and natural gas production and sales. However, we compete
with Sinopec for the acquisition of desirable crude oil and
natural gas prospects. We

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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 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. Moreover, as the
newly constructed facilities of CNOOC commenced operation, the
competition is further intensified. We expect that we will
continue to face competition from, among other competitors,
Sinopec in increasing our refined products and chemical products
sales in these regions. See Item 3  Key
Information  Risk Factors.

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

Natural Gas and Pipeline Operations

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

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
    restrict the type, quantities, and concentration of various
    substances that can be released into the environment in
    connection with drilling and production activities;
    limit or prohibit drilling activities within protected areas and
    certain other areas; and
    impose penalties for pollution resulting from oil, natural gas
    and petrochemical operations, including criminal and civil
    liabilities for serious pollution.These laws and regulations may also restrict 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 solid waste materials.

We anticipate that the environmental laws and regulations to
which we are subject will become increasingly strict and are
therefore likely to have an increasing impact on our operations.
It is difficult, however, to predict accurately the effect of
future developments in such laws and regulations on our future
earnings and operations. Some risk of environmental costs and
liabilities is inherent in certain of our operations and
products, as it is with other companies engaged in similar
businesses. We cannot assure you that material costs and
liabilities will not be incurred. However, we do not currently
expect any material adverse effect on our financial condition or
results of operations as a result of compliance with such laws
and regulations. We paid pollutant discharge fees of
approximately RMB 155 million, RMB 182 million and RMB
199 million in 2003, 2004 and 2005, 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 pollutant
    discharge openings and developing environmental impact
    assessments for major projects.Our capital expenditures on environmental programs in 2003, 2004
and 2005 were approximately RMB 1,076 million, RMB
1,345 million and RMB 1,633 million, respectively.

On December 23, 2003, a gas blow-out incident occurred at
our Luojia No. 16H gas well located in Kaixian County,
Chongqing Municipality. The gas blow-out caused the leakage of a
large quantity of sulfurated hydrogen, resulting in injuries and
death to many residents living in the surrounding areas. The PRC
government investigated this gas blow-out and found CNPC, who
had provided drilling services to us for the Luojia No. 16H
gas well, liable. This incident has not had, and we do not
believe it will have, a material adverse effect on our results
of operations and financial condition. Because a number of our
production facilities are located in populated areas, we have
established a series of preventative measures to improve the
safety of our employees and surrounding residents and minimize
disruptions or other adverse effects on our business. Theses
measures include:




    providing each household in areas surrounding our production
    facilities with printed materials to explain and illustrate
    safety and protection knowledge and skills; and
    enhancing the implementation of various safety production
    measures we have adopted previously.We believe that these preventative measures have helped minimize
the possibility of similar incidents resulting in serious
casualties and environmental consequences. In addition, the
adoption of these preventative measures has not required
significant capital expenditures to date, and therefore, will
not have a material adverse effect on our results of operations
and financial condition.

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On November 13, 2005, an explosion occurred at a dianil
plant of Jilin Petrochemical Company, our branch company in the
Jilin Province. The incident caused serious water pollution of
the Songhuajiang River. The Chinese government is currently
investigating the cause of this incident and we will, in
accordance with the result of such investigation, take
responsibility for this incident. We cannot assure you that the
result of such investigation will not have a material adverse
effect on our financial condition or results of operations.

We intend to implement the following measures to prevent future
occurrences of similar incidents:




    conducting environmental risk monitoring; and
    establishing preventive systems for emergency use at refinery
    and petrochemical enterprises.



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 the
date of our establishment in 1999, CNPC undertook to us the
following:




    CNPC would use its best endeavours to obtain formal land use
    right licenses to replace the entitlement certificates in
    relation to the 28,649 parcels of land, which were leased or
    transferred to us from CNPC, within one year from August,
    September and October 1999 when the relevant entitlement
    certificates were issued;
    CNPC would complete, within one year from November 5, 1999,
    the necessary governmental procedures for the requisition of the
    collectively owned land on which 116 service stations owned by
    us are located; and
    CNPC would obtain individual building ownership certificates in
    our name for all of the 57,482 buildings transferred to us
    by CNPC, before November 5, 2000.As of December 31, 2005, CNPC obtained formal land use
right certificates for 27,400 of the 28,649 parcels of land and
ownership certificates for some buildings. The governmental
procedures for the above-mentioned service stations located on
collectively owned land have not been completed to date. Our
directors believe 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 building ownership
certificates have not been obtained or the fact that the
relevant governmental procedures have not been completed. Our
directors believe that this will not have any material adverse
effect on our results of operations and financial condition.

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





Regulatory Matters

Overview

Chinas oil and gas industry is subject to extensive
regulation by the PRC government with respect to a number of
aspects of exploration, production, transmission and marketing
of crude oil and natural gas as well as production,
transportation and marketing of refined products and chemical

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products. The following central government authorities exercise
control over various aspects of Chinas oil and gas
industry:



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


    sets the import and export volume quotas for crude oil and
    refined products according to the overall supply and demand for
    crude oil and refined products in China as well as the WTO
    requirements for China;
    issues import and export licenses for crude oil and refined
    products to oil and gas companies that have obtained import and
    export quotas; and
    examines and approves production sharing contracts and
    Sino-foreign equity and cooperative joint venture contracts.

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


    has the industry administration and policy coordination
    authority over Chinas oil and gas industry;
    determines mandatory minimum volumes and applicable prices of
    natural gas to be supplied to certain fertilizer producers;
    publishes guidance prices for natural gas and retail median
    guidance prices for certain refined products, including gasoline
    and diesel;
    approves significant petroleum, natural gas, oil refinery and
    chemical projects set forth under the Catalogues of Investment
    Projects Approved by the Central Government; and
    approves Sino-foreign equity and cooperative projects exceeding
    certain capital amounts.Exploration Licenses and Production Licenses

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

Applicants for exploration licenses must first register with the
Ministry of Land and Resources blocks in which they intend to
engage in exploration activities. The holder of an exploration
license is obligated to make a progressively increasing annual
minimum exploration investment relating to the exploration
blocks in respect of which the license is issued. Investments
range from RMB 2,000 per square kilometer for the initial
year to RMB 5,000 per square kilometer for the second year,
and to RMB 10,000 per square kilometer for the third and
subsequent years. Additionally, the holder has to pay an annual
exploration license fee that starts at RMB 100 per square
kilometer for each of the first three years and increases by an
additional RMB 100 per square kilometer per year for
subsequent years up to a maximum of RMB 500 per square
kilometer. The maximum term of an exploration license is seven
years, subject to twice renewal upon expiration of the original
term, with

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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 production license
has a maximum term of 15 years. Upon the reserves becoming
proved for a block, the holder must apply for a full production
license in order to begin production. In addition, the holder
needs to obtain the right to use that block of land. Generally,
the holder of a full production license must obtain a land use
rights certificate for industrial land use covering that block
of land.

The Ministry of Land and Resources issues production licenses to
applicants on the basis of the reserve reports approved by the
relevant authorities. Production license holders are required to
pay an annual production right usage fee of RMB 1,000 per square
kilometer. Administrative rules issued by the State Council
provide that the maximum term of a production license is
30 years. In accordance with a special approval from the
State Council, the Ministry of Land and Resources has issued
production licenses with terms coextensive with the projected
productive life of those reservoirs. Each of our production
licenses is renewable upon our application 30 days prior to
expiration. If oil and gas prices increase, the productive life
of our crude oil and natural gas reservoirs may be extended
beyond the current terms of the relevant production licenses.

Among the major PRC oil and gas companies, the exploration
licenses and production licenses held by PetroChina, Sinopec and
CNOOC account for the majority of mining rights in China. Among
those companies, PetroChina and Sinopec primarily engage in
onshore exploration and production, while CNOOC primarily
engages in offshore exploration and production.

Pricing



Crude OilPetroChina 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 ProductsPrior 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 (but after
March 26, 2006, the price of diesel for fishing vessels has
been set in line with the retail base price published in the
current year, with no upward adjustment for the time being).
These retail median guidance prices of gasoline and diesel vary
in each provincial level distribution region. Since October
2001, the National Development and Reform Commission has
published the retail median guidance prices of gasoline and
diesel from time to time based on the weighted average FOB
Singapore, Rotterdam and New York trading prices for diesel and
gasoline plus transportation costs and taxes. Generally,
adjustments will be made only if the weighted average prices
fluctuate beyond 8% of the previously published retail median
guidance price.

PetroChina sets the wholesale prices for its gasoline and diesel
on the basis of its retail prices and a discount to its retail
prices of at least 4.5% 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,

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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 ProductsPetroChina determines the prices of all of its chemical products.



Natural GasThe 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.

Prior to December 26, 2005, ex-factory prices varied
depending on whether or not the natural gas sold was within the
government-formulated natural gas supply plan. For natural gas
sold within the government-formulated supply plan, the National
Development and Reform Commission fixed
ex-factory prices
according to the nature of the customers. Most of these
customers were fertilizer producers. For natural gas sold to
customers not subject to the government-formulated supply plan,
the National Development and Reform Commission published median
guidance ex-factory
prices, and allowed natural gas producers to adjust prices
upward or downward by up to 10%.

On December 26, 2005, the National Development and Reform
Commission reformed the mechanism for setting the ex-factory
prices of domestic natural gas by changing the
ex-factory prices to
governmental guidance prices, and categorizing domestic natural
gas into two categories. On the basis of the
ex-factory price set by
the government, subject to the negations between the seller and
the buyer, the actual
ex-factory price of the
first category may float upward or downward up to 10%; while the
actual ex-factory price
of the second category may float upward up to 10% and downward
to any level. The price of the first category will be adjusted
to the same level as the second category within three to
five year. The National Development and Reform Commission
does not allow PetroChina and Sinopec to charge different prices
towards internal and external enterprises.

PetroChina negotiates the actual ex-factory price with natural
gas users within the benchmark price set by the government and
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 OilEach 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 ProductsPreviously, only PetroChina, Sinopec and joint ventures
established by the two companies had the right to conduct
gasoline and diesel wholesale business. Other companies,
including foreign invested companies, were not allowed to engage
in wholesale of gasoline and diesel in Chinas domestic
market. In general, only domestic companies, including
Sino-foreign joint venture companies, were permitted to engage
in retail of gasoline and diesel. Since January 1, 2005
when the Interim Measures on the Administration of the Refined
Products Market became effective, all entities meeting certain
requirements are allowed to submit applications to the Ministry
of Commerce to conduct gasoline and diesel wholesale and retail
businesses.



Natural GasThe 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
    CompaniesCurrently, 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 RefiningPRC regulations permit foreign minority ownership in pipeline
transportation, oil storage facilities and oil jetties. There is
no express general restriction on foreign investment in
refineries and petrochemical facilities. However, construction
of new refinery or ethylene facilities, expansion of existing
refinery facilities and upgrading of existing ethylene
facilities by increasing annual production capacity of more than
200 thousand tons are subject to the approval of relevant
government authorities. The production of ethylene with an
annual production capacity exceeding 600 thousand tons must be
conducted by companies majority-owned by Chinese entities.
Furthermore, when

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appropriate, projects must receive necessary approvals from
relevant PRC government agencies. See
Item 3  Key Information   Risk
Factors.

Import and Export

The import and export of crude oil and the export of refined
products is subject to automatic filing and quota control in
China. Currently, 25 companies are qualified to import crude oil
and 121 companies are qualified to export refined products.
The import of refined products was subject to quota and
licensing control until the end of 2003. Since January 1,
2004, the import of refined products by state-owned entities has
been exempted from import quota, licensing control and is
subject to automatic filing control. The Ministry of Commerce
sets the annual import and export volumes and quotas for crude
oil and refined products by taking into account the supply and
demand in China as well as the WTO requirements for China. The
Ministry of Commerce is also responsible for issuing import and
export licenses for products subject to quotas. Upon receiving
quota allocation, refining companies or enterprises can import
crude oil through State-authorized import companies. Since
December 9, 2005, the export volume of gasoline, kerosene
and diesel shall be approved by the Ministry of Commerce and the
National Development and Reform Commission and General
Administration of Customs.

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

Capital Investment and Financing

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

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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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                      |  |                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Enterprise income tax |  | Taxable income |  | Generally at a rate of 33%.
    However, our qualified branch companies in the west regions of
    the PRC are entitled to a rate of 15%. Tax concession or
    exemption enjoyed by any subsidiary or branch company continues
    to apply.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                     
|Value-added tax       |  | Revenue        |  | 13% for liquified natural gas,
    natural gas, liquified petroleum 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 is deducted from output value-added tax
    payable by PetroChina. Since March 14, 2006, the rebate of
    the value-added tax paid in connection with export of gasoline
    has been suspended.
|                     
|                      |  | Sales volume   |  | 5% for the Sino-foreign oil and gas
    exploration and development cooperative projects. However input
    value-added tax cannot be deducted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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|                                           |  |                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------------------------------------------ |  | ------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Tax item                                   |  | Tax base                                   |  | Tax Rate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                           |  |                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Business tax                               |  | Revenue from transportation services       |  | 3%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                          
|Consumption tax                            |  | Aggregate volume sold or
    self-consumed |  | RMB 277.6 per ton for
    gasoline; since January 1, 1999, RMB 388.64 per ton
    for leaded gasoline.
    RMB 117.6 per ton for diesel.
    Since April 1, 2006, RMB 277 per ton for naphtha and
    levied at the rate of 30% of the taxable amount for the time
    being. No consumption tax will be levied on those specified in
    the 2005 production and supply plan approved by the State
    Administration of Taxation.
    Since April 1, 2006, RMB 256.4 per ton for solvent
    naphtha and levied at the rate of 30% of the taxable amount for
    the time being. No consumption tax will be levied on those
    specified in the 2005 production and supply plan approved by the
    State Administration of Taxation.
    Since April 1, 2006, RMB 225.2 per ton for lubricants
    and levied at the rate of 30% of the taxable amount for the time
    being.
    Since April 1, 2006, RMB 101.5 per ton for fuel oil
    and levied at the rate of 30% of the taxable amount for the time
    being.
    Since April 1, 2006, RMB 124.6 per ton for aviation
    kerosene and not levied for the time being.
|                                          
|Resource tax                               |  | Aggregate volume sold or
    self-consumed |  | Since July 1, 2005, resource
    tax applicable to crude oil of our company was adjusted upward
    from the original RMB 8 to 30 per ton to RMB 14 to 30
    per ton, and the resource tax for natural gas was adjusted from
    the original RMB 2 to 15 per thousand cubic meter to
    RMB 7 to 15 per thousand cubic meter.
    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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                          
|Special fee for oil
    sales              |  | Sales amount above certain threshold       |  | Effective March 26, 2006,
    levied on the crude oil sold at or above US$40/barrel, with a
    five-level progressive tax rates, varying from 20% to 40%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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|                            |  |                   |  |                                                                       
|--------------------------- |  | ----------------- |  | ----------------------------------------------------------------------
|Tax item                    |  | Tax base          |  | Tax Rate                                                              
|                            |  |                   |  |                                                                       
|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.



Environmental Regulations









ITEM 4A  UNRESOLVED STAFF COMMENTS




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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 37 to
our consolidated financial statements included elsewhere in this
annual report and the section headed  Other
Information  US GAAP Reconciliation summarize
the significant differences between IFRS and US GAAP as they
relate to us.

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

Pursuant to an acquisition agreement by and between our company
and CNPC dated March 28, 2005, we acquired the refinery and
petrochemical businesses respectively owned by CNPCs
wholly-owned subsidiaries, Dayuan and Qingyang, from CNPC for
which we paid a cash consideration of RMB 9 million.

The acquisition is deemed a combination of entities under common
control since we and the refinery and petrochemical operations
of Dayuan and Qingyang 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 refinery and petrochemical operations
acquired are accounted for at historical cost to CNPC with net
liabilities of RMB 183 million as at the effective
date. Our prior years consolidated financial statements
were restated to give effect to the acquisition in these periods
as if the operations of our company and these operations had
always been combined in these periods. The difference between
the RMB 9 million acquisition price and the net
liabilities transferred from CNPC was adjusted against equity.

In August 2005, the shareholders of our company approved the
acquisition and transfer agreements relating to our acquisition
of a 50% interest of Newco. Newco was established in 2005 and
was wholly owned by CNODC and one of its subsidiaries. Under the
terms of the related agreements, CNODC transferred certain oil
and gas exploration operations into Newco and we contributed to
Newco our wholly-owned subsidiary, PetroChina International
Limited (PTRI), and cash in the amount of
approximately RMB 20,162 million, which is the
difference between the cash contribution of
RMB 20,741 million payable by us according to the
acquisition agreement and the cash consideration of
RMB 579 million for PTRI receivable by us.

Pursuant to the relevant equity transfer agreement, we shall
have the right to appoint four of the seven directors of Newco,
which will enable us to maintain effective control over Newco.

Similar to the accounting method applied in the treatment of the
refinery and petrochemical businesses acquired by us, our
investment in Newco and related acquisition transactions will be
accounted for in a manner similar to a uniting of interests
since these transactions are among entities under common control
of CNPC. Our prior years consolidated financial statements
were restated as if the operations of our company and these
businesses had always been combined in these periods. The
difference between our cash payment of
RMB 20,162 million and the net assets

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of Newco in an amount of RMB 35,551 million as at the
effective date of the purchase and transfer agreement (including
RMB 20,162 million contributed by us and
RMB 50 million contributed by CNODC and its
subsidiaries to the registered capital of Newco) was adjusted
against equity as the amount of RMB 20,162 million was
paid directly to Newco.

Overview

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




    the exploration, development, production and sale of crude oil
    and natural gas;
    the refining, transportation, storage and marketing of crude oil
    and petroleum products;
    the production and marketing of basic petrochemical products,
    derivative chemical products and other chemical products; and
    the transmission of natural gas, crude oil and refined oil
    products as well as sale of natural gas.We are Chinas largest producer of crude oil and natural
gas and are one of the largest companies in China in terms of
sales. In the year ended December 31, 2005, we produced
approximately 822.9 million barrels of crude oil and
approximately 1,119.5 billion cubic feet of natural gas for
sale. Our refineries also processed approximately
752 million barrels of crude oil in the year ended
December 31, 2005. In the year ended December 31,
2005, we had total revenue of RMB 552,229 million and
net income of RMB 133,362 million.

Factors Affecting Results of Operations

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



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

Prior to September 1, 1999, the premiums and discounts
applied to our crude oil sales were largely determined through
negotiations between CNPC and Sinopec, our largest customer.
Since September 1, 1999, these discounts or premiums has
been determined in accordance with a crude oil premium or
discount calculation agreement and its supplemental agreement we
entered into with Sinopec. These agreements establish premiums
or 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

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below sets forth the median prices for our principal grades of
crude oil in 2003, 2004 and 2005 and the negotiated premiums or
discounts applicable to those grades of crude oil since June
2002.

|          |  |           |       |                                    |         |  |                    |         |  |           |         |  |  |      |     |  |      |  |       |      |  |  |       |   |  |  |       |  
|--------- |  | --------- | ----- | ---------------------------------- | ------- |  | ------------------ | ------- |  | --------- | ------- |  |  | ---- | --- |  | ---- |  | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|          |  |           |       | Median prices for principal grades |         |  | Premium/(discount) |        
|          |  |           |       | of crude oil (RMB/barrel)          |         |  | (RMB/barrel)       |        
|          |  |           |       |                                    |         |  |                    |        
|Grade of  |  |           |       | Year 2003                          |         |  | Year 2004          |         |  | Year 2005 |         |  | 
|crude oil |  | Benchmark |       |                                    | average |  |                    | average |  |           | average |  |  | 2003 |     |  | 2004 |  |       | 2005 | 
|          |  |           |       |                                    |         |  |                    |         |  |           |         |  |  |      |     |  |      |  |       |      | 
|Daqing    |  |           | Minas |                                    |         |  | 240.8              |         |  |           | 300.7   |  |  |      | 430 |  |      |  | (0.3  | )    |  |  | 0     |   |  |  | (4.4  | )
|          |  |           |       |                                    |         |  |                    |         |  |           |         |  |  |      |     |  |      |  |       |      | 
|Jidong    |  |           | Minas |                                    |         |  | 240.8              |         |  |           | 300.7   |  |  |      | 430 |  |      |  | (0.3  | )    |  |  | 0     |   |  |  | (4.4  | )
|          |  |           |       |                                    |         |  |                    |         |  |           |         |  |  |      |     |  |      |  |       |      | 
|Huabei    |  |           | Minas |                                    |         |  | 240.8              |         |  |           | 300.7   |  |  |      | 430 |  |      |  | 1     |      |  |  | 1.3   |   |  |  | (3.0  | )
|          |  |           |       |                                    |         |  |                    |         |  |           |         |  |  |      |     |  |      |  |       |      | 
|Dagang    |  |           | Cinta |                                    |         |  | 237.0              |         |  |           | 290.5   |  |  |      | 412 |  |      |  | 1.4   |      |  |  | 1.4   |   |  |  | (1.8  | )
|          |  |           |       |                                    |         |  |                    |         |  |           |         |  |  |      |     |  |      |  |       |      | 
|Tarim     |  |           | Minas |                                    |         |  | 240.8              |         |  |           | 300.7   |  |  |      | 430 |  |      |  | (33.7 | )    |  |  | (34.6 | ) |  |  | (34.9 | )
|          |  |           |       |                                    |         |  |                    |         |  |           |         |  |  |      |     |  |      |  |       |      | 
|Tuha      |  |           | Tapis |                                    |         |  | 247.0              |         |  |           | 329.2   |  |  |      | 457 |  |      |  | (25.5 | )    |  |  | (25.5 | ) |  |  |      |  
|          |  |           |       |                                    |         |  |                    |         |  |           |         |  |  |      |     |  |      |  |       |      | 







| |                       
| | ----------------------
| | Refined Product Prices





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realized selling prices tend to be higher in the western and
northern regions of China, where we dominate the market, as
compared to our average realized selling prices in the eastern
and southern regions, where Sinopec has a stronger presence.

The following table sets forth the retail median prices for
90(#) gasoline and 0(#) diesel published by the State
Development Planning Commission or the National Development and
Reform Commission from January 2005 to May 2006 when such
adjustments were made.

|               |  |           |       |             |  |  |       | 
|-------------- |  | --------- | ----- | ----------- |  |  | ----- | 
|               |  | 90(#)     |       |            
|Date           |  | Gasoline  |       | 0(#) Diesel
|               |  |           |       |            
|               |  | (RMB/ton) |       | (RMB/ton)  
|March 23, 2005 |  |           | 4,572 |             |  |  |      | 
|May 10, 2005   |  |           |      |             |  |  | 3,960 | 
|May 23, 2005   |  |           | 4,422 |             |  |  |      | 
|June 25, 2005  |  |           | 4,622 |             |  |  | 4,110 | 
|July 23, 2005  |  |           | 4,922 |             |  |  | 4,360 | 
|March 26, 2006 |  |           | 5,172 |             |  |  | 4,510 | 
|May 24, 2006   |  |           | 5,672 |             |  |  | 5,010 | 



| |                        
| | -----------------------
| | Chemical Product Prices





| |                   
| | ------------------
| | Natural Gas Prices











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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.

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

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



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

Critical Accounting Policies

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



Accounting of Oil and Gas Exploration and Development
    ActivitiesWe use successful efforts method of accounting, with specialized
accounting rules that are unique to the oil and gas industry,
for oil and gas exploration and production activities. Under
this method, geological and seismic costs incurred are expensed
prior to the discovery of proved reserves. However, all costs
for developmental wells, support equipment and facilities, and
mineral interests in oil and gas properties are capitalized.
Costs of exploratory wells are capitalized as construction in
progress pending determination of whether the wells find proved
reserves. The costs of exploratory wells will be further
capitalized pending determination of whether the wells find
sufficient economically exploitable reserves. For exploratory
wells located in regions that do not require substantial capital
expenditures before the commencement of production, the
evaluation of the economic benefits of the reserves in such
wells will be completed within one year following the completion
of the exploration drilling. Where such evaluation indicates
that no economic benefits can be obtained, the relevant costs of
exploratory wells will be converted to dry hole exploration
expenses. For wells that found economically viable reserves in
areas where a major capital expenditure would be required before
production can begin, the related well costs remain capitalized
only if additional drilling is under way or firmly planned.
Otherwise the well costs are expensed as dry holes. Our company
has no costs of unproved properties capitalized in oil and gas
properties.

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

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

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

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



Property, Plant and EquipmentWe 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

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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 17 to our
consolidated financial statements included elsewhere in this
annual report, our property, plant and equipment, excluding oil
and gas reserves, were revalued as of June 30, 1999.
Subsequently, our refining and chemical production equipment was
revalued as of September 30, 2003.

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

|                             |  |            
|---------------------------- |  | -----------
|Land and buildings           |  | 25-40 years
|Plant and machinery          |  | 10-15 years
|Equipment and motor vehicles |  | 3-16 years 









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Provision for Asset DecommissioningProvision for decommissioning and restoration is recognized in
full on the installation of oil and gas properties. The amount
recognized is the present value of the estimated future
expenditure determined in accordance with local conditions and
requirements. A corresponding addition to the related oil and
gas properties of an amount equivalent to the provision is also
created. This is subsequently depreciated as part of the capital
costs of the oil and gas properties. Any change in the present
value of the estimated expenditure other than the one due to
passage of time which is regarded as interest cost, is reflected
as an adjustment to the provision and oil and gas properties.



Impairment of Accounts ReceivableAccounts receivables are recognised initially at fair value and
subsequently measured at amortised costs, using the effective
interest method, less provision made for impaired accounts.
Accounts where there are indications that a receivable may be
impaired or not collectible, a provision would be recorded based
on best estimates to reduce the receivable balance to the amount
that is expected to be collected. Factors considered in making a
provision include the historical payment and collection
experience, debtors credit worthiness and appropriate
discount rates. The recording of provisions requires the
application of judgments about the ultimate resolution of these
accounts receivable. As a result, provisions are reviewed at
each balance sheet date and adjusted to reflect our current best
estimates.



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

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



Revenue RecognitionSales 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 in our normal operations, and when the
amount of revenue and the costs incurred or to be incurred in
respect of the transaction can be measured and collected
reliably.

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

We entered into a Crude Oil Mutual Supply Framework Agreement
with Sinopec, which can be characterized as a buy/sell contract,
and recognized the revenue derived from this agreement in our

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consolidated statements of income. Since the transactions under
the agreement are separately invoiced and settled and cannot be
offset with each other, they were not treated as non-monetary
transactions as defined in APB Opinion No. 29
Accounting for Non-monetary transactions. In
February 2005, the U.S. Securities and Exchange Commission
issued a letter to the oil and gas industry requesting
additional disclosures regarding buy/sell contracts.
Accordingly, we have reviewed such transactions and estimated
that, if we are required to report the net amount of such
buy/sell contracts, our reported amount in the line items of
Sales and other operating revenues and
Purchase, services and other for the year ended
December 31, 2004 and 2005 would be reduced by RMB
2,217 million and RMB 1,384 million, respectively. No
change will occur to our net income as a result of this.

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



One-time Compensatory Payments for Staff HousingAs disclosed in Note 37(b) 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 compensatory payments have been borne or are to be
borne by our State-owned shareholder, CNPC. Under IFRS, such
direct payments to employees or reimbursements will not be
recorded in our consolidated income statement. US GAAP contain
no such exemption but require this principal shareholders
action on our behalf to be recorded in the consolidated income
statement. During the year ended December 31, 2002, we and
CNPC completed the process of estimating the amounts payable to
qualified employees at the level of the affected business units
as a whole. We have reflected this best available estimate of
such payments in determining our net income for the year ended
December 31, 2002, under US GAAP. Since this amount is
borne by our State-owned shareholder, a corresponding amount has
been included as an addition to the other reserves in our
shareholders equity. This estimate did not significantly
change in 2004 and 2005. 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 37 to our consolidated financial
statements included elsewhere in this annual report and the
section headed  Other Information  US
GAAP Reconciliation below.

Acquisitions



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

In June 2005, we entered into a capital contribution agreement
with CNODC, Central Asia Petroleum Co., Ltd. and Newco, whereby,
in December 2005 we acquired a 50% interest in Newco, a
subsidiary of CNODC, for a consideration of
RMB 20,741 million which was paid to Newco as our
capital contribution. Upon consummation of the transaction, we
obtained a 50% interest in certain overseas oil and gas assets
transferred by CNODC to Newco. We also entered into a transfer
agreement, pursuant to which, in December 2005, we transferred
all of our interest in PTRI to

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Newco for a consideration of RMB 579 million. See
Item 4  Information on the
Company  Introduction  History and
Development of the Company  Overview of Our
Operations.

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

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

Pursuant to our companys board resolutions dated
October 26, 2005, our company made an offer to the minority
holders of the A Shares of Jinzhou Petrochemical Co., Ltd. or
Jinzhou Petrochemical, to acquire at the purchase price of
RMB 4.25 per share 150 million issued and outstanding
Jinzhou Petrochemical A Shares. As of December 31, 2005,
our company acquired 117,486,753 Jinzhou Petrochemical A Shares,
representing 14.92% of the total share capital of Jinzhou
Petrochemical, for a total cash consideration of approximately
RMB 500 million. After the acquisition, our company
owns 95.87% of the total share capital of Jinzhou Petrochemical.
The difference between the consideration for this acquisition
and the book value of the acquired assets and liabilities will
be included in the equity interests. Jinzhou Petrochemical was
delisted on January 4, 2006 upon approval from the China
Securities Regulatory Commission.

Pursuant to our companys board resolutions dated
October 26, 2005, our company made offers to the holders of
the A Shares of Jilin Chemical Industrial Company Limited
(Jilin Chemical) and the holders of the H Shares of
Jilin Chemical respectively to acquire at the purchase price of
RMB 5.25 per share of 200 million outstanding A
Shares, and to acquire at the purchase price of HK$2.80 per
Jilin Chemical H Share of the 964.778 million outstanding H
Shares (including Jilin Chemical ADSs). By February 2006, we
have paid an aggregate of RMB 3,480 million for this
transaction. The tender offers were completed in February 2006.
The effect of the acquisition of Jilin Chemical will be
reflected in our companys consolidated financial
statements ended as of December 31, 2006. Jilin Chemical A
Shares, H Shares and ADSs were delisted from the Hong Kong Stock
Exchange, Shenzhen Stock Exchange and NYSE on January 23,
February 20 and February 15, 2006, respectively.

Pursuant to our companys board resolutions dated
October 26, 2005, our company made an offer to the holders
of A Shares of Liaohe Jinma Oilfield Co., Ltd. or Liaohe Jinma,
to acquire at the purchase price of RMB 8.80 per share
200 million issued and outstanding Liaohe Jinma A Shares.
As of December 31, 2005, our company acquired 172,315,428
Liaohe Jinma A Shares, representing 15.67% of the total share
capital of Liaohe Jinma for a total consideration of
approximately RMB 1,519 million. Following the
completion of this acquisition, our company would own 97.48% of
the total share capital of Liaohe Jinma. The difference between
the consideration for this acquisition and the book value of the
acquired assets and liabilities was included in the equity
interests. Upon the approval by China Securities Regulatory
Commission, Liaohe Jinma was delisted as at January 4, 2006.

On December 6, 2005, our company executed two separate
purchase agreements with two wholly-owned subsidiaries of CNPC,
Liaohe Petroleum Exploration Bureau and China Petroleum Pipeline
Bureau, whereby, our company would acquire from the two
companies a 15.56% equity interest and a 20.17% equity interest,
respectively, in PetroChina Fuel Oil Company (the Fuel Oil
Company), a 55.43% subsidiary of our company, with a total
cash consideration of RMB 559 million. The Fuel Oil
Company is principally engages in investing in and developing of
fuel oil in the upstream and downstream areas outside the PRC.
Upon completion of the above acquisitions, our companys
interest in the Fuel Oil Company will be increased and the
management

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of the Fuel Oil Company is expected to be strengthened. This
acquisition has been approved by the State-owned Assets
Supervision and Administration Commission of the PRC
(SASAC) and the relevant parties to the two purchase
agreements are currently closing the transactions.





Operating Results

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

Our income statement for each of the three years ended
December 31, 2003, 2004 and 2005 is summarized in the table
below.

|                                                   |  |                         |          |   |                |  |          |                |  |  |          |  
|-------------------------------------------------- |  | ----------------------- | -------- | - | -------------- |  | -------- | -------------- |  |  | -------- | -
|                                                   |  | Year ended December 31, |         
|                                                   |  |                         |         
|                                                   |  | 2003                    |          |   | 2004           |  |          | 2005           | 
|                                                   |  |                         |          |   |                |  |          |                | 
|                                                   |  | in million RMB          |          |   | in million RMB |  |          | in million RMB | 
|Total revenues                                     |  |                         | 310,431  |   |                |  | 397,354  |                |  |  | 552,229  |  
|                                                   |  |                         |          |   |                |  |          |                | 
|Operating expenses                                 |  |                         | (208,719 | ) |                |  | (246,216 | )              |  |  | (360,058 | )
|                                                   |  |                         |          |   |                |  |          |                | 
|Income from operations                             |  |                         | 101,712  |   |                |  | 151,138  |                |  |  | 192,171  |  
|                                                   |  |                         |          |   |                |  |          |                | 
|Exchange gain (loss), net                          |  |                         | (36      | ) |                |  | 8        |                |  |  | 88       |  
|Interest expense, net                              |  |                         | (1,916   | ) |                |  | (1,523   | )              |  |  | (838     | )
|Income from equity affiliates                      |  |                         | 933      |   |                |  | 1,621    |                |  |  | 2,401    |  
|                                                   |  |                         |          |   |                |  |          |                | 
|Income before income taxes                         |  |                         | 100,693  |   |                |  | 151,244  |                |  |  | 193,822  |  
|Income Taxes                                       |  |                         | (28,796  | ) |                |  | (43,598  | )              |  |  | (54,180  | )
|(Income) loss applicable to
    minority interests |  |                         | (2,062   | ) |                |  | (3,803   | )              |  |  | (6,280   | )
|                                                   |  |                         |          |   |                |  |          |                | 
|Net income                                         |  |                         | 69,835   |   |                |  | 103,843  |                |  |  | 133,362  |  
|                                                   |  |                         |          |   |                |  |          |                | 



|                                           |  |                                       |          |   |      |      |          |      |  |  |      |   |  |      |          |   |  |  |      |  
|------------------------------------------ |  | ------------------------------------- | -------- | - | ---- | ---- | -------- | ---- |  |  | ---- | - |  | ---- | -------- | - |  |  | ---- | -
|                                           |  |                                       |          |   |      | 2004 |          |      |  |  | 2005 |  
|                                           |  |                                       |          |   |      | vs.  |          |      |  |  | vs.  |  
|                                           |  | 2003                                  |          |   | 2004 |      |          | 2003 |  |  | 2005 |   |  | 2004 |         
|                                           |  |                                       |          |   |      |      |          |      |  |  |      |   |  |      |         
|                                           |  | (RMB in millions, except percentages) |         
|Sales and other operating
    revenues     |  |                                       |          |   |      |      |          |      |  |  |      |   |  |      |          |   |  |  |      |  
|Exploration and production                 |  |                                       | 185,782  |   |      |      | 233,948  |      |  |  | 25.9 | % |  |      | 337,208  |   |  |  | 44.1 | %
|Refining and marketing                     |  |                                       | 224,177  |   |      |      | 296,427  |      |  |  | 32.2 | % |  |      | 428,494  |   |  |  | 44.6 | %
|Chemicals and marketing                    |  |                                       | 39,211   |   |      |      | 57,179   |      |  |  | 45.8 | % |  |      | 73,978   |   |  |  | 29.4 | %
|Natural gas and pipeline                   |  |                                       | 15,067   |   |      |      | 18,255   |      |  |  | 21.2 | % |  |      | 26,214   |   |  |  | 43.6 | %
|Total                                      |  |                                       | 464,237  |   |      |      | 605,809  |      |  |  | 30.5 | % |  |      | 865,894  |   |  |  | 42.9 | %
|                                           |  |                                       |          |   |      |      |          |      |  |  |      |   |  |      |         
|Less intersegment sales                    |  |                                       | (153,806 | ) |      |      | (208,455 | )    |  |  | 35.5 | % |  |      | (313,665 | ) |  |  | 50.5 | %
|                                           |  |                                       |          |   |      |      |          |      |  |  |      |   |  |      |         
|Consolidated net sales from
    operations |  |                                       | 310,431  |   |      |      | 397,354  |      |  |  | 28.0 | % |  |      | 552,229  |   |  |  | 39.0 | %
|                                           |  |                                       |          |   |      |      |          |      |  |  |      |   |  |      |         

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The table below sets forth our operating profits by business
segment for each of the three years ended December 31,
2003, 2004 and 2005, 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.

|                                  |  |                                       |         |   |      |      |         |      |  |  |       |    |  |      |         |   |  |  |       |   
|--------------------------------- |  | ------------------------------------- | ------- | - | ---- | ---- | ------- | ---- |  |  | ----- | -- |  | ---- | ------- | - |  |  | ----- | --
|                                  |  |                                       |         |   |      | 2004 |         |      |  |  | 2005  |   
|                                  |  |                                       |         |   |      | vs.  |         |      |  |  | vs.   |   
|                                  |  | 2003                                  |         |   | 2004 |      |         | 2003 |  |  | 2005  |    |  | 2004 |        
|                                  |  |                                       |         |   |      |      |         |      |  |  |       |    |  |      |        
|                                  |  | (RMB in millions, except percentages) |        
|Income (loss) from
    operations |  |                                       |         |   |      |      |         |      |  |  |       |    |  |      |         |   |  |  |       |   
|Exploration and production        |  |                                       | 95,230  |   |      |      | 130,213 |      |  |  | 36.7  | %  |  |      | 208,080 |   |  |  | 59.8  | % 
|Refining and marketing            |  |                                       | 4,701   |   |      |      | 11,891  |      |  |  | 152.9 | %  |  |      | (19,810 | ) |  |  |      |   
|Chemicals and marketing           |  |                                       | 1,041   |   |      |      | 7,655   |      |  |  | 635.4 | %  |  |      | 3,276   |   |  |  | (57.2 | )%
|Natural gas and pipeline          |  |                                       | 1,922   |   |      |      | 2,535   |      |  |  | 31.9  | %  |  |      | 3,183   |   |  |  | 25.6  | % 
|Other                             |  |                                       | (1,182  | ) |      |      | (1,156  | )    |  |  | (2.2  | )% |  |      | (2,558  | ) |  |  | 121.3 | % 
|                                  |  |                                       |         |   |      |      |         |      |  |  |       |    |  |      |        
|Total                             |  |                                       | 101,712 |   |      |      | 151,138 |      |  |  | 48.6  | %  |  |      | 192,171 |   |  |  | 27.1  | % 
|                                  |  |                                       |         |   |      |      |         |      |  |  |       |    |  |      |        

Year Ended December 31, 2005 Compared to Year Ended
December 31, 2004




| |                                  
| | ---------------------------------
| | Consolidated Results of Operation



| |         
| | --------
| | Overview



Total Revenue.


Operating Expenses.


Purchases, Services and Other Expenses.


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Employee Compensation Costs.Employee compensation costs
increased 29.4% from RMB 22,934 million for the year
ended December 31, 2004 to RMB 29,675 million for
the year ended December 31, 2005. This increase was due
primarily to an increase of RMB 4,992 million in
salaries and other benefits with the improvement of our
operating results and an increase in labor costs as a result of
the expansion of our retail distribution network.

Depreciation, Depletion and Amortization.Depreciation,
depletion and amortization increased 6.1% from
RMB 48,362 million for the year ended
December 31, 2004 to RMB 51,305 million for the
year ended December 31, 2005. This increase was due
primarily to an increase of RMB 4,020 million in the
allocation of depreciation and depletion expenses as a result of
the increase in the average balance of the assets, and a
decrease of RMB 1,720 million in the depreciation
expenses as a result of fixed asset disposals and a decrease in
the provisions for impairment.

Selling, General and Administrative Expenses.Selling,
general and administrative expenses increased 29.1% from
RMB 28,302 million for the year ended
December 31, 2004 to RMB 36,538 million for the
year ended December 31, 2005. This increase was due
primarily to an increase of RMB 2,580 million in
transportation expenses as a result of our increased sales
volume of refined products and the increased railway
transportation price, as well as an increase of
RMB 720 million in repair expenses and lease expenses.

Exploration Expenses.Exploration expenses increased
28.8% from RMB 12,090 million for the year ended
December 31, 2004 to RMB 15,566 million for the
year ended December 31, 2005. This increase was due
primarily to increased expenditures in exploration activities
for the purpose of increasing our crude oil and gas reserves.

Taxes Other than Income Taxes.Taxes other than income
taxes increased 18.4% from RMB 19,943 million for the
year ended December 31, 2004 to
RMB 23,616 million for the year ended
December 31, 2005. This increase was due primarily to an
increase of RMB 1,309 million in consumption tax as a
result of increased sales volume of gasoline and diesel, an
increase of RMB 951 million in resources compensation
fees as a result of increased revenues from crude oil and
natural gas, as well as an increase of RMB 504 million
in resources tax as a result of the governments upward
adjustment to the tax rate.

Income From Operations.As a result of the factors
discussed above, income from operations increased 27.1% from
RMB 151,138 million for the year ended
December 31, 2004 to RMB 192,171 million for the
year ended December 31, 2005.

Net Exchange Gain.Net exchange income increased
from RMB 8 million for the year ended
December 31, 2004 to RMB 88 million for the year
ended December 31, 2005. This increase was due primarily to
the appreciation of RMB in 2005.

Net Interest Expense.Net interest expense
decreased 45.0% from RMB 1,523 million for the year
ended December 31, 2004 to RMB 838 million for
the year ended December 31, 2005. This decrease was due
primarily to a decrease of RMB 134 million in the
interest expenses resulted from the decrease in the average
outstanding balance of interest-bearing debts and an increase of
RMB 551 million in the interest income as a result of
sufficient cashflow derived from operating activities.

Income Before Income Taxes.Income before income
taxes increased 28.2% from RMB 151,244 million for the
year ended December 31, 2004 to
RMB 193,822 million for the year ended
December 31, 2005.

Income Taxes.Income taxes increased 24.3% from
RMB 43,598 million for the year ended
December 31, 2004 to RMB 54,180 million for the
year ended December 31, 2005, due primarily to the increase
in the taxable income.

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Net Income.As a result of the factors discussed
above, net income increased 28.4% from
RMB 103,843 million for the year ended
December 31, 2004 to RMB 133,362 million for the
year ended December 31, 2005.



Exploration and ProductionSales and Other Operating Revenue.Sales and other
operating revenue increased 44.1% from
RMB 233,948 million for the year ended
December 31, 2004 to RMB 337,208 million for the
year ended December 31, 2005. This increase was due
primarily to increases in the price and sales volume of crude
oil, as well as an increase in sales volume of natural gas. Our
average realized selling price of crude oil for the year ended
December 31, 2005 was US$48.37 per barrel, representing an
increase of US$14.65 per barrel or 43.4% from US$33.72 per
barrel for the year ended December 31, 2004. In 2005, we
sold 788.8 million barrels of crude oil, representing an
increase of 21.5 million barrels as compared with 2004. Our
exploration and production segment sold 1,049.4 billion
cubic feet of natural gas in the year ended December 31,
2005, as compared to 810.4 billion cubic feet of natural
gas in the year ended December 31, 2004.

Intersegment sales increased 50.4% from
RMB 180,129 million for the year ended
December 31, 2004 to RMB 270,943 million for the
year ended December 31, 2005. This increase was due
primarily to an increase in the price of crude oil and an
increase of intersegment sales volume of crude oil and natural
gas. Sales of crude oil to Sinopec increased 14.9% from
24,053 million in 2004 to 27,640 million in 2005 as a
result of the increase in the price of crude oil.

Operating Expenses.Operating expenses increased 24.5%
from RMB 103,735 million for the year ended
December 31, 2004 to RMB 129,128 million for the
year ended December 31, 2005. This increase was due
primarily to (i) an increase of
RMB 13,543 million in purchase expenses, and
(ii) an increase of RMB 3,822 million in exploration
expenses resulting from the increase of the investment in the
hydrocarbon exploration for the purpose of increasing
hydrocarbon reserve, and (iii) an increase of
RMB 3,221 million in salaries and other benefits.

Income From Operations.As a result of the factors
discussed above, income from operations increased 59.8% from
RMB 130,213 million for the year ended
December 31, 2004 to RMB 208,080 million for the
year ended December 31, 2005.



Refining and MarketingSales and Other Operating Revenue.Sales and other
operating revenue increased 44.6% from
RMB 296,427 million for the year ended
December 31, 2004 to RMB 428,494 million for the
year ended December 31, 2005. This increase was due
primarily to increases in the prices and the sales volumes of
our products.

Sales revenue from gasoline increased 43.6% from
RMB 76,919 million for the year ended
December 31, 2004 to RMB 110,438 million for the
year ended December 31, 2005. The average realized selling
price of gasoline increased 19.2% from RMB 3,542 per ton
for the year ended December 31, 2004 to RMB 4,221 per
ton for the year ended December 31, 2005, which contributed
RMB 17,763 million to the increase of gasoline sales
revenue. We sold approximately 26,160 thousand tons of
gasoline for the year ended December 31, 2005, representing
an increase of 20.5% from approximately 21,710 thousand tons for
the year ended December 31, 2004, which contributed
RMB 15,756 million to the increase of gasoline sales
revenue.

Sales revenue from diesel increased 29.5% from
RMB 136,649 million for the year ended
December 31, 2004 to RMB 176,999 million for the
year ended December 31, 2005. The average realized selling
price of diesel increased 17.0% from RMB 3,165 per ton for
the year ended December 31, 2004 to RMB 3,702 per ton
for the year ended December 31, 2005, which contributed
RMB 25,674 million to the increase of diesel sales
revenue. Sales volume of diesel increased from
43,180 thousand tons for the year ended December 31,
2004 to 47,810 thousand tons for the year

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ended December 31, 2005, representing an increase of 10.7%,
which contributed RMB 14,676 million to the increase
of diesel sales revenue.

Sales revenue from kerosene increased 27.2% from
RMB 5,881 million for the year ended December 31,
2004 to RMB 7,480 million for the year ended
December 31, 2005.

Intersegment sales revenue increased 51.0% from
RMB 21,862 million for the year ended
December 31, 2004 to RMB 33,019 million for the
year ended December 31, 2005, due primarily to increases in
the prices and intersegement sales volume of our principal
products.

Operating Expenses.Operating expenses increased 57.6%
from RMB 284,536 million for the year ended
December 31, 2004 to RMB 448,304 million for the
year ended December 31, 2005. This increase was due
primarily to (i) an increase of
RMB 141,600 million in purchasing crude oil and
refined oil, and (ii) an increase of
RMB 5,354 million in sales and administrative
expenses. In 2005, we purchased 744 million barrels of
crude oil, representing an increase of 58 million barrels
as compared with 2004. The average purchase price of crude oil
was RMB 409 per barrel, which was an increase of
RMB 116 per barrel as compared with 2004. As a result, our
expenses for purchased crude oil in 2005 were
RMB 304,400 million, representing an increase of
RMB 103,200 million as compared with 2004. In
addition, the increase in our sales volume of refined products
in 2005 also contributed to the increase in the operating
expenses.

Income/(Loss) From Operations.As a result of the factors
discussed above, in the year ended December 31, 2005 we
suffered a loss of RMB 19,810 million from operations
while in the year ended December 31, 2004 we realized an
income of RMB 11,891 million from operations, due
primarily to the fact that, in 2005, the price increase of crude
oil exceeded that of refined oil products in China.



Chemicals and MarketingSales and Other Operating Revenue.Sales and other
operating revenue increased 29.4% from
RMB 57,179 million for the year ended
December 31, 2004 to RMB 73,978 million for the
year ended December 31, 2005. This increase was due
primarily to increases in the prices and sales volumes of
chemical products. The average realized selling prices of
polyethylene, polyester, styrene butadiene rubber and urea in
2005 increased 13.9%, 3.4%, 9.6% and 17.4%, respectively, from
2004. Our chemicals and marketing segment sold 13,113 thousand
tons of chemical products for the year ended December 31,
2005, representing an increase of 10.5% from the year ended
December 31, 2004.

Operating Expenses.Operating expenses increased 42.8%
from RMB 49,524 million for the year ended
December 31, 2004 to RMB 70,702 million for the
year ended December 31, 2005, due primarily to an increase
of RMB 11,892 million in the purchase expenses of
direct materials and an increase of RMB 782 million in
the sales and administrative expenses.

Income From Operations.As a result of the factors
discussed above, income from operations decreased 57.2% from
RMB 7,655 million for the year ended December 31,
2004 to RMB 3,276 million for the year ended
December 31, 2005 due primarily to the increase in the
prices of the raw materials.



Natural Gas and PipelineSales and Other Operating Revenue.Sales and other
operating revenue increased 43.6% from
RMB 18,255 million for the year ended
December 31, 2004 to RMB 26,214 million for the
year ended December 31, 2005, due primarily to increases in
the sales volume and selling price of natural gas, as well as
increases in the transmission volume and transmission price of
natural gas. Our natural gas and pipeline segment sold
888.81 billion cubic feet natural gas in the year ended
December 31, 2005, representing an increase of
231.51 billion cubic feet from 657.3 billion cubic
feet in the year ended December 31 2004, which resulted in
an increase in sales revenue of

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RMB 4,020 million. In 2005, our average realized
selling price of natural gas was US$2.12 per thousand cubic
feet, representing an increase of US$0.09 as compared with 2004.
The increase of RMB 2,848 million in our income from
pipeline transmission of natural gas in 2005 was attributable to
an increase in the pipeline transmission volume of natural gas
from 616.0 billion cubic feet in 2004 to 820.9 billion
cubic feet in 2005, and an increase in the transmission price of
natural gas from RMB 5.6 per thousand cubic feet in 2004 to
RMB 7.7 per thousand cubic feet in 2005.

Operating Expenses.Operating expenses increased 46.5%
from RMB 15,720 million for the year ended
December 31, 2004 to RMB 23,031 million for the
year ended December 31, 2005, due primarily to (i) an
increase of RMB 3,479 million in purchase expenses of
natural gas primarily as a result of the increase of
235.1 billion cubic feet in the natural gas purchase
volume, as well as the increase of the average purchase price of
natural gas from RMB 14.6 per thousand cubic feet in 2004
to RMB 14.7 per thousand cubic feet in 2005, and
(ii) an increase of RMB 1,833 million in
depreciation expenses.

Income From Operations.As a result of the factors
discussed above, income from operations increased 25.6% from
RMB 2,535 million for the year ended December 31,
2004 to RMB 3,183 million for the year ended
December 31, 2005.

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



Consolidated Results of Operation

OverviewFor the year ended December 31, 2004, our total revenue was
RMB 397,354 million, representing an increase of 28%
from the year ended December 31, 2003. Our net income in
the year ended December 31, 2004 was
RMB 103,843 million, increased 48.7% from the year
ended December 31, 2003. Our basic and diluted earnings per
share for the year ended December 31, 2004 was
RMB 0.59, representing an increase of 47.5% from
RMB 0.40 for the year ended December 31, 2003.

Total Revenue.Total Revenue increased 28% from
RMB 310,431 million for the year ended
December 31, 2003 to 397,354 million for the year
ended December 31, 2004. The increase was due primarily to
increases in our realized selling prices of crude oil, gasoline,
diesel and chemical products, as well as increases in the sales
volume of natural gas, refined products and chemical products.
The average realized selling price for crude oil increased 24.0%
from US$27.20 per barrel for the year ended December 31,
2003 to US$33.72 per barrel for the year ended December 31,
2004.

Operating Expenses.Operating expenses increased
18.0% from RMB 208,719 million for the year ended
December 31, 2003 to RMB 246,216 million for the
year ended December 31, 2004. This increase was due
primarily to (i) a 27.3% increase in purchases, services
and other expenses, (ii) a 14.4% increase in employee
compensation costs, (iii) a 13.8% increase in exploration
expenses, (iv) a 14.7% increase in depreciation, depletion
and amortization and (v) an 18.6% increase in taxes other
than income tax.

Purchases, Services and Other Expenses.Purchases,
services and other expenses increased 27.3% from
RMB 89,741 million for the year ended
December 31, 2003 to RMB 114,249 million for the
year ended December 31, 2004. This increase was due
primarily to increases in our purchase expenses of crude oil,
refined products and chemical products associated with increases
in the prices and purchase volume of crude oil and refined
products as well as increases in the purchase volume of chemical
products as we increased our production and sales of these
products in 2004. In 2004, we purchased 121.8 million
barrels of crude oil, 12.0 million tons of refined products
and 990 thousand tons of chemical products, as compared to
89.5 million barrels of crude oil, 9.6 million tons of
refined products and 27 thousand tons of chemical products in
2003.

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Employee Compensation Costs.Employee compensation costs
increased 14.4% from RMB 20,044 million for the year
ended December 31, 2003 to RMB 22,934 million for
the year ended December 31, 2004. This increase was due
primarily to an increase of RMB 2,033 million in
salaries and other benefits with the increase in our operating
results in 2004 and an increase of RMB 691 million in
employee compensation costs as a result of the expansion of our
retail distribution network.

Depreciation, Depletion and Amortization.Depreciation,
depletion and amortization increased 14.7% from
RMB 42,163 million for the year ended
December 31, 2003 to RMB 48,362 million for the
year ended December 31, 2004. This increase was due
primarily to an increase of RMB 4,530 million in
depreciation and depletion relating to the newly acquired assets.

Selling, General and Administrative Expenses.Selling,
general and administrative expenses increased 8.9% from
RMB 25,982 million for the year ended
December 31, 2003 to RMB 28,302 million for the
year ended December 31, 2004. This increase was due
primarily to an increase of RMB 1,230 million in
transportation expenses a result of our increased sales volume
of refined products and an increase of RMB 760 million
in repairment expenses.

Exploration Expenses.Exploration expenses increased
13.8% from RMB 10,624 million for the year ended
December 31, 2003 to RMB 12,090 million for the
year ended December 31, 2004. This increase was due
primarily to increased expenditures in exploration activities
for the purpose of increasing our crude oil and gas reserves.

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

Taxes Other than Income Taxes.Taxes other than income
taxes increased 18.6% from RMB 16,821 million for the
year ended December 31, 2003 to RMB 19,943 million for
the year ended December 31, 2004. This increase was due
primarily to an increase of RMB 1,201 million in
consumption tax as a result of increased sales volume of
gasoline and diesel and an increase of RMB 272 million
in resources compensation fees as a result of increased revenues
of crude oil.

Income From Operations.As a result of the factors
discussed above, income from operations increased 48.6% from
RMB 101,712 million for the year ended
December 31, 2003 to RMB 151,138 million for the
year ended December 31, 2004.

Net Exchange Gain (Loss).Net exchange loss for
the year ended December 31, 2003 was
RMB 36 million. Net exchange gain for the year ended
December 31, 2004 was RMB 8 million. The changes
in the loss and gain were due primarily to a decrease in the
average outstanding balance of foreign exchange borrowings in
2004.

Net Interest Expense.Net interest expense
decreased 20.5% from RMB 1,916 million for the year
ended December 31, 2003 to RMB 1,523 million for
the year ended December 31, 2004. This decrease was due
primarily to a decrease in the average outstanding balance of
interest-bearing debts as a result of sufficient cash flow
derived from operating activities.

Income Before Income Taxes.Income before income
taxes increased 50.2% from RMB 100,693 million for the
year ended December 31, 2003 to
RMB 151,244 million for the year ended
December 31, 2004.

Income Taxes.Income taxes increased 51.4% from
RMB 28,796 million for the year ended
December 31, 2003 to RMB 43,598 million for the
year ended December 31, 2004, due primarily to an increase
in income before income taxes.

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Net Income.As a result of the factors discussed
above, net income increased 48.7% from
RMB 69,835 million for the year ended
December 31, 2003 to RMB 103,843 million for the
year ended December 31, 2004.



Exploration and ProductionSales and Other Operating Revenue.Sales and other
operating revenue increased 25.9% from
RMB 185,782 million for the year ended
December 31, 2003 to RMB 233,948 million for the
year ended December 31, 2004. This increase resulted
primarily from an increase in the average realized selling price
of crude oil and an increase in sales volume of natural gas by
our exploration and production segment in 2004. Our average
realized selling price of crude oil for the year ended
December 31, 2004 was US$33.72 per barrel, representing an
increase of 24.0% from US$27.20 per barrel for the year ended
December 31, 2003. Our exploration and production segment
sold 810.4 billion cubic feet of natural gas in the year
ended December 31, 2004, as compared to 651.0 billion
cubic feet of natural gas in the year ended December 31,
2003.

Intersegment sales increased 37.2% from
RMB 131,336 million for the year ended
December 31, 2003 to RMB 180,129 million for the
year ended December 31, 2004. This increase resulted
primarily from an increase in the average selling price of crude
oil and an increase of sales volume of natural gas.

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

Operating Expenses.Operating expenses increased 14.6%
from RMB 90,552 million for the year ended
December 31, 2003 to RMB 103,735 million for the
year ended December 31, 2004. This increase was due
primarily to (i) an increase of RMB 3,057 million
in purchase expenses for import of crude oil, (ii) an
increase of RMB 1,140 million in exploration expenses
as a result of increased expenditures in exploration activities
for the purpose of improving recovery of crude oil and gas
reserves, (iii) an increase of RMB 2,013 million
in depletion and depreciation charges and (iv) an increase
of RMB 1,246 million in salaries and other benefits.

Income From Operations.As a result of the factors
discussed above, income from operations increased 36.7% from
RMB 95,230 million for the year ended
December 31, 2003 to RMB 130,213 million for the
year ended December 31, 2004.



Refining and MarketingSales and Other Operating Revenue.Sales and other
operating revenue increased 32.2% from
RMB 224,177 million for the year ended
December 31, 2003 to RMB 296,427 million for the
year ended December 31, 2004. This increase was due
primarily to increases in the selling prices and the sales
volumes of our principal refined products.

Sales revenue from gasoline increased 28.0% from
RMB 60,073 million for the year ended
December 31, 2003 to RMB 76,919 million for the
year ended December 31, 2004 due primarily to increases in
the selling prices and the sales volume of gasoline. The average
realized selling price of gasoline increased 17.2% from
RMB 3,023 per ton for the year ended December 31, 2003
to RMB 3,542 per ton for the year ended December 31,
2004. We sold approximately 21.7 million tons of gasoline
for the year ended December 31, 2004, representing an
increase of 9.0% from approximately 19.9 million tons for
the year ended December 31, 2003.

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

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the year ended December 31, 2004, representing an increase
of 17.7% from 36.7 million tons for the year ended
December 31, 2003.

Sales revenue from kerosene increased 42.6% from
RMB 4,125 million for the year ended December 31,
2003 to RMB 5,881 million for the year ended
December 31, 2004 due primarily to increases in the selling
prices and sales volume of kerosene. The average realized
selling price of kerosene increased 20.5% from RMB 2,306
per ton for the year ended December 31, 2003 to
RMB 2,779 per ton for the year ended December 31,
2004. The sales volume of kerosene increased 16.7% from
approximately 1.8 million tons for the year ended
December 31, 2003 to approximately 2.1 million tons
for the year ended December 31, 2004.

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

Operating Expenses.Operating expenses increased 29.6%
from RMB 219,476 million for the year ended
December 31, 2003 to RMB 284,536 million for the
year ended December 31, 2004. This increase was due
primarily to (i) increases in purchase prices and purchase
volumes of crude oil and refined products, (ii) an increase
in employee salary and benefits and (iii) an increase in
sales and administrative expenses. Our purchase expenses of
direct materials increased by RMB 58,363 million in
2004, of which RMB 57,629 million was due to the
increases in crude oil purchase prices and purchase volume.
Salary and benefits increased by RMB 1,130 million and
sales and administrative expenses increased by
RMB 1,870 million in 2004.

Income From Operations.As a result of the factors
discussed above, income from operations increased 152.9% from
RMB 4,701 million for the year ended December 31,
2003 to RMB 11,891 million for the year ended
December 31, 2004.



Chemicals and MarketingSales and Other Operating Revenue.Sales and other
operating revenue increased 45.8% from
RMB 39,211 million for the year ended
December 31, 2003 to RMB 57,179 million for the
year ended December 31, 2004. This increase was due
primarily to increases in the selling prices and sales volumes
of chemical products. The average realized selling prices of
synthetic resin, synthetic fibres, rubber and urea were
RMB 8,257, RMB 11,434, RMB 10,703 and
RMB 1,274 per ton, respectively, for the year ended
December 31, 2004, representing increases of 39.1%, 27.6%,
22.3% and 16.6%, respectively, from the year ended
December 31, 2003. Our chemicals and marketing segment sold
11,867 thousand tons of chemical products for the year ended
December 31, 2004, representing an increase of 9% from the
year ended December 31, 2003.

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

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



Natural Gas and PipelineSales and Other Operating Revenue.Sales and other
operating revenue increased 21.2% from
RMB 15,067 million for the year ended
December 31, 2003 to RMB 18,255 million for the
year ended December 31, 2004, due primarily to increases in
natural gas sales revenue and pipeline transmission revenue as a
result of increases in the sales volume and the pipeline
transmission volume of natural gas. Our natural gas and pipeline
segment sold 657.3 billion cubic feet natural gas in the
year ended December 31, 2004, representing an increase of
21% from 543.4 billion cubic feet

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in the year ended December 31 2003, which resulted in an
increase in sales revenue of RMB 1,931 million. The
increase of RMB 1,055 million in our income from
pipeline transmission of natural gas in 2004 was attributable to
an increase in the pipeline transmission volume of natural gas
from 520.3 billion cubic feet in 2003 to 616.0 billion
cubic feet in 2004.

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

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





Liquidity and Capital Resources

Our primary sources of funding include cash generated by
operating activities, short-term and long-term borrowings and
cash and cash equivalents. Historically, our primary uses of
funds were for operating activities, capital expenditures,
repayment of short-term and long-term borrowings and
distributions of dividends to shareholders. Our payments to CNPC
are limited to dividends and payments for services provided to
us by CNPC. In the year ended December 31, 2005, we
distributed as dividends 45% of our reported net income. We
expect that we will continue to distribute as dividends
approximately 40% to 50% of our reported net income for all
years. See Item 8 Financial Information 
Dividend Policy for a discussion of factors which may
affect the determination by our board of directors of the
appropriate level of dividends.

We finance a significant portion of our business operations with
short-term borrowings, including short-term debt obtained from
PRC State-owned banks. As of December 31, 2005, short-term
debt comprised approximately 4.7% of our capital employed as
compared to approximately 6.7% as of December 31, 2004. Our
financing ability may be limited by our financial condition, our
results of operations and the international and domestic capital
markets. Prior to accessing the international and domestic
capital markets, we must obtain approval from the relevant PRC
government authorities. In general, we must obtain PRC
government approval for any project involving significant
capital investment for our refining and marketing, chemicals and
marketing and natural gas and pipeline segments. For a more
detailed discussion of factors which may affect our ability to
satisfy our financing requirements, see
Item 3  Key Information  Risk
Factors.

We plan to fund the capital and related expenditures described
in this annual report principally through cash generated by
operating activities, short-term and long-term borrowings and
cash and cash equivalents. Net cash generated by operating
activities in the year ended December 31, 2005 was
RMB 203,885 million. As of December 31, 2005, we
had cash and cash equivalents of RMB 80,905 million.
While each of the projects described in this annual report for
which significant capital expenditures will be required is
important to our future development, we do not believe that
failure to implement any one of these projects would have a
material adverse effect on our financial condition or results of
operations. If the price of crude oil undergoes a steep decline
in the future, it is likely that we would delay or reduce the
scale of the capital expenditures for our exploration and
production segment.

Our shareholders approved at our shareholders meeting held
on May 28, 2003 the proposed issuances of our corporate
bonds in the principal amount of up to
RMB 1,500 million and RMB 4,000 million to
PRC citizens and enterprises. Upon the grant of PRC government
approval, we issued a portion of these corporate bonds in the
principal amount of RMB 1,500 million in October 2003.
We received RMB 1,500 million in net proceeds from this
issuance. We used the proceeds received from the issuance of
these corporate bonds for various crude oil and natural gas

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exploration projects in a number of our oil and gas regions, as
well as for upgrading refining facilities in Daqing
Petrochemical and constructing the natural gas pipeline from
Zhong County to Wuhan City. However, the issuance of the
remaining portion of these corporate bonds will be subject to
market conditions. We cannot assure you that we will complete
the issuance of the remaining portion of these corporate bonds
in accordance with the terms approved by our shareholders.
However, we do not believe failure to complete the issuance of
the remaining portion of these corporate bonds would have a
material adverse effect on our financial condition. In addition,
we consider from time to time opportunities to fund our capital
needs by accessing the domestic equity capital markets.

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

In addition, we did not have for the year ended
December 31, 2005, and do not currently have, any
transactions, arrangements or other relationships with
unconsolidated entities or other persons that are reasonably
likely to materially affect the liquidity or availability of or
requirements for our capital resources.

The table below sets forth our cash flows for each of the three
years ended December 31, 2003, 2004 and 2005 and our cash
equivalents at the end of each period.

|                                                   |  |                         |          |   |      |  |          |      |  |  |         |  
|-------------------------------------------------- |  | ----------------------- | -------- | - | ---- |  | -------- | ---- |  |  | ------- | -
|                                                   |  | Year ended December 31, |         
|                                                   |  |                         |         
|                                                   |  | 2003                    |          |   | 2004 |  |          | 2005 | 
|                                                   |  |                         |          |   |      |  |          |      | 
|                                                   |  | (RMB in millions)       |         
|Net cash generated by operating
    activities     |  |                         | 139,570  |   |      |  | 141,691  |      |  |  | 203,885 |  
|Net cash used for investing
    activities         |  |                         | (102,549 | ) |      |  | (102,276 | )    |  |  | (91,576 | )
|Net cash used for financing
    activities         |  |                         | (35,593  | ) |      |  | (39,586  | )    |  |  | (42,634 | )
|Currency translation difference                    |  |                         | 19       |   |      |  | 246      |      |  |  | (458    | )
|Cash and cash equivalents at the
    end of period |  |                         | 11,613   |   |      |  | 11,688   |      |  |  | 80,905  |  



Cash Generated by Operating Activities










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primarily to an increase of RMB 17,313 million in
inventory and an increase of RMB 8,993 million in
investments in collaterized loan.

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

Cash Used for Financing Activities

Our net borrowings as of December 31, 2003, 2004 and 2005
were as follows:

|                                                                  |                                                                    |                   |        |        |        |  |        |        |        |  |        |        |         |  
|----------------------------------------------------------------- | ------------------------------------------------------------------ | ----------------- | ------ | ------ | ------ |  | ------ | ------ | ------ |  | ------ | ------ | ------- | -
|                                                                  |                                                                    | December 31,      |       
|                                                                  |                                                                    |                   |       
|                                                                  |                                                                    | 2003              |        |        | 2004   |  |        | 2005   |       
|                                                                  |                                                                    |                   |        |        |        |  |        |        |       
|                                                                  |                                                                    | (RMB in millions) |       
|Short-term debt (including current
    portion of long-term debt) |                                                                    |                   | 34,328 |        |        |  | 34,937 |        |        |  | 28,689 |       
|Long-term debt                                                    |                                                                    |                   | 51,601 |        |        |  | 44,648 |        |        |  | 44,570 |       
|                                                                  |                                                                    |                   |        |        |        |  |        |        |       
|                                                                  | Total debt                                                         |                   |        | 85,929 |        |  |        | 79,585 |        |  |        | 73,259 |        
|                                                                  |                                                                    |                   |        |        |        |  |        |        |       
|Less:                                                             |                                                                    |                   |        |        |        |  |        |        |        |  |        |       
|                                                                  | Cash and cash equivalents                                          |                   |        | 11,613 |        |  |        | 11,688 |        |  |        | 80,905 |        
|                                                                  | Time deposits with term exceeding
    three months within one year |                   |        | 2,648  |        |  |        | 1,425  |        |  |        | 1,691  |        
|                                                                  | Investments in Collateralized Loans                                |                   |        | 24,224 |        |  |        | 33,217 |        |  |        | 235    |        
|                                                                  | Time deposits exceeding one year                                   |                   |        | 3,485  |        |  |        | 3,751  |        |  |        | 3,428  |        
|                                                                  |                                                                    |                   |        |        |        |  |        |        |       
|                                                                  |                                                                    | Net debt          |        |        | 43,959 |  |        |        | 29,504 |  |        |        | (13,000 | )
|                                                                  |                                                                    |                   |        |        |        |  |        |        |       









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Our net cash used for financing activities increased 7.7% from
RMB 39,586 million for the year ended December 31,
2004 to RMB 42,634 million for the year ended
December 31, 2005. This increase resulted primarily from
the following:




    a decrease in new long-term debts leading to a decrease of RMB
    2,939 million in cash inflow;
    an increase in the repayment of short-term debts leading to an
    increase of RMB 10,667 million in cash outflow; and
    an increase in the distribution of dividends leading to an
    increase of RMB 19,339 million in cash outflow;These changes were offset primarily by the following:




    our follow-on offering of H shares leading to an increase
    of RMB 19,692 million in cash inflow.
    an increase in new short-term debts leading to an increase of
    RMB 3,906 million in cash inflow; and
    a decrease in the repayment of long-term debts leading to a
    decrease of RMB 9,156 million in cash outflow.Our net cash used for financing activities increased 11.2% from
RMB 35,593 million for the year ended December 31,
2003 to RMB 39,586 million for the year ended
December 31, 2004. This increase resulted primarily from
the following:




    an increase in the repayment of long-term debts leading to an
    increase of RMB 20,377 million in cash outflow;
    an increase in the distribution of dividends leading to an
    increase of RMB 4,650 million in cash outflow; and
    a decrease in new short-term debts leading to a decrease of RMB
    417 million in cash inflow;These changes were offset primarily by the following:




    an increase in new long-term debts leading to an increase of RMB
    14,206 million in cash inflow; and
    a decrease in the repayment of short-term debts leading to a
    decrease of RMB 7,045 million in cash outflow.As at December 31, 2005, our debts consisted of RMB
1,108 million secured debts (including financing leases and
bank loans), of which RMB 61 million of bank loans were
secured by our plants and equipment in the aggregate value of
RMB 75 million.

Our debt to capital employed ratio (calculated by dividing
interest-bearing debts by the aggregate of interest-bearing
debts and shareholders equity) as of December 31,
2005 was 11.9%, as compared to 15.2% as of December 31,
2004.

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, 2003, 2004 and 2005 as well as those
anticipated for the

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year ending December 31, 2006. Actual capital expenditures
and investments for periods after January 1, 2006 may
differ materially from the amounts indicated below.

|                           |       |           |        |        |      |  |         |           |  |  |             |         |  |           |       |       |         |  |        |           |  |  |       |       |  |  |         |         |  |  |       |       | 
|-------------------------- | ----- | --------- | ------ | ------ | ---- |  | ------- | --------- |  |  | ----------- | ------- |  | --------- | ----- | ----- | ------- |  | ------ | --------- |  |  | ----- | ----- |  |  | ------- | ------- |  |  | ----- | ----- | 
|                           |       |           |        |        |      |  |         | 2006      | 
|                           |       | 2003      |        |        | 2004 |  |         | 2005      |  |  | anticipated |        
|                           |       |           |        |        |      |  |         |           |  |  |             |        
|                           |       | (RMB in   |        |        |      |  | (RMB in |           |  |  |             | (RMB in |  |           |       |       | (RMB in |  |        | %         | 
|                           |       | millions) |        |        | %    |  |         | millions) |  |  | %           |         |  | millions) |       |       | %       |  |        | millions) |  |  |      
|Exploration and production |       |           | 61,982 |        |      |  | 67.15   |           |  |  | 70,217      |         |  |           | 66.06 |       |         |  | 92,223 |           |  |  | 68.92 |       |  |  | 104,500 |         |  |  | 65.31 |      
|Refining and marketing     |       |           | 12,758 |        |      |  | 13.82   |           |  |  | 17,684      |         |  |           | 16.64 |       |         |  | 16,454 |           |  |  | 12.30 |       |  |  | 23,700  |         |  |  | 14.81 |      
|Chemicals and marketing    |       |           | 3,898  |        |      |  | 4.22    |           |  |  | 4,319       |         |  |           | 4.06  |       |         |  | 13,569 |           |  |  | 10.14 |       |  |  | 15,300  |         |  |  | 9.56  |      
|Natural gas and pipeline   |       |           | 13,530 |        |      |  | 14.66   |           |  |  | 13,901      |         |  |           | 13.08 |       |         |  | 11,137 |           |  |  | 8.32  |       |  |  | 15,300  |         |  |  | 9.56  |      
|Corporate and other        |       |           | 138    |        |      |  | 0.15    |           |  |  | 174         |         |  |           | 0.16  |       |         |  | 427    |           |  |  | 0.32  |       |  |  | 1,200   |         |  |  | 0.76  |      
|                           |       |           |        |        |      |  |         |           |  |  |             |         |  |           |       |       |         |  |        |           |  |  |       |      
|                           | Total |           |        | 92,306 |      |  |         | 100.0     |  |  |             | 106,295 |  |           |       | 100.0 |         |  |        | 133,820   |  |  |       | 100.0 |  |  |         | 160,000 |  |  |       | 100.0 | 
|                           |       |           |        |        |      |  |         |           |  |  |             |         |  |           |       |       |         |  |        |           |  |  |       |      







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







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



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Our anticipated capital expenditures for our refining and
marketing segment for the year ending December 31, 2006
amount to RMB 23,700 million, which include:




    approximately RMB 15,200 million for the construction
    and expansion of our refining facilities; and
    approximately RMB 8,500 million for the construction
    of our sales network for finished oil products.

Chemicals and MarketingOur capital expenditures for our chemicals and marketing segment
for each of the three years ended December 31, 2003, 2004
and 2005 were RMB 3,898 million,
RMB 4,319 million and RMB 13,569 million,
respectively. The increase in 2005 was due primarily to the
increased capital expenditures for the ethylene projects in
Jilin Petrochemical, Lanzhou Petrochemical and Dushanzi
Petrochemical and for the PTA projects in Liaoyang Petrochemical.

Our anticipated capital expenditures for our chemicals and
marketing segment for the year ending December 31, 2006
amount to RMB 15,300 million, which mainly include
capital expenditures for upgrading the ethylene facilities in
Jilin Petrochemical, Lanzhou Petrochemical and Dushanzi
Petrochemical and for the construction of the PTA project at
Liaoyang Petrochemical.



Natural Gas and PipelineOur capital expenditures for our natural gas and pipeline
segment for each of the three years ended December 31,
2003, 2004 and 2005 were RMB 13,530 million,
RMB 13,901 million and RMB 11,137 million,
respectively. The decrease in 2005 resulted primarily from
decreased capital expenditures for the second Shaanxi-Beijing
natural gas pipeline.

Our anticipated capital expenditures for our natural gas and
pipeline segment for the year ending December 31, 2006
amount to approximately RMB 15,300 million. Of this
amount, RMB 800 million is expected to be invested in
pipelines for the transmission of crude oil,
RMB 1,300 million in the pipelines of refined products
and RMB 13,200 million in natural gas pipelines. See
Item 4  Information on the
Company  Natural Gas and Pipeline 
Expansion of Our Natural Gas Transmission and Marketing
Business for a more detailed discussion of the expansion
plans of our natural gas and pipeline segment.



Corporate and OtherOur non-segment-specific capital expenditures and investments
for each of the three years ended December 31, 2003, 2004
and 2005 were RMB 138 million,
RMB 174 million and RMB 427 million,
respectively. Our non segment-specific capital expenditures and
investments related primarily to purchase of
non-segment-specific equipment and research and development
activities.

Our anticipated non-segment-specific capital expenditures and
investments for the year ending December 31, 2006 amount to
RMB 1,200 million. These planned capital expenditures
and investments mainly include capital expenditures for
scientific research activities and the construction of the ERP
information system.

Off-Balance Sheet Arrangements

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

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Long-Term Contractual Obligations and Other Commercial

Commitments and Payment Obligations

The tables below set forth certain information in connection
with our long-term contractual obligations and other commercial
commitments outstanding as of December 31, 2005.

|                                   |  |                       |           |           |        |  |          |           |       |  |           |  |  |         |         |  |  |  |          | 
|---------------------------------- |  | --------------------- | --------- | --------- | ------ |  | -------- | --------- | ----- |  | --------- |  |  | ------- | ------- |  |  |  | -------- | 
|                                   |  | Payment due by period |          
|                                   |  |                       |          
|                                   |  |                       |           | Less than |        |  |          |           | After | 
|Contractual obligations            |  | Total                 |           |           | 1 year |  |          | 1-3 years |       |  | 3-5 years |  |  | 5 years |        
|                                   |  |                       |           |           |        |  |          |           |       |  |           |  |  |         |        
|                                   |  | (RMB in millions)     |          
|Long-term debt                     |  |                       | 59,895    |           |        |  | 15,325   |           |       |  | 29,766    |  |  |         | 3,549   |  |  |  | 11,255   | 
|Capital lease obligations          |  |                       | 0         |           |        |  | 0        |           |       |  | 0         |  |  |         | 0       |  |  |  | 0        | 
|Operating leases                   |  |                       | 94,990    |           |        |  | 3,208    |           |       |  | 5,153     |  |  |         | 5,363   |  |  |  | 81,266   | 
|Capital commitments                |  |                       | 13,365    |           |        |  | 7,241    |           |       |  | 6,099     |  |  |         | 5       |  |  |  | 20       | 
|Unconditional purchase obligations |  |                       | 2,553.3   |           |        |  | 2,232.8  |           |       |  | 231       |  |  |         | 64.1    |  |  |  | 25.4     | 
|Other long-term obligations        |  |                       | 0         |           |        |  | 0        |           |       |  | 0         |  |  |         | 0       |  |  |  | 0        | 
|Total contractual cash obligations |  |                       | 170,803.3 |           |        |  | 28,006.8 |           |       |  | 41,249    |  |  |         | 8,981.1 |  |  |  | 92,566.4 | 

|                             |  |                                            |     |  |           |  |    |           |  |      |           |  |  |         |    |  |  |  |    | 
|---------------------------- |  | ------------------------------------------ | --- |  | --------- |  | -- | --------- |  | ---- | --------- |  |  | ------- | -- |  |  |  | -- | 
|                             |  | Amount of commitment expiration per period |    
|                             |  |                                            |    
|                             |  | Total                                      |     |  |          
|                             |  | amounts                                    |     |  | Less than |  |    |           |  | Over |          
|Other commercial commitments |  | committed                                  |     |  | 1 year    |  |    | 1-3 years |  |      | 3-5 years |  |  | 5 years |   
|                             |  |                                            |     |  |           |  |    |           |  |      |           |  |  |         |   
|                             |  | (RMB in millions)                          |     |  |          
|Lines of credit              |  |                                            | 0   |  |           |  | 0  |           |  |      | 0         |  |  |         | 0  |  |  |  | 0  | 
|Standby letters of credit    |  |                                            | 0   |  |           |  | 0  |           |  |      | 0         |  |  |         | 0  |  |  |  | 0  | 
|Guarantees                   |  |                                            | 187 |  |           |  | 11 |           |  |      | 101       |  |  |         | 22 |  |  |  | 53 | 
|Total commercial commitments |  |                                            | 187 |  |           |  | 11 |           |  |      | 101       |  |  |         | 22 |  |  |  | 53 | 



|     |  |                   |     | 
|---- |  | ----------------- | --- | 
|Year |  | Annual payment    |    
|     |  |                   |    
|     |  | (RMB in millions) |    
|2006 |  |                   | 681 | 
|2007 |  |                   | 712 | 
|2008 |  |                   | 712 | 
|2009 |  |                   | 712 | 
|2010 |  |                   | 850 | 



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As of December 31, 2005, our future minimum delivery
commitments under such take-or-pay contracts are as follows:

|                    |  |                         |       | 
|------------------- |  | ----------------------- | ----- | 
|                    |  | Quantities              |      
|                    |  |                         |      
|                    |  | (billion of cubic feet) |      
|2006                |  |                         | 451   | 
|2007                |  |                         | 583   | 
|2008                |  |                         | 639   | 
|2009                |  |                         | 704   | 
|2010                |  |                         | 583   | 
|2011 and thereafter |  |                         | 5,528 | 



| |                                         
| | ----------------------------------------
| | Oil-and-Gas Assets Retirement Obligation

the
Environmental Protection Regulation for Oil and Gas Exploration
and Production Activities in Heilongjiang Province the Environmental Protection Regulation for Oil and Gas
Exploration and Production Activities in Gansu Province,









Research and Development






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##### Table of Contents

In each of the three years ended December 31, 2003, 2004
and 2005, our total expenditures for research and development
were approximately RMB 2,442 million,
RMB 2,977 million and RMB 3,195 million,
respectively.

Exploration and Production

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



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

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





Trend Information

Streamlining of Production Facilities

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





Other Information

Inflation

Inflation or deflation has not had a significant impact on our
results of operations for the year ended December 31, 2005.

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Non-Exchange Traded Contracts

We did not engage for the year ended December 31, 2005, and
do not currently engage, to a material extent, in any trading
activities involving commodity contracts that are accounted for
at fair value but for which a lack of market price quotations
makes it necessary to apply fair value estimation techniques.

Related Party Transactions

For a discussion of related party transactions, see
Item 7  Major Shareholders and Related
Party Transactions  Related Party Transactions
and Note 34 to our consolidated financial statements
included elsewhere in this annual report.

US GAAP Reconciliation

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

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



Revaluation of Property, Plant and EquipmentAs described in Note 17 to the consolidated financial
statements, the property, plant and equipment, excluding oil and
gas reserves, transferred to our company by CNPC were appraised
as of June 30, 1999, as required by the relevant PRC
regulations, by a firm of independent valuers registered in the
PRC, China Enterprise Appraisal. As at September 30, 2003,
a revaluation of our companys refining and chemical
production equipment was undertaken by a firm of independent
valuers registered in the PRC, China United Assets Appraiser
Co., Ltd, on a depreciated replacement cost basis.

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

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

The depreciation charge, which includes impairment charge, on
the revaluation surplus from January 1, 2005 to
December 31, 2005 was RMB 6,528 million, from
January 1, 2004 to December 31, 2004 was RMB
8,170 million, and from January 1, 2003 to
December 31, 2003 was RMB 8,053 million.

The depreciation charge, which includes impairment charge, on
the revaluation loss from January 1, 2005 to
December 31, 2005 was RMB 149 million, from
January 1, 2004 to December 31, 2004 was RMB
830 million, and from January 1, 2003 to
December 31, 2003 was RMB 144 million,

The loss on disposal of revalued property, plant and equipment,
which includes shut down of manufacturing assets, from
January 1, 2005 to December 31, 2005 was RMB
432 million, from January 1, 2004 to December 31,
2004 was RMB 523 million, and from January 1, 2003 to
December 31, 2003 was RMB 451 million.

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

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the revaluation in 1999 is available as additional depreciation
base for purposes of determining taxable income.



One-time Compensatory Payments for Staff HousingThe Ministry of Finance of the PRC issued several public notices
and regulations during the years ended December 31, 2000
and 2001 with respect to the one-time compensatory 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 CNPC group
took place in November 1999. As such, the one-time compensatory
housing payments payable to the eligible employees of our
company are to be borne by the state shareholder of our company.

Under IFRS, such direct payments to employees or reimbursements
will not be recorded through the consolidated profit and loss
account of CNPC. US GAAP contains no such exemption but requires
this principal shareholders action on behalf of our
company to be recorded in the consolidated profit and loss
account. In the last quarter of year 2002, our company and CNPC
completed the process of estimating the amount payable to
qualified employees of our company. This amount, RMB
2,553 million, was reflected in determining net income of
CNPC for the year ended December 31, 2002, under US GAAP.
Since this amount is borne by CNPC, a corresponding amount has
been included as an addition to the other reserves in the
shareholders equity of our company. There were no
significant changes in this estimate during 2004 and 2005.



Minority InterestIn accordance with the revised IAS 1 and IAS 27, minority
interest becomes part of the profit for the year and total
equity of our company, whereas under US GAAP, it is respectively
excluded from the net income and shareholders equity of
our company. In addition, the reconciling item also includes the
impact of minority interests share of the revaluation gain
and loss, on the property, plant and equipment of non-wholly
owned subsidiaries, to net income and shareholders equity
under US GAAP.



Purchase from Minority Interests of Listed
    SubsidiariesAs described in Note 38 to the consolidated financial
statements, our company acquired certain outstanding A shares
from the minority interests of Jinzhou Petrochemical Company
Limited (JPCL) and Liaohe Jinma Oilfield Company
Limited (LJOCL). Under IFRS, our company applies a
policy of treating transactions with minority interests as
transactions with equity participants of our company. Therefore,
the assets and liabilities of JPCL and LJOCL additionally
acquired by our company from minority interests were recorded by
our company at cost. The difference between the companys
purchase cost and the book value of the interests in JPCL and
LJOCL acquired by our company from minority interests was
recorded in equity. Under US GAAP, the acquisition of additional
minority interest is accounted for under purchase method. Assets
and liabilities additionally acquired were restated to fair
value and the difference of purchase cost over fair value of the
minority interests acquired and identified intangible assets was
recorded as goodwill.



Recent US Accounting PronouncementsIn December 2004, the FASB revised FAS No. 123 (FAS 123R).
FAS 123R, Share-Based Payment, requires all
share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements
based on their fair values. Pro forma disclosure

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is no longer an alternative to financial statement recognition.
FAS 123R is effective for interim periods beginning after
June 15, 2005. Our company is evaluating the transition
provisions allowed by FAS 123R. Our company does not expect
the adoption of FAS 123R to have a material impact on our
companys financial position or operational results.

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

On December 15, 2004, the FASB issued Statement
No. 153, Exchanges of Nonmonetary Assets, an
amendment of APB Opinion No. 29 (FAS 153). FAS 153
requires exchanges of productive assets to be accounted for at
fair value, rather than at carryover basis, unless
(1) neither the asset received nor the asset surrendered
has a fair value that is determinable within reasonable limits
or (2) the transactions lack commercial substance.
FAS 153 is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005.
Our company does not expect the adoption of FAS 153 to have
a material impact on our companys financial position or
results of operation.

In March 2005, the FASB issued Interpretation No. 47,
Accounting for Conditional Asset Retirement
(FIN 47), an Interpretation of FASB Statement No. 143.
This Interpretation clarifies that the term conditional asset
retirement obligation as used in FASB Statement No. 143,
Accounting for Asset Retirement Obligations, refers
to a legal obligation to perform an asset retirement activity in
which the timing and (or) method of settlement are conditional
on a future event that may or may not be within the control of
the entity. The obligation to perform the asset retirement
activity is unconditional even though uncertainty exists about
the timing and (or) method of settlement. Accordingly, an entity
is required to recognize a liability for the fair value of a
conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated when incurred. This
Interpretation also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of
an asset retirement obligation. FIN 47 is effective no
later than the end of fiscal years ending after
December 15, 2005. The adoption of FIN 47 did not have
a material impact on our companys financial position or
operational results.

On March 29, 2005, the U.S. Securities and Exchange
Commission (SEC) issued Staff Accounting
Bulletin No. 107, Share-Based Payment
(SAB 107). This bulletin provides guidance related to
share-based payment transactions with nonemployees, the
transition from nonpublic to public entity status, valuation
methods (including assumptions such as expected volatility and
expected term), the accounting for certain redeemable financial
instruments issued under share-based payment arrangements, the
classification of compensation expense,
non-GAAP financial
measures, first-time adoption of FAS 123R in an interim period,
capitalization of compensation cost related to share-based
payment arrangements, the accounting for income tax effects of
share-based payment arrangements upon adoption of FAS 123R, the
modification of employee share options prior to adoption of FAS
123R and disclosures in Operating Results, Financial Review and
Prospects subsequent to adoption of FAS 123R. SAB 107 will
be effective when a registrant adopts FAS 123R. Our company does
not expect the adoption of SAB 107 to have a material
impact on our companys financial position or operational
results.

In April 2005, the FASB issued Staff Position No. FAS 19-1,
Accounting for Suspended Well Costs. The FASB staff
believes that exploratory well costs should continue to be
capitalized when the well has found a sufficient quantity of
reserves to justify its completion as a producing well and the
enterprise is making sufficient progress assessing the reserves
and the economic and operating viability of the project. The
Board replaces paragraphs 31 to 34 of Statement 19 and
requires certain disclosures in the notes to the annual
financial statements to provide information for users of

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financial statements about managements application of
judgment in its evaluation of a projects capitalized
exploratory well costs. The disclosure required by this FSP
should be made in reporting periods beginning after
April 4, 2005. Our company has made disclosures which meet
the disclosure requirement of this FSP in its consolidated
financial statements.

In May 2005, the FASB issued Statement No. 154,
Accounting changes and Error Corrections
(FAS 154), which replaces APB Opinions No. 20,
Accounting Changes, and FASB Statement No. 3,
Reporting Accounting changes in Interim Financial
Statements, and changes the requirements for the
accounting for and reporting of a change in accounting
principle. This Statement establishes, unless impracticable,
retrospective application as the required method for reporting a
change in accounting principle in the absence of explicit
transition requirements specific to the newly adopted accounting
principle. The reporting of a correction of an error by
restating previously issued financial statements is also
addressed by this Statement. FAS154 is effective for accounting
changes and corrections of errors made in fiscal years beginning
after December 15, 2005. Our company does not expect the
adoption of FAS 154 to have a material impact on our
companys financial position or operational results.



Quantitative Disclosure Relating to US GAAP and
    IFRS

Year Ended December 31, 2005 Compared to Year Ended
    December 31, 2004Net income.Net income under US GAAP increased 26.4% from
RMB 109,051 million for the year ended December 31,
2004 to RMB 137,865 million for the year ended
December 31, 2005. This increase was due primarily to an
increase of RMB 31,996 million in the net income under IFRS
as discussed in Item 5  Operating and
Financial Review and Prospects  Operating
Results.

Shareholders equity.Shareholders equity
under US GAAP increased 23.1% from RMB 405,573 million
as of December 31, 2004 to RMB 499,130 million as of
December 31, 2005. This increase was due primarily to the
net income of RMB 137,865 million under US GAAP, which was
partially offset by the payment of (i) the final dividend
of RMB 25,936 million for the year of 2004 and
(ii) the interim dividend of RMB 27,731 million for
the year of 2005.



Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003Net income.Net income under US GAAP increased 44.2% from
RMB 75,640 million for the year ended December 31,
2003 to RMB 109,051 million for the year ended
December 31, 2004. This increase was due primarily to an
increase of RMB 35,749 million in the net income under IFRS
as discussed in Item 5  Operating and
Financial Review and Prospects  Operating
Results.

Shareholders equity.Shareholders equity
under US GAAP increased 22.7% from RMB 330,520 million
as of December 31, 2003 to RMB 405,573 million as of
December 31, 2004. This increase was due primarily to the
net income of RMB 109,051 million under US GAAP, which was
partially offset by the payment of (i) the final dividend
of RMB 13,947 million for the year of 2003 and
(ii) the interim dividend of RMB 20,381 million for
the year of 2004.

Environmental Expenses and Capital Expenditures

We paid pollutant discharge fees of approximately RMB
155 million, RMB 182 million and
RMB 199 million respectively, in 2003, 2004 and 2005.
Our capital expenditures on environmental programs in 2003, 2004
and 2005 were approximately RMB 1,076 million, RMB
1,345 million and RMB 1,633 million, respectively. On
November 13, 2005, an explosion occurred at our branch
company in Jilin Province. The incident caused serious personal
injuries and deaths, loss of property and water pollution of the
Songhuajing River. The Chinese government is currently
investigating the cause of this incident and we will, in
accordance with the result of such investigation, take
responsibility for this incident.

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ITEM 6  DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES





Directors, Senior Management and Supervisors

Our board of directors consists of thirteen directors, three of
whom are independent
non-executive
directors. The directors are elected at a meeting of our
shareholders for a term of three years. The directors may
be re-elected and
re-appointed upon the expiration of his/her term of office. 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.Six 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. The
supervisors may be
re-elected and
re-appointed upon the expiration of his/her term of office. An
elected supervisor cannot concurrently hold the position of a
director, manager or financial controller. The functions and
powers conferred on the supervisory committee include:




    attending board meetings;
    examining our financial affairs;
    examining balance sheets, profit and loss accounts, business
    reports, dividend distribution proposals and other financial
    information proposed at shareholders general meetings by
    the directors from time to time; and
    overseeing the actions of our board of directors and our senior
    management personnel in carrying out their duties.In the event that any action of our directors adversely affects
our interests, supervisors shall confer with or initiate legal
proceedings against such directors on our behalf. A resolution
proposed at any meeting of the supervisory committee shall be
adopted only if it is approved by
two-thirds or more of
our supervisors.

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

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

|               |  |     |    |  |          |                                                           |                     |  |                  | 
|-------------- |  | --- | -- |  | -------- | --------------------------------------------------------- | ------------------- |  | ---------------- | 
|Name           |  | Age |    |  | Position |                                                           | Date of election(1) | 
|               |  |     |    |  |          |                                                           |                     | 
|Chen Geng      |  |     | 59 |  |          | Chairman of the board of directors                        |                     |  | May 18, 2004     | 
|Jiang Jiemin   |  |     | 50 |  |          | Vice Chairman of the board of
    directors and President |                     |  | May 18, 2004     | 
|Su Shulin      |  |     | 43 |  |          | Director and Senior Vice President                        |                     |  | November 8, 2005 | 
|Duan Wende     |  |     | 54 |  |          | Director and Senior Vice President                        |                     |  | May 18, 2004     | 
|Zheng Hu       |  |     | 59 |  |          | Director                                                  |                     |  | May 28, 2003     | 
|Zhou Jiping    |  |     | 53 |  |          | Director                                                  |                     |  | May 18, 2004     | 
|Wang Yilin     |  |     | 49 |  |          | Director                                                  |                     |  | November 8, 2005 | 
|Zeng Yukang    |  |     | 55 |  |          | Director                                                  |                     |  | November 8, 2005 | 
|Gong Huazhang  |  |     | 59 |  |          | Director                                                  |                     |  | November 8, 2005 | 
|Jiang Fan      |  |     | 42 |  |          | Director                                                  |                     |  | November 8, 2005 | 
|Chee-Chen Tung |  |     | 63 |  |          | Independent non-executive director                        |                     |  | November 8, 2005 | 
|Liu Hongru     |  |     | 75 |  |          | Independent non-executive director                        |                     |  | November 8, 2005 | 
|Franco Bernabè |  |     | 57 |  |          | Independent non-executive director                        |                     |  | May 28, 2003     | 
|Li Huaiqi      |  |     | 56 |  |          | Secretary to the board of directors                       |                     |  |                  | 
|Wang Guoliang  |  |     | 53 |  |          | Chief Financial Officer                                   |                     |  |                  | 
|Liao Yongyuan  |  |     | 43 |  |          | Vice President                                            |                     |  |                  | 
|Jia Chengzao   |  |     | 57 |  |          | Vice President                                            |                     |  |                  | 
|Hu Wenrui      |  |     | 56 |  |          | Vice President                                            |                     |  |                  | 
|Wang Fucheng   |  |     | 55 |  |          | Chairman of the supervisory
    committee                 |                     |  |                  | 
|Wen Qingshan   |  |     | 47 |  |          | Supervisor                                                |                     |  |                  | 
|Sun Xianfeng   |  |     | 53 |  |          | Supervisor                                                |                     |  |                  | 
|Xu Fengli      |  |     | 58 |  |          | Supervisor                                                |                     |  |                  | 
|Qin Gang       |  |     | 52 |  |          | Supervisor                                                |                     |  |                  | 
|Li Yongwu      |  |     | 61 |  |          | Independent supervisor                                    |                     |  |                  | 
|Wu Zhipan      |  |     | 49 |  |          | Independent supervisor                                    |                     |  |                  | 






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

Directors


Chen Geng,


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Jiang Jiemin, aged 50, is the Vice Chairman and
President of our company. Mr Jiang is a senior economist and
holds a college degree. Mr Jiang has nearly 30 years of
working experience in Chinas oil and gas industry. He was
made Deputy Director of the Shengli Petroleum Administration
Bureau in March 1993, Senior Executive of the Qinghai
Petroleum Administration Bureau in June 1994, Director of
the Qinghai Petroleum Administration Bureau in
November 1994, and Assistant to the General Manager and
Team Leader for the Restructuring and Listing Preparatory Team
of CNPC in February 1999, and a Director and Vice President
of our company from November 1999 to June 2000. Mr
Jiang was appointed as Deputy Provincial Governor of the Qinghai
Province since June 2000, was made a member of the
provincial party committee of the Qinghai Province and Deputy
Provincial Governor of Qinghai since November 2000, and the
deputy secretary of the provincial party committee of Qinghai
Province and Deputy Provincial Governor of Qinghai since
June 2003. Mr Jiang has been the Vice Chairman and
President of our company since May 2004.

Su Shulin, aged 43, is a Director and Senior Vice
President of our company. Mr Su has a Masters degree and
is a senior engineer. He graduated from Daqing Petroleum
Institute in 1983 majoring in oil geology (Bachelors
degree) and Harbin University of Engineering in March 1999 in
Project Management (Masters degree). He has over
20 years of working experience in Chinas oil and gas
industry. Since 1996, Mr Su has worked as Director Assistant of
Daqing Petroleum Administration Bureau and concurrently the
Department Head of the First Oil and Natural Gas Development
Department, and then Executive Deputy Director and later
Director of Daqing Petroleum Administration Bureau. He was
appointed Vice President of our company on November 5,
1999, and was concurrently the Chairman and General Manager of
our companys subsidiary Daqing Oilfield Company Limited.
Mr Su ceased to act as the Chairman and the General Manager of
Daqing Oilfield Company Limited in December 2003. Mr Su has
been a Director of our company since November 2002, and has
been a Senior Vice President of our company since
December 3, 2002.

Duan Wende, aged 54, is a Director and Senior Vice
President of our company. Mr Duan is a senior engineer and holds
a college degree. He graduated from the Postgraduate School of
the Chinese Academy of Social Sciences in Investment Economics.
He has over 30 years of working experience in Chinas
petrochemical industry. From April 1975 to May 1999,
Mr Duan was the Deputy Factory Manager of Fushun No. 628
Factory and of the chemical fibers factory, the Commander of the
Fushun Ethylene Project Command Division, Deputy Factory Manager
of the ethylene factory, the Factory Manager of the acrylic
fibers factory and the detergent factory and Deputy Manager of
Fushun Petrochemical Corporation. He has been the Manager of
Fushun Petrochemical Corporation since May 1999; he has
been appointed as the General Manager of Fushun Petrochemical
Branch Company since October 1999. He has been an Assistant
to the General Manager of CNPC since August 2001. He has
been a Vice President of our company since March 2002. He
has been a Director of our company since May 2004. He has
been a Senior Vice President of our company since
November 28, 2005.

Zheng Hu, aged 59, is a Director of our company
and a Deputy General Manager of CNPC. Mr Zheng is a senior
engineer and graduated from Beijing Petroleum Institute. He has
over 30 years of working experience in Chinas oil and
gas industry. From 1990 to 1992, Mr Zheng was the Vice
Chancellor 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, China Petroleum Materials and Equipment (Group)
Corporation, and as Director of Personnel and Labour Department
of CNPC. Since August 2000, Mr Zheng has been a Deputy General
Manager of CNPC. He has been a Director of our company since
June 30, 2000.

Zhou Jiping, aged 53, is a Director of our company
and a Deputy General Manager of CNPC. Mr Zhou is a senior
engineer and holds a Masters degree in marine geologic
structure from Nanhai Marine Research Institute of the Chinese
Academy of Sciences. He has over 30 years of working
experience in Chinas oil and gas industry. Mr Zhou was the
Exploration Manager of the Exploration and Development
Department of China National Offshore Oil Corporation, Manager
of the Overseas

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Department of the International Co-operation Bureau of China
National Petroleum Corporation, General Manager of China
National Oil & Gas Exploration and Development Corporation
in Vanuatu and General Manager of China National Oil & Gas
Exploration and Development Corporation in Papua New Guinea. In
November 1996, he was appointed Deputy Director of the
International Exploration and Development Co-operation Bureau of
China National Petroleum Corporation, Deputy General Manager of
China National Oil & Gas Exploration and Development
Corporation. In December 1997, he was appointed as General
Manager of China National Oil & Gas Exploration and
Development Corporation and Deputy Director of the International
Exploration and Development Co-operation Bureau of China
National Petroleum Corporation. He became General Manager of
China Oil & Gas Exploration and Development Corporation in
October 1998. Since August 2001, he was Assistant to the General
Manager of CNPC and General Manager of China National Oil &
Gas Exploration and Development Corporation. Since December
2003, Mr Zhou has been Deputy General Manager of CNPC. Mr Zhou
was appointed a Director of our company in May 2004.

Wang Yilin, aged 49, is a Director of our company
and a Deputy General Manager and Safety Director of CNPC. Mr
Wang is a senior engineer who graduated from Huadong Petroleum
Institute in 1982, majoring in Petroleum Geological Exploration.
In 2002, he completed his Doctorate course in the specialized
study of mineral survey and exploration and obtained his
Doctors degree in Engineering at the Petroleum University.
He has over 20 years of working experience in Chinas
oil and gas industry. Mr Wang has been the Deputy Director and
Chief Exploration Geologist of Xinjiang Petroleum Administration
Bureau since June 1996. He was appointed as the General Manager
of the Xinjiang Oilfield Branch of our company in September
1999. He was appointed as the Senior Executive of Xinjiang
Petroleum Administration Bureau and the General Manager of the
Xinjiang Oilfield Branch of our company since June 2001. From
July 2003 onwards, he was appointed as the Assistant to the
General Manager of CNPC, the Senior Executive of Xinjiang
Petroleum Administration Bureau and the General Manager of the
Xinjiang Oilfield Branch of our company concurrently. Since
December 2003, he was appointed as the Deputy General Manager of
CNPC, the Senior Executive of Xinjiang Petroleum Administration
Bureau and the General Manager of the Xinjiang Oilfield Branch
of our company. From May 2004, he ceased to work as the Senior
Executive of Xinjiang Petroleum Administration Bureau and the
General Manager of the Xinjiang Oilfield Branch of our company.
From July 2004 onwards, he has also worked as the Safety
Director of CNPC. He has been a Director of our company since
November 8, 2005.

Zeng Yukang, aged 55, is a Director of our company
and a Deputy General Manager of CNPC. Mr Zeng graduated from
Hubei Geological Institute in 1974, majoring in petroleum
geology. He has over 30 years of working experience in
Chinas oil and gas industry. Mr Zeng has been the Senior
Executive of the Exploration and Development Institute of Daqing
Petroleum Administration Bureau since June 1996. From February
2000 onwards, he was appointed as the Standing Deputy Director
of Daqing Petroleum Administration Bureau. Since March 2001, he
was appointed as the Director of Daqing Petroleum Administration
Bureau. Since November 2002, he held the positions of Assistant
to the General Manager of CNPC and Director of Daqing Petroleum
Administration Bureau concurrently. From February 2005 onwards,
he has been the Assistant to the General Manager of CNPC and the
Senior Executive of Daqing Petroleum Administration Bureau. From
September 2005 onwards, he has been a Deputy General Manager of
CNPC. He was appointed as a Director of our company on
November 8, 2005.

Gong Huazhang, aged 59, is a Director of our
company. Mr Gong is also the General Accountant of CNPC. Mr Gong
is a senior accountant and graduated from Yangzhou Business
School. He has over 30 years of working experience in
Chinas oil and gas industry. Mr Gong worked as Chief
Accountant, Deputy Director and Director of the Finance Bureau
of China National Petroleum Corporation from 1991. He was the
Director of Finance and Assets Department of CNPC in
October 1998 and has been the General Accountant of CNPC
since February 1999. Mr Gong has been a Director of our
company since November 5, 1999.

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Jiang Fan, aged 42, is a Director of our company
and the General Manager of Dalian Petrochemical Company. Mr
Jiang graduated from Dalian Technical Institute in 1985,
majoring in chemical engineering. In June 2003, he completed his
Masters degree in administration science and engineering
at the Petroleum University and obtained his Masters
degree in management study. He has over 20 years of working
experience in Chinas petrochemical industry. Mr Jiang was
appointed as the Deputy Manager of Dalian Petrochemical Company
since December 1996. In September 1999, he was appointed as the
Deputy General Manager of Dalian Petrochemical Company. In
February 2002, he became the General Manager of Dalian
Petrochemical Company. Mr Jiang has been a Director of our
company since November 8, 2005.

Independent Non-executive Directors

Chee-Chen Tung, aged 63, is an independent
non-executive Director of our company. 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
Hu Hangyong Expressway Company Ltd., Bank of China (Hong
Kong) Ltd., Sing Tao News Corporation Limited, Wing Hang Bank
and Cathay Pacific Airways, and is a member of the Hong Kong
Port Development Board. Mr Tung is also Chairman of the
Institute for Shipboard Education Foundation, Chairman of the
Advisory Council of the Hong Kong Polytechnic University, a
member of the Board of Trustees of the International Academic
Center of the University of Pittsburgh, and the School of
Foreign Service of Georgetown University. Mr Tung has been
an independent non-executive Director of our company since
November 5, 1999.

Liu Hongru, aged 75, is an independent
non-executive Director of our company. Mr Liu graduated from the
Faculty of Economics of the University of Moscow in 1959 with an
associate Doctorate degree. Mr Liu worked as Vice Governor of
the Agricultural Bank of China, Vice Governor of the
Peoples Bank of China, Deputy Director of the State
Economic Restructuring Committee, and the Chairman of the China
Securities Regulatory Commission. Mr Liu is currently a Deputy
Director of the Economics Committee under the Chinese
Peoples Political Consultative Conference and concurrently
serves as Vice President of China Finance and Banking Society,
Vice President of the China National Debt Association and
President of the Shanghai Institute of Financial and Legal
Studies. Mr Liu is also a professor at the Peking University,
the Postgraduate School of the Peoples Bank of China and
the City University of Hong Kong. Mr Liu serves as an
independent
non-executive director
or non-executive director in four companies listed on HKSE, and
possesses the accounting or financial management qualification
required under the Listing Rules of HKSE. Mr Liu was
appointed as an independent Supervisor of our company in
December 1999. Upon his resignation from this post, he has been
an independent
non-executive Director
of our company since November 19, 2002.

Franco Bernabè, aged 57, is an independent
non-executive Director of our company. Mr Bernabè is
the Chairman of the Franco Bernabè Group and Vice Chairman
of H3G. He is also a Vice Chairman of Rothschild Europe. He is a
former CEO of ENI and of Telecom Italia. He has also served as a
special representative of the Italian government for the
reconstruction of the Balkan region. Mr Bernabè joined ENI
in 1983 to become an assistant to the chairman; in 1986 he
became director for development, planning and control; and
between 1992 and 1998 was the Chief Executive Officer of ENI. Mr
Bernabè led the restructuring program of the ENI Group,
making it one of the worlds most profitable oil companies.
Between 1998 and 1999, Mr Bernabè was the Chief Executive
Officer of Telecom Italia. Prior to his joining ENI, Mr
Bernabè was the head of economic studies at FIAT. Mr
Bernabè was a senior economist at the OECD Department of
Economics and Statistics in Paris. Earlier he was a professor of
political economy at the School of Industrial Administration,
Turin

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University. Mr Bernabè has been an independent
non-executive Director of our company since June 30, 2000.

Secretary to the Board of Directors

Li Huaiqi, aged 56, is the Secretary to the Board
of Directors of our company. Mr Li is a senior economist. He has
over 30 years of working experience in Chinas oil and
gas industry. Mr Li once worked in the Daqing Oil Field, the
Liaohe Oil Field and the Huabei Oil Field and in the Nanhai
Petroleum Company. From June 1992 to October 1998, Mr Li worked
as Deputy Director and Director of the Foreign Affairs Bureau of
China National Petroleum Corporation. From October 1998, 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 our company since
August 29, 2001.

Other Senior Management Personnel

Wang Guoliang, aged 53, is Chief Financial Officer
of our company. Mr Wang holds a Masters degree and is a
senior accountant. He graduated from the Heilongjiang Business
College and Hebei University. He has over 20 years of
working experience in Chinas oil and gas industry. Mr Wang
worked as the Vice President of China National Petroleum
Corporation Finance Co. Ltd. from 1995 to 1997. From 1998 to
1999, he was the Deputy General Manager and General Accountant
of China National Oil & Gas Exploration and Exploitation
Corporation. Mr Wang has been the Chief Financial Officer of our
company since November 1999. From November 1999 to March 2002,
he was also the General Manager of our companys Finance
Department.

Liao Yongyuan, aged 43, is a Vice President of our
company. Mr Liao is a Masters degree holder and a senior
engineer. He graduated from the Well Drilling Engineering
Faculty of Jianghan Oil Institute as an undergraduate in 1982
and from the Management Sciences and Engineering Faculty of the
University of Petroleum (East China) with a Masters degree
in 2001 and has more than 20 years of working experience in
Chinas oil and gas industry. He was a Deputy General
Engineer for Shengli Oilfield and a Manager of No. 1 Well
Drilling Company and Deputy General Engineer and concurrently a
core leader of Tarim-Shengli Well Drilling Company from 1993 to
1995. He was Deputy Director of the New Zone Exploration and
Development Department of China National Petroleum Corporation
from June to November 1996, the Standing Deputy Commander and
then Commander of Tarim Petroleum Exploration and Development
Headquarters from November 1996 to September 1999. He was the
General Manager of Tarim Oilfield Branch Company from September
1999 to October 2001, and also Deputy Director of Gansu
Provincial Economic and Trade Committee from October 2001 to
January 2004. He has worked as the Assistant to the General
Manager of CNPC since January 2004. He has been concurrently the
Head of Coordination Team for Oil Enterprises in Sichuan and
Chongqing and Director of the Sichuan Petroleum Administration
since April 2004. He has been a Vice President of our company
since November 28, 2005.

Jia Chengzao, aged 57, is a Vice President of our
company and the President of the China Oil Exploration and
Exploitation Research Institute. Mr Jia is a Doctorate degree
holder, a senior engineer and a fellow of the Chinese Academy of
Sciences. He graduated from Nanjing University and has over
25 years of working experience in Chinas oil and
geological industry. From 1994, Mr Jia has worked as the
Deputy Chief Geologist and then the Chief Geologist and Deputy
Commander of the Tarim Oil Exploration and Exploitation
Headquarters. From 1998, he has also been a Vice President of
the China Oil Exploration and Exploitation Scientific Research
Institute of CNPC. From 1999, Mr Jia worked as the Deputy
General Manager of the China Petroleum Tarim Oil Field and the
Deputy Director of China Oil Exploration and Exploitation
Research Institute. He has been the Chief Geologist of our
company from July 2000. Mr Jia has also served as the President
of the China Oil Exploration and Exploitation Research Institute
since December 16, 2002. Mr Jia has been a Vice President
of our company since November 28, 2005.

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Hu Wenrui, aged 56, is a Vice President of our
company. Mr Hu is a senior engineer, and has over 30 years
of working experience in Chinas oil and gas industry. From
1984 to 1989, Mr Hu was the Manager of Changqing Oilfield
No. 2 Oil Extraction Plant, and since April 1989, he was
the Deputy Director, Standing Deputy Director and eventually
Director of Changqing Petroleum Exploration Bureau. From
September 1999 to December 2002, he was the General Manager of
Changqing Oilfield Branch Company. He has been the General
Manager of our companys Exploration and Production Branch
since December 2002. Mr Hu has been a Vice President of our
company since November 28, 2005.

Supervisors

Wang Fucheng, aged 55, is the Chairman of the
Supervisory Committee of our company. Mr Wang is a senior
economist. He graduated from the Shandong Normal University and
has over 30 years of working 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
June 2000, Mr Wang worked as the Senior Executive of the
Shengli Oil Field, Senior Executive 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 was appointed as a Director of our company in
June 2000 and was appointed as the Vice President of our
company in July 2000. Mr Wang resigned as a Director of our
company before becoming a Supervisor of our company. Mr Wang has
been the Chairman of the Supervisory Committee of our company
since November 8, 2005.

Wen Qingshan, aged 47, is a Supervisor of our
company and the Director of the Finance and Assets Department of
CNPC. Mr Wen is a senior accountant and a graduate of the Renmin
University of China. He was the Deputy Chief Accountant of the
Finance and Assets Department of CNPC from November 1998, Deputy
Director of the Finance and Assets Department of CNPC from May
1999 and Director of the Finance and Assets Department of CNPC
from May 2002. He has been a Supervisor of our company since
November 2002.

Sun Xianfeng, aged 53, is a Supervisor of our
company and the Director of the Audit Department and the Audit
Services Centre of CNPC. Mr Sun graduated from the Huadong
Petroleum Institute in September 1977. Mr Sun worked as Deputy
Director of the Supervisory Bureau of China National Petroleum
Corporation from November 1996, before being transferred to the
Eighth Office of the State Council Compliance Inspectors
General Office (Supervisory Committee of Central Enterprises
Working Commission) as its temporary head in June 1998. He has
been the Deputy Director of the Audit Department of CNPC from
October 2000, and also the Director of the Audit Services Centre
of CNPC since December 2000. He has been the Director of the
Auditing Department of CNPC and the Director of the Auditing
Services Centre since April 2004. He has been a Supervisor of
our company since May 2004.

Xu Fengli, aged 58, is a Supervisor and General
Manager of the Audit Department of our company. Mr Xu is a
senior accountant. He graduated from the Xian Petroleum
Institute in July 1985. He has over 30 years of working
experience in Chinas petrochemical industry. Mr Xu was
appointed as the Chief Accountant of Fushun Petrochemical
Corporation in November 1995, Deputy Director of the Finance and
Assets Department of CNPC in November 1998, Deputy General
Manager of the Finance Department of our company in December
1999, and Director of the Administrative Office of the
Supervisory Committee of our company in October 2003. He has
been a Supervisor of our company since May 2004 and the General
Manager of the Audit Department of our company since November
2005.

Qin Gang, aged 52, is a Supervisor and an employee
representative of the Supervisory Committee of our company. Mr
Qin is a senior engineer. He graduated in 1986 with an associate
degree from Metallurgy School of Tianjin University, majoring in
Enterprises Management. Mr Qin has over 30 years of working
experience in Chinas oil and gas industry. Mr Qin has
acted as a Deputy Commander of Tarim Petroleum Exploration and
Development Headquarters since November

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1997 and a Deputy General Manager of Tarim Oilfield Company
since September 1999. From June 2000, Mr Qin worked as
Senior Executive of Tarim Southwest Company concurrently. Since
July 2002, Mr Qin has worked as an executive and the
Chairman of Labour Union of Tarim Oilfield Company. Mr Qin
has been a Supervisor of our company since November 2005.

Li Yongwu, aged 61, is an independent Supervisor
of our company. Mr Li is a senior engineer and graduated
from Tsinghua University in 1968, majoring in polymer studies.
In June 1991, Mr Li was appointed as the Director of
Tianjin Chemicals Bureau. Since July 1993, he was appointed as
the Director of Tianjin Economic Committee. He became the Vice
Ministor of the PRC Ministry of Chemical Industry in
April 1995. He became Director of the States
Petroleum and Chemical Industry Bureau since March 1998. In
April 2001, he was appointed as a Deputy Director of the
Liaison Office of the Central Peoples Government at the
Special Administrative Region of Macau. In December 2004, he was
appointed as the Vice President of China Petroleum and
Petrochemical Industry Association. In May 2005, he became the
President of China Petroleum and Petrochemical Industry
Association. In 2003, he was elected as a standing member of the
Tenth Chinese Peoples Consultative Conference. Mr Li has
been an independent Supervisor of our company since
November 8, 2005.

Wu Zhipan, aged 49, is an independent Supervisor
of our company. Mr Wu obtained a Doctor of Laws degree from the
School of Law, Peking University in 1988, and was a visiting
scholar at Harvard Law School from 1991 to 1992. Mr Wu is
currently the Vice Chancellor of the Peking University. He is
also an expert consultant of the Supreme Peoples Court of
the PRC, an arbitrator of the Arbitration Panel of China
International Economic and Trade Arbitration Commission and
President of the China Economic Law Research Societies. Mr Wu is
the author of a large number of legal publications and has
extensive work experience in the legal field. Mr Wu has been an
independent Supervisor of our company since December 1999.





Compensation

Senior Management Compensation System

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

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



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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 2005, none of the
directors and senior management exercised any of the stock
appreciation rights granted to them. Since companies are not
permitted to repurchase and hold their own shares for offering
stock options under current PRC law, we expect to calculate our
book gains and losses on the basis of share prices and in
accordance with stock appreciation rights measures and make cash
payment of such compensations.

Directors and Supervisors Compensation

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

The aggregate amount of salaries, housing allowances, other
allowances and benefits in kind paid by us to the five highest
paid individuals of PetroChina during the year ended
December 31, 2005 was RMB 3,293,788. We paid
RMB 44,999 as our contribution to the pension plans in
respect of those individuals in the year ended December 31,
2005.

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, 2005 was RMB 3,586,597.

Save as disclosed, no other payments have been paid or are
payable, in respect of the year ended December 31, 2005, by
us or any of our subsidiaries to our directors. In addition, we
have no service contracts with our directors that provide for
benefits to our directors upon the termination of their
employment with us.

In 2005, we paid RMB 57,524 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, 2005 was RMB 44,428.





Board Practices

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

Audit Committee

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




    supervising the integrity of financial reporting process to
    ensure fair, transparent and true financial disclosure;
    evaluating the effectiveness of the internal control and risk
    management framework;
    inspecting and supervising the effectiveness of the internal
    audit functions;

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
    reviewing and supervising the engagement and work of external
    auditors, including evaluating the performance of external
    auditors annually and raising proposals together with the
    supervisory committee to the shareholders meetings with
    respect to the engagement, re-engagement and dismissal of
    external auditors and the compensation of such external auditors;
    receiving, keeping and dealing with complaints regarding
    accounting, internal control or auditing matters.
    receiving and dealing with anonymous submissions and complaints
    by employees regarding accounting or auditing matters, and
    keeping such submission and complaints confidential, and other
    duties provided in the Listing Rules from time to time.Investment and Development Committee

The current members of our investment and development committee
are Su Shulin, as chairman of the committee, and Zhou Jiping and
Wang Yilin, as member of the committee. The investment and
development committees major responsibilities include:




    studying strategic action plans as proposed by our President and
    making recommendations to the board of directors;
    studying the annual investment budget and the adjustment
    proposal regarding the investment plan as proposed by our
    President and making recommendations to the board of directors;
    and
    reviewing preliminary feasibility studies and feasibility
    studies for material investment projects requiring approval of
    the board of directors and making recommendations to the board
    of directors.Evaluation and Remuneration Committee

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




    managing the performance evaluations for our President and
    submitting report to our board and monitoring performance
    evaluations led by our President for Senior Vice President, Vice
    Presidents, Chief Financial Officer and other senior management
    personnel;
    studying our incentive plan, compensation plan and stock
    appreciation rights plan, supervising and evaluating the
    implementation of these plans and making recommendations for
    improvements to and perfection of such plans.Health, Safety and Environment Committee

The current members of our health, safety and environment
committee are Duan Wende, as chairman of the committee,
Mr. Zeng Yukang and Mr. Jiang Fan, as member of the
committee. The health, safety and environment committees
major responsibilities include:




    supervising the effective implementation of our Health, Safety
    and Environmental Protection Plan;
    making recommendations to the board of directors and our
    President for major decisions with respect of health, safety and
    environmental protection;
    inquiring the occurrence of and responsibilities for material
    accidents and supervising the remedial measures of material
    accidents.

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Employees

As of December 31, 2003, 2004 and 2005, we had 417,229,
424,175 and 439,220 employees, respectively. The table below
sets forth the number of our employees by business segment as of
December 31, 2005.

|                           |       |           |         |         |            |  |      |       |  
|-------------------------- | ----- | --------- | ------- | ------- | ---------- |  | ---- | ----- | -
|                           |       | Employees |         |         | % of total | 
|                           |       |           |         |         |            | 
|Exploration and production |       |           | 247,258 |         |            |  | 56.3 |      
|Refining and marketing     |       |           | 117,260 |         |            |  | 26.7 |      
|Chemicals and marketing    |       |           | 60,272  |         |            |  | 13.7 |      
|Natural gas and pipeline   |       |           | 10,760  |         |            |  | 2.5  |      
|Other(1)                   |       |           | 3,670   |         |            |  | 0.8  |      
|                           |       |           |         |         |            | 
|                           | Total |           |         | 439,220 |            |  |      | 100.0 | %
|                           |       |           |         |         |            | 




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








Share Ownership




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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, 2005, CNPC owned
157,922,077,818 State-owned shares, representing approximately
88.21% 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, 2005, Warren E. Buffett, Berkshire
Hathaway Inc., OBH, Inc., National Indemnity Company, GEICO
Corporation and Government Employees Insurance Company, as a
group as defined under Rule 13d-1(b)(1)(ii)(J) of the
Securities Exchange Act of 1934, as amended, collectively owned
2,347,761,000 H shares, representing approximately 1.311% of the
total outstanding share capital of PetroChina, or approximately
11.13% of the H shares of PetroChina.





Related Party Transactions

As at December 31, 2005, CNPC directly owns an aggregate of
approximately 88.21% of the shares of our company and therefore
transactions between our company and CNPC constitute related
party transactions between our company and CNPC under the Rules
Governing the Listing of Securities on The Stock Exchange of
Hong Kong Limited (the Listing Rules).

One-off Related Party Transactions



Acquisition of Ningxia Dayuan Refinery and Petrochemical
    Company Limited and Qingyang Refinery and Petrochemical Company
    LimitedUnder an acquisition agreement between our company and CNPC
dated March 28, 2005, our company has acquired the
petroleum and natural gas-related refinery and petrochemical
businesses respectively owned by CNPCs wholly owned
subsidiaries, Ningxia Dayuan Refinery and Petrochemical Company
Limited and Qingyang Refinery and Petrochemical Company Limited
for a cash consideration of RMB9.14 million. As CNPC is a
controlling shareholder of our company, it is a connected person
of our company and the Acquisitions constitute related party
transactions for our company under the Listing Rules. Details of
the transaction were announced by our company on March 30,
2005.

Acquisition of Newco from
CNODC (Newco Acquisition)

Our company has entered into a purchase agreement with China
National Oil and Gas Exploration and Development Corporation
(CNODC, wholly-owned by CNPC) on June 8, 2005
whereby our company agreed to acquire a 50% ownership interest
in Newco for a consideration of approximately
RMB20,741 million. Newco is wholly owned by CNODC and one
of its subsidiaries before the Newco Acquisition. Our company
also entered into a transfer agreement to sell our

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wholly-owned subsidiary, PetroChina International, to Newco for
a consideration of approximately RMB579 million on the same
date.

The purchase agreement and the transfer agreement have been
approved by the shareholders of the Company at the extraordinary
general meeting held on August 16, 2005. These agreements
have been approved by relevant regulatory authorities.

Upon completion of the purchase agreement and the transfer
agreement, each of CNODC and our company will own a 50% interest
in Newco. Our company will have the right to appoint 4 of the 7
directors of Newco, which will enable our company to maintain
effective control over Newco. Its investment in Newco and the
transfer of PetroChina International Limited to Newco will be
accounted for in a manner similar to a uniting of interests
since these transactions are among entities under common control
by CNPC. The consolidated financial statements of our company
will be restated as if the operations of our company and Newco
had always been combined. Details of the transaction can be
found in our companys announcement and circular dated
June 10, 2005 and June 30, 2005, respectively.

Acquisition of PetroChina
Fuel Oil Company Limited

Our company has entered into two acquisition agreements with two
wholly owned subsidiaries of CNPC, Liaohe Petroleum Exploration
Bureau and China Oil Natural Gas Pipeline Bureau, on
December 6, 2005 for the acquisition of shares representing
15.56% and 20.17%, respectively from them in Petrochina Fuel Oil
Company Limited (Fuel Oil Company), a 55.43%
subsidiary of our company, for an aggregate cash consideration
of RMB 559 million (the Acquisitions). The Fuel
Oil Company is principally engaged in the investment and
development of fuel oil in the upstream and downstream areas
outside the PRC. The Acquisitions constitute related party
transactions for our company under the Listing Rules. The
Acquisitions increase our companys interests in the Fuel
Oil Company and is expected to strengthen the management of the
Fuel Oil Company. Details of the transaction were announced by
our company on December 6, 2005.

Continuing Related Party Transactions

Continuing Related Party
Transactions with CNPC

Our company and CNPC continue to carry out certain existing
continuing related party transactions and have entered into new
continuing related party transactions throughout the reporting
period. The waiver in respect of the existing continuing related
party transactions has expired on December 31, 2005. Our
company has sought independent shareholders approval at the
general meeting held on November 8, 2005 for a renewal of
the existing continuing related party transactions and the new
continuing related party transactions and proposed the new caps
for existing continuing related party transactions and the new
continuing related party transactions for January 1, 2006
to December 31, 2008.

Our company and CNPC will continue to carry out the existing
continuing related party transactions referred to in the
following agreements:



Comprehensive Products and Services Agreement, First
    Supplemental Comprehensive Agreement and Second Supplemental
    Comprehensive AgreementOur company and CNPC continue to implement the Comprehensive
Products and Services Agreement (Comprehensive
Agreement) entered into on March 10, 2000 for the
provision (i) by our company to CNPC and (ii) by CNPC
Group to our company, 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. The
Comprehensive Agreement has been amended by the First
Supplemental Comprehensive Agreement and the Second Supplemental
Comprehensive Agreement described below.

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The term of the Comprehensive Agreement was initially
ten years starting from the date when our companys
business license was issued. This term has been amended by the
Second Supplemental Comprehensive Agreement to three years
commencing from January 1, 2006.

During the term of the Comprehensive Agreement, termination of
the product and service implementation agreements described
below may be effected from time to time by the parties to the
product and service implementation agreements providing at least
six months written notice of termination in relation
to any one or more categories of products or services. Further,
in respect of any products or services already contracted to be
provided, termination may not take place until after such
products and services have been provided.

Under the Comprehensive Products and Services Agreement,
products and services to be provided by our company to CNPC
Group include such products as refined products, chemical
products, natural gas, crude oil and such services as relating
to the supply of water, electricity, gas and heating,
quantifying and measuring and 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.

More products and services are to be provided by CNPC to our
company, both in terms of quantity and variety, than those to be
provided by our company to CNPC. Products and services to be
provided by CNPC to our company have been grouped together and
categorized according to the following types of products and
services:




    Construction and technical services,
    Production services,
    Supply of materials services,
    Social services,
    Ancillary services, and
    Financial services.The First Supplemental Comprehensive Agreement dated
June 9, 2005 was entered principally to amend the
definitions of state-prescribed price and
market price in the Comprehensive Agreement in view
of the characteristics of overseas business and to amend the
term of the Comprehensive Agreement to three years. The First
Supplemental Comprehensive Agreement took effect on
December 19, 2005.

The Second Supplemental Comprehensive Agreement entered into by
CNPC and our company on September 1, 2005 provides for
certain new continuing related party transactions between our
company and certain companies in which both our company and CNPC
are shareholders, and where CNPC and/or its subsidiaries and/or
affiliates (individually or together) is/are entitled to
exercise, or control the exercise of, 10% or more of the voting
power at any general meeting of such company. The Second
Supplemental Comprehensive Agreement took effect on
January 1, 2006.

Individual Product and
Service Implementation Agreements

According to the current arrangements, from time to time and as
required, individual product and service implementation
agreements may be entered into between the relevant service
companies and affiliates of CNPC Group or our company providing
the relevant products or services, as appropriate, and the
relevant members of our company or CNPC Group, requiring such
products or services, as appropriate.

Each product and service implementation agreement will set out
the specific products and services requested by the relevant
party and any detailed technical and other specifications which
may be relevant to those products or services. The product and
service implementation agreements may only contain provisions
which are in all material respects consistent with the binding
principles

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and guidelines and terms and conditions in accordance with which
such products and services are required to be provided as
contained in the Comprehensive Agreement.

As the product and service implementation agreements are simply
further elaborations on the provision of products and services
as contemplated by the Comprehensive Agreement, they do not as
such constitute new categories of related party transactions.

Land Use Rights Leasing
Contract

Our company and CNPC continue to implement the Land Use Rights
Leasing Contract entered into on March 10, 2000 under which
CNPC has leased a total of 42,476 parcels of land in connection
with all aspects of the operations and business of our company
covering an aggregate area of approximately 1,145 million
square meters, located throughout the PRC, to our company for a
term of 50 years at an annual fee of
RMB 2 billion. The total fee payable for the lease of
all such property may, after the expiration of ten years
from the effective date of the Land Use Rights Leasing Contract,
be adjusted (to reflect market conditions prevalent at such time
of adjustment, including the then prevailing marketing prices,
inflation or deflation, as applicable, and such other factors
considered as important by both parties in negotiating and
agreeing to any such adjustment) by agreement between our
company and CNPC. 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, any
additional amount of such taxes payable as a result of changes
in the PRC government policies after the effective date of the
contract shall be shared proportionately on a reasonable basis
between CNPC and our company.

Buildings Leasing Contract
and Buildings Supplementary Leasing Agreement

Our company and CNPC continue to implement the Buildings Leasing
Contract entered into on March 10, 2000 pursuant to which
CNPC has leased to our company a total of 191 buildings
covering an aggregate of area of 269,770 square meters,
located throughout the PRC for the use by our company for its
business operations including the exploration, development and
production of crude oil, the refining of crude oil and petroleum
products, and the production and sale of chemicals. The
191 buildings were leased at a price of RMB 145 per
square meter per year, that is, an aggregate annual fee of
RMB 39,116,650 for a term of 20 years. Our company is
responsible for the payment of any governmental, legal or other
administrative taxes and maintenance charges required to be paid
in connection with these 191 buildings. The Building
Leasing Contract sets forth the details of the buildings leased
to our company by any other member company within CNPC group.

Further to the Buildings Leasing Contract mentioned above, our
company entered into a Supplemental Buildings Leasing Agreement
(the Supplemental Buildings Agreement) with CNPC on
September 26, 2002 under which CNPC agreed to lease to our
company another 404 buildings covering an aggregate of
442,730 square meters. The increase in the units being
leased in the Supplemental Buildings Agreement is mainly
attributable to the expansion of our companys operations
mainly in the areas such as oil and natural gas exploration, the
West-East Gas Pipeline Project and the construction of the
northeast refineries and chemical operation base. The total rent
payable under the Supplemental Buildings Agreement amounts to
RMB 157,439,540 per annum. Our company and CNPC will, based
on any changes in their production and operations, and changes
in the market price, adjust the sizes and quantities of
buildings leased under the Buildings Leasing Contract as well as
the Supplemental Buildings Agreement every three years. The
Supplemental Buildings Agreement became effective on
January 1, 2003 and will expire at the same time as the
Buildings Leasing Contract. The terms and conditions of the
Buildings Leasing Contract will, to the extent not contradictory
to the Supplemental Buildings Agreement, will remain in full
force.

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Intellectual Property
Licensing Contracts

Our company and CNPC continue to implement the three
intellectual property licensing contracts entered into on
March 10, 2000, being the Trademark Licensing Contract, the
Patent and Know-how Licensing Contract and the Computer Software
Licensing Contract. Pursuant to these licensing contracts, CNPC
has granted our company the exclusive right to use certain
trademarks, patents, know-how and computer software of CNPC at
no cost. These intellectual property rights relate to the assets
and businesses of CNPC which were transferred to our company
pursuant to the restructuring.

Contract for the Transfer of
Rights under Production Sharing Contracts

Our company and CNPC continue to implement the Contract for the
Transfer of Rights under Production Sharing Contracts dated
March 10, 2000. As part of the restructuring, CNPC
transferred to our company relevant rights and obligations under
23 Production Sharing Contracts entered into with a number
of international oil and natural gas companies, except for the
rights and obligations relating to CNPCs supervisory
functions.

Guarantee of Debts
Contract

Our company and CNPC continue to implement the Guarantee of
Debts Contract entered into on March 10, 2000, pursuant to
which all of the debts of CNPC relating to the assets
transferred to our company in the restructuring were also
transferred to, and assumed by, our company.

In the Guarantee of Debts Contract, CNPC has agreed to guarantee
certain of the debts of our company at no cost. As of the end of
2005, the total amount guaranteed was RMB 674 million.

As each of the applicable percentage ratio(s) (other than the
profits ratio) in respect of the Trademark Licensing Contract,
the Patent and Know-how Licensing Contract, the Computer
Software Licensing Contract, the Contract for the Transfer of
Rights under Production Sharing Contracts and the Guarantee of
Debts Contract is less than 0.1%, these transactions are
exempted from the reporting, announcement and independent
Shareholders approval requirements under Chapter 14A
of the Listing Rules. The Directors believe that these
transactions had been entered into in the ordinary course of
business for the benefits of our company, and are in the
interests of the Shareholders as a whole.

New Continuing Related Party
Transactions with Newco

The following new continuing related party transactions arose as
a result of the completion of the Newco Acquisition:




    the sale of products by Newco Group to the CNPC Group;
    the provisions of construction and technical services such as
    exploration technology services by CNPC Group to Newco Group;
    the provision of social services and ancillary services by CNPC
    Group to Newco Group; and
    the provision of financial services by CNPC Group to Newco Group.Continuing Related Party
Transactions with CNPC (HK)

As part of the restructuring of CNPC and in preparation for the
listing of our company on HKSE, and as disclosed in our
companys prospectus dated March 27, 2000, CNPC and
our company entered into the Contract for the Transfer of Rights
under Production Sharing Contracts whereby the relevant rights
and obligations (other than the supervisory functions related to
CNPCs role as representative of the PRC government) of
CNPC under certain contracts, including the Blocks 9-1 to
9-5 of the Xinjiang Karamay Oilfield Petroleum Contract dated
July 1, 1996, entered into between

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CNPC and Hafnium Limited (Xinjiang Contract) and the
Leng Jiapu Area Petroleum Contract dated December 30, 1997,
entered into between CNPC and Beckbury International Limited
(Liaohe Contract), were novated to our company.

CNPC (Hong Kong) Limited (CNPC (HK)) is a 57.5%
owned subsidiary of CNPC. CNPC is also our companys
controlling shareholder which holds approximately 88.21% of the
issued share capital of our company. Upon the effective novation
by CNPC to our company of the above interest in the PRC Oil
Production Sharing Contracts (the Xinjiang Contract and the
Liaohe Contract), certain transactions pursuant to the PRC Oil
Production Sharing Contracts constitute related party
transactions between our company and CNPC (HK).

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



(1) Production and development cost sharing between
    our company and CNPC (HK): Our company and
    CNPC (HK) shall share the oil and natural gas produced from
    blocks 9-1 to 9-5 of the Karamay Oilfield, as to 46% by our
    company and 54% by CNPC (HK), and from the Leng Jiapu Oilfield,
    as to 30% by our company and 70% by CNPC (HK).
    CNPC (HK) shall be responsible for 100% of the development
    costs in respect of blocks 9-1 to 9-5 of the Karamay
    Oilfield. Our company is responsible for 30% and CNPC (HK)
    is responsible for 70% of the development costs in respect of
    the Leng Jiapu Oilfield.(2) Provision of assistance by our company to CNPC
    (HK): Our company shall provide assistance to CNPC (HK),
    including: (i) leasing warehouses, terminal facilities,
    barges, pipeline and land, etc.; (ii) obtaining approvals
    necessary for the conduct of the petroleum operations; and
    (iii) obtaining office space, office supplies,
    transportation and communication facilities. For such
    assistance, CNPC (HK) will pay an annual assistance fee of
    US$50,000 for each of blocks 9-1 to 9-5 of the Karamay
    Oilfield and the Leng Jiapu Oilfield. The amount of such fee was
    determined after negotiations, and has taken into account the
    actual circumstances and conditions, including the scope of the
    projects and the level of demand for such assistance. This fee
    shall be accounted for as operating costs and shared by our
    company and CNPC (HK) in accordance with the procedures
    described in the Xinjiang Contract and the Liaohe Contract.(3) Payment of training fees: In the course
    of development and operations of each oilfield, CNPC (HK) shall
    pay our company an amount of US$50,000 annually for the training
    of personnel carried out by our company for each of
    blocks 9-1 to 9-5 of the Karamay Oilfield and the Leng
    Jiapu Oilfield. The amount of such fee was determined after
    negotiations, and has taken into account the actual
    circumstances and conditions, including the scope of the
    projects and the level of demand for training.(4) Sale of crude oil by CNPC (HK) to our
    company: CNPC (HK) has the right to deliver its
    share of oil production from each of blocks 9-1 to 9-5 of
    the Karamay Oilfield and the Leng Jiapu Oilfield to a
    destination of its choice, except for destinations which
    infringe on the political interests of the PRC. However, given
    the transportation costs and the prevailing oil prices, the only
    likely purchaser of the oil production attributable to CNPC (HK)
    from each of blocks 9-1 to 9-5 of the Karamay Oilfield and
    the Leng Jiapu Oilfield is CNPC or its affiliates, including our
    company, which will accept delivery of oil produced in
    blocks 9-1 to 9-5 of the Karamay Oilfield and the Leng
    Jiapu Oilfield at the market price. Since the signing of the
    PRC Oil Production Sharing Contracts, CNPC (HK) has
    sold all of its share of the oil production to CNPC or its
    affiliates, including our company. As far as the Board of
    Directors is aware, CNPC (HK) intends to continue with this
    arrangement. There is no contractual obligation upon our company
    to purchase oil produced from blocks 9-1 to 9-5 of the
    Karamay Oilfield and the Leng Jiapu Oilfield, although, from a
    commercial perspective, our company intends to continue to
    accept part of the deliveries. The price of various grades of
    crude oil sold shall be set either with reference to the price
    approved by the relevant PRC authorities, or as determined with
    reference to the prevailing fair market price for transactions
    of crude oil of a similar quality in the

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major oil markets. This will be adjusted to take into account
    the terms of transportation, payment and other terms.The waiver in respect of the related party transactions between
our company and CNPC (HK) granted by the HKSE will be valid
between January 1, 2004 and December 31, 2006.

Loans or Guarantees with Related Parties

As of December 31, 2005, we had unsecured short-term and
long-term loans from CP Finance in an aggregate amount of
RMB 27,319 million. The average annual interest rate
on these loans is 4.9%.





ITEM 8  FINANCIAL INFORMATION

Financial Statements

See pages F-1 to
F-78 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; and
    allocations to a discretionary common reserve fund if approved
    by our shareholders.The minimum and maximum aggregate allocations to the statutory
funds are 15% and 20%, respectively, of our net income
determined in accordance with PRC accounting rules. Under PRC
law, our distributable earnings will be equal to our net income
determined in accordance with PRC accounting rules or IFRS,
whichever is lower, less allocations to the statutory and
discretionary funds.

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

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




    providing our shareholders with a competitive return on
    investment; and
    assuring sufficient reinvestment of profits to enable us to
    achieve our strategic objectives.An interim dividend of RMB 0.157719 per H share
(inclusive of applicable tax) for the six months ended
June 30, 2005 was paid to our shareholders on
September 30, 2005. The board of directors proposed to
distribute the final dividend of RMB 0.180325 per
H share (inclusive of applicable tax) which was calculated
on the basis of the balance between 45% of our net income for
the year ended December 31, 2005 and the interim dividend
for 2005 which was paid on September 30, 2005. The final
dividend to be paid has been approved by the annual
shareholders general meeting to be held on May 26,
2006. The final dividend has been paid on June 9, 2006.

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.
In September 2005, our company issued an additional
3,196,801,818 H shares. CNPC also sold
319,680,182 state-owned shares it held concurrently with
our Companys issue of new H shares in September 2005.
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, 2005, there were
21,098,900,000 H shares issued and outstanding. As of
December 31, 2005, there were 257 registered holders of
American depositary receipts evidencing 31,235,149 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 2006 (through [month][date],2006) are set forth
below.

|     |                |           |  |       |           |  |  |       |  |  |     |       |  |  |  |       | 
|---- | -------------- | --------- |  | ----- | --------- |  |  | ----- |  |  | --- | ----- |  |  |  | ----- | 
|     |                | Price per |  |       | Price per | 
|     |                | H share   |  |       | ADS       | 
|     |                |           |  |       |           | 
|     |                | High      |  |       | Low       |  |  | High  |  |  | Low |      
|     |                |           |  |       |           |  |  |       |  |  |     |      
|     |                | (HK$)     |  |       | (US$)     | 
|2001 |                |           |  |       |           |  |  |       |  |  |     |       |  |  |  |      
|     | First quarter  |           |  | 1.48  |           |  |  | 1.26  |  |  |     | 18.73 |  |  |  | 16.55 | 
|     | Second quarter |           |  | 1.84  |           |  |  | 1.35  |  |  |     | 23.60 |  |  |  | 17.40 | 
|     | Third quarter  |           |  | 1.67  |           |  |  | 1.43  |  |  |     | 21.15 |  |  |  | 18.43 | 
|     | Fourth quarter |           |  | 1.48  |           |  |  | 1.29  |  |  |     | 19.30 |  |  |  | 16.80 | 
|2002 |                |           |  |       |           |  |  |       |  |  |     |       |  |  |  |      
|     | First quarter  |           |  | 1.62  |           |  |  | 1.39  |  |  |     | 21.07 |  |  |  | 18.03 | 
|     | Second quarter |           |  | 1.75  |           |  |  | 1.52  |  |  |     | 22.40 |  |  |  | 19.23 | 
|     | Third quarter  |           |  | 1.72  |           |  |  | 1.53  |  |  |     | 21.72 |  |  |  | 19.25 | 
|     | Fourth quarter |           |  | 1.57  |           |  |  | 1.44  |  |  |     | 20.75 |  |  |  | 18.40 | 
|2003 |                |           |  |       |           |  |  |       |  |  |     |       |  |  |  |      
|     | First quarter  |           |  | 1.70  |           |  |  | 1.55  |  |  |     | 21.61 |  |  |  | 19.10 | 
|     | Second quarter |           |  | 2.38  |           |  |  | 1.62  |  |  |     | 30.82 |  |  |  | 20.94 | 
|     | Third quarter  |           |  | 2.80  |           |  |  | 2.15  |  |  |     | 35.89 |  |  |  | 27.67 | 
|     | Fourth quarter |           |  | 4.45  |           |  |  | 2.60  |  |  |     | 57.05 |  |  |  | 33.75 | 
|2004 |                |           |  |       |           |  |  |       |  |  |     |       |  |  |  |      
|     | First quarter  |           |  | 4.85  |           |  |  | 3.75  |  |  |     | 63.70 |  |  |  | 47.53 | 
|     | Second quarter |           |  | 4.00  |           |  |  | 3.20  |  |  |     | 50.96 |  |  |  | 41.63 | 
|     | Third quarter  |           |  | 4.175 |           |  |  | 3.60  |  |  |     | 53.76 |  |  |  | 45.98 | 
|     | Fourth quarter |           |  | 4.375 |           |  |  | 4.075 |  |  |     | 56.60 |  |  |  | 52.22 | 

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|     |                              |           |  |      |           |  |  |       |  |  |     |        |  |  |  |        | 
|---- | ---------------------------- | --------- |  | ---- | --------- |  |  | ----- |  |  | --- | ------ |  |  |  | ------ | 
|     |                              | Price per |  |      | Price per | 
|     |                              | H share   |  |      | ADS       | 
|     |                              |           |  |      |           | 
|     |                              | High      |  |      | Low       |  |  | High  |  |  | Low |       
|     |                              |           |  |      |           |  |  |       |  |  |     |       
|     |                              | (HK$)     |  |      | (US$)     | 
|2005 |                              |           |  |      |           |  |  |       |  |  |     |        |  |  |  |       
|     | First quarter                |           |  | 5.10 |           |  |  | 4.025 |  |  |     | 65.36  |  |  |  | 51.65  | 
|     | Second quarter               |           |  | 5.85 |           |  |  | 4.675 |  |  |     | 74.65  |  |  |  | 59.71  | 
|     | Third quarter                |           |  | 7.35 |           |  |  | 5.90  |  |  |     | 94.50  |  |  |  | 74.95  | 
|     | Fourth quarter               |           |  | 6.50 |           |  |  | 5.65  |  |  |     | 83.70  |  |  |  | 72.70  | 
|2006 |                              |           |  |      |           |  |  |       |  |  |     |        |  |  |  |       
|     | January                      |           |  | 7.55 |           |  |  | 6.35  |  |  |     | 100.02 |  |  |  | 83.50  | 
|     | February                     |           |  | 7.85 |           |  |  | 7.30  |  |  |     | 100.76 |  |  |  | 95.53  | 
|     | March                        |           |  | 8.10 |           |  |  | 7.30  |  |  |     | 104.95 |  |  |  | 94.21  | 
|     | April                        |           |  | 9.35 |           |  |  | 8.35  |  |  |     | 118.50 |  |  |  | 107.16 | 
|     | May                          |           |  | 9.55 |           |  |  | 8.30  |  |  |     | 122.75 |  |  |  | 104.40 | 
|     | June (through June 15, 2006) |           |  | 8.35 |           |  |  | 7.10  |  |  |     | 107.38 |  |  |  | 90.63  | 



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ITEM 10  ADDITIONAL INFORMATION





Memorandum and Articles of Association

Our Articles of Association Currently in Effect

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



Enforceability of Shareholders RightsOur articles of association provide that all differences or
claims




    between a holder of H shares and us;
    between a holder of H shares and any of our directors,
    supervisors, general managers, deputy general managers or other
    senior officers; or
    between a holder of H shares and a holder of State-owned
    shares, arising from any provision of the articles of
    association, any right or obligation conferred or imposed by the
    PRC Company Law or any other relevant law or administrative
    regulation which concerns our affairs must, with certain
    exceptions, be referred to arbitration at either the China
    International Economic and Trade Arbitration Commission in the
    PRC or the Hong Kong International Arbitration Center. Our
    articles of association provide that such arbitration will be
    final and conclusive.

Restrictions on Transferability and the Share
    RegisterThe articles of association provide that PRC investors are not
entitled to be registered as holders of H shares.

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




    any relevant transfer fee is paid;
    the instrument of transfer is accompanied by the share
    certificates to which it relates, or such other evidence is
    given as may be reasonably necessary to show the right of the
    transferor to make the transfer;
    the instrument of transfer is in respect of one class of shares
    only; and
    the transfer is conducted in accordance with the laws and
    administrative regulations of or required by the securities
    exchanges on which the shares are listed.We are required to keep a register of our shareholders which
shall be comprised of various parts, including one part which is
to be maintained in Hong Kong in relation to H shares to be
listed on the Hong Kong Stock Exchange.



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

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




    recovery of losses, if any;
    allocations to the statutory common reserve fund;

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
    allocations to the statutory common welfare fund; and
    allocations to a discretionary common reserve fund if approved
    by the shareholders.The minimum and maximum aggregate allocations to the statutory
funds are 15% and 20%, respectively, of our net income
determined in accordance with PRC accounting rules.

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



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




    where the number of directors is less than the number stipulated
    in the PRC Company law or two-thirds of the number specified in
    our articles of association;
    where our unrecovered losses reach one-third of the total amount
    of our share capital;
    where shareholders holding 10% or more of our issued and
    outstanding voting shares request in writing the convening of an
    extraordinary general meeting; or
    where our board deems necessary or our board of supervisors so
    request.Meetings of a special class of shareholders must be called in
certain enumerated situations when the rights of the holders of
such class of shares may be modified or adversely affected, as
discussed below. Resolutions proposed by shareholders holding 5%
or more of the total number of voting shares will be included in
the agenda for the relevant annual general meeting if they are
matters which fall within the scope of the functions and powers
of shareholders in general meeting.

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

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

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

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

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

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

The following decisions must be adopted by special resolution:




    an increase or reduction of our share capital or the issue of
    shares of any class, warrants and other similar securities;
    the issue of our debentures;
    our division, merger, dissolution and liquidation;
    amendments to our articles of association; and
    any other matters considered by the shareholders in a general
    meeting and which they have resolved by way of an ordinary
    resolution to be of a nature which may have a material impact on
    us and should be adopted by special resolution.All other actions taken by the shareholders, including the
appointment and removal of our directors and independent
auditors and the declaration of normal dividend payments or
stock distributions, will be decided by an ordinary resolution
of the shareholders.

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

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



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

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

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



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

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(b) implement the resolutions passed by the shareholders in
    general meetings;(c) determine our business plans and investment proposals;(d) formulate our annual preliminary and final budgets;(e) formulate our profit distribution proposal and loss
    recovery proposals;(f) formulate proposals for the increase or reduction of
    our registered capital and the issuance of our debentures;(g) draw up plans for our merger, division or dissolution;(h) decide on our internal management structure;(i) appoint or remove our president and to appoint or
    remove the vice presidents and other senior officers, including
    the financial controller, based on the recommendation of the
    general manager, and to decide on their remuneration;(j) formulate our basic management system;(k) formulate proposals for any amendment of our articles
    of association; and(l) exercise any other powers conferred by the shareholders
    in general meetings.Except for items (f), (g) and (k), which require the affirmative
vote of more than two-thirds of all of our directors,
resolutions on any other items may be approved by the
affirmative vote of a simple majority of our directors.

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




    not to cause us to exceed the scope of business stipulated in
    our business license;
    to act honestly in our best interests;
    not to expropriate our property in any way, including, without
    limitation, usurpation of opportunities which benefit us; and
    not to expropriate the individual rights of shareholders,
    including, without limitation, rights to distributions and
    voting rights, save and except according to a restructuring
    which has been submitted to the shareholders for their approval
    in accordance with the articles of association.Our articles of association further place on each of our
directors, supervisors, president, vice presidents and senior
officers:




    a duty, in the exercise of such persons powers and
    discharge of such persons duties, to exercise the care,
    diligence and skill that a reasonably prudent person would
    exercise in comparable circumstances;
    a fiduciary obligation, in the exercise of our powers entrusted
    to him or her, not to place himself or herself in a position
    where his or her duty to us and his or her interests may
    conflict; and
    a duty not to direct a person or entity related or connected to
    a director, supervisor, president, vice president or senior
    officer in certain relationships enumerated in the articles of
    association to act in a manner which such director, supervisor,
    president, vice president or senior officer is prohibited from
    doing.Subject to compliance with all relevant laws and administrative
regulations, the shareholders in a general meeting may by
ordinary resolution remove any director before the expiration of
his term of

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office. Subject to certain qualifications, a director,
supervisor, president, vice president or other senior officer
may be relieved of liability for a specific breach of his or her
duties by the informed consent of shareholders in a general
meeting.



Board of SupervisorsThe board of supervisors is composed of seven members appointed
to monitor our financial matters:




    to verify financial reports and other financial information
    which have been prepared by the board and which are proposed to
    be presented at shareholders meetings, and
    to oversee our directors, president, vice presidents and other
    senior officers in order to prevent such persons from abusing
    their authority or infringing upon our interest.The rights of the board of supervisors are generally limited to
investigating and reporting to shareholders and management on
our affairs and to calling shareholders extraordinary
general meetings.

One member of the board of supervisors will be an employee
representative appointed by our employees. The remaining members
will be appointed by the shareholders in a general meeting. One
member of the board of supervisors shall be the chairman. A
member of the board of supervisors may not be a director, the
president, a vice president or the chief financial officer. The
term of office of each member of the board of supervisors is
three years, including the term of office of the chairman of the
board of supervisors, both of which terms of office are
renewable upon
re-election and
re-appointment.
Reasonable expenses incurred by the board of supervisors in
carrying out its duties will be paid by us.

The board of supervisors is accountable, and will report, to the
shareholders in the shareholders general meetings.



Restrictions on Large or Controlling ShareholdersOur articles of association provide that, in addition to any
obligation imposed by laws and administrative regulations or
required by the listing rules of the stock exchanges on which
our H shares are listed, a controlling shareholder shall
not exercise his voting rights in a manner prejudicial to the
interests of the shareholders generally or of some part of the
shareholders:




    to relieve a director or supervisor from his or her duty to act
    honestly in our best interests;
    to approve the expropriation by a director or supervisor of our
    assets in any way, including, without limitation, opportunities
    which may benefit us; or
    to approve the expropriation by a director or supervisor of the
    individual rights of other shareholders, including, without
    limitation, rights to distributions and voting rights, except
    according to a restructuring of our company which has been
    submitted for approval by the shareholders in a general meeting
    in accordance with our articles of association.A controlling shareholder, however, will not be precluded by our
articles of association or any laws and administrative
regulations or the listing rules of the stock exchanges on which
our H shares are listed from voting on these matters.

A controlling shareholder is defined by our articles of
association as any person who acting alone or in concert with
others:




    is in a position to elect more than one-half of the board of
    directors;
    has the power to exercise, or to control the exercise of, 30% or
    more of our voting rights;

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
    holds 30% or more of our issued and outstanding shares; or
    has de facto control of us in any other way.Amended Articles of Association Pending for Approval

In May 2005, our shareholders approved our amended articles of
association at the annual general meeting of shareholders, which
is subject to approval by the State-owned Assets Supervision and
Administration Commission of the PRC, or SASAC, before they
become effective. Accordingly, we are still governed by our
current articles of association in effect, pending this
approval. We expect this approval to be granted in due course.

In this subsection, we describe the significant changes that
will come into effect upon the approval of SASAC. In the
subsection above, we describe our current articles of
association. Both subsections must be read in conjunction in
order to understand how we will function after the amended
articles of association have been approved. We have filed our
amended articles of association with the Commission as an
exhibit to this annual report on
Form 20-F.

The amended articles of associations increase the minimum
frequency of mandatory meetings of the board of directors from
twice to four times every year. A meeting notice will be
distributed to all the directors, 14 days prior to the
holding of a board meeting, or 10 days prior to the holding
of an interim board meeting.

In addition, the amended articles of associations add, among
others, the following provisions:



Share Certificates and Register of ShareholdersThe amended articles of associations provide that we will make
the following documents available at our Hong Kong
representative office for inspection by the public and
shareholders free of charge and for copying by shareholders at
reasonable charges:




    a complete duplicate of the register of shareholders;
    a report showing the status of our issued share capital;
    the latest audited financial statements, directors report,
    auditors report, and supervisors Reports;
    our special resolutions;
    reports showing the number and nominal value of securities
    repurchased by us since the end of the last financial year, the
    aggregate amount paid for such securities and the maximum and
    the minimum prices paid in respect of each class of securities
    repurchased;
    a copy of the latest annual examination report filed with the
    State Administration of Industry and Commerce of the PRC; and
    for shareholders only, copies of the shareholder meetings
    minutes.

Shareholders General MeetingsThe amended articles of associations provide that when any
shareholder is required to abstain from voting on any particular
resolution or restricted to voting only for or against any
particular resolution under the Listing Rules, any votes cast by
or on behalf of such shareholder in contravention of such
requirement or restriction shall not be counted.



Board of DirectorsThe amended articles of associations provide that when a
director or any of his associates has a material interest in any
board resolution, the relevant transaction will be dealt with by
conducting a

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board meeting rather than circulating written board resolution.
If an independent non-executive director and its affiliates has
no material interests in the transaction, he should be present
at such board meeting.



Secretary of the Board of DirectorsThe amended articles of associations impose additional
responsibilities upon the secretary of our board of directors,
who will




    organize board meetings and general meetings; and
    circulate minutes of the meetings of the board of directors to
    all directors for their signature and records within
    14 days after the board meeting is held, and make the
    minutes available for inspection.

Financial and Accounting Systems and Profit
    DistributionThe amended articles of associations provide that we will not
exercise our power to forfeit the unclaimed dividends until
after the expiry of the applicable limitation period under the
relevant PRC law.



Share Capital StructureUpon the completion of our companys global initial public
offering, the aggregate number of common shares of our company
was 175,824,176,000, of which the promoter CNPC held
158,241,758,000 shares, representing 90% of our total share
capital at the time, and H shareholders held
17,582,418,000 shares, representing 10% of our total share
capital at the time.

On September 15, 2005, our company issued 3,196,801,818 new
shares. Concurrently CNPC sold 319,680,182 state-owned shares it
held. Following these transactions, the share capital structure
of our company changed to the following: the number of common
shares is 179,020,977,818, of which CNPC holds 157,922,077,818
shares, representing 88.21% of the total share capital, and
H shareholders hold 21,098,900,000 shares, representing
11.79% of the total share capital.





Material Contracts

Incorporated by reference to our Registration Statement on
Form F-1 (Registration
No. 333-11566) and
our annual reports on Form 20-F for the fiscal years ended
December 31, 1999 (File No. 1-15006),
December 31, 2000 (File No. 1-15006),
December 31, 2001 (File No. 1-15006),
December 31, 2002 (File No. 1-15006),
December 31, 2003 (File No. 1-15006) and
December 31, 2004 (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.

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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 and United
States tax consequences of the ownership of H shares or
ADSs purchased held by the investor as capital assets.

PRC Taxation

Dividends and Individual
Investors

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

The Individual Income Tax Law of the PRC was amended effective
January 1, 1994 and states that it supersedes any
contradictory prior administrative regulation concerning
individual income tax. The amended Individual Income Tax Law can
be interpreted as providing that all foreign individuals are
subject to the 20% withholding tax on dividends paid by a PRC
company on its Overseas Shares unless specifically exempted by
the financial authority of the State Council of the PRC.
However, in a letter dated July 26, 1994 to the former
State Commission for Restructuring the Economic System, the
former State Council Securities Committee and the China
Securities Regulatory Commission, the PRC State Administration
of Taxation restated the exemption. In the event that the letter
is withdrawn, a 20% tax may be withheld on dividends paid to
you, subject to reduction by an applicable tax treaty between
China and the country where you reside. To date, the

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relevant tax authorities have not collected withholding tax from
dividend payments on such shares exempted under the Tax Notice.



Dividends
and Foreign Enterprises

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

Tax
Treaties

If you are a resident or citizen of a country that has entered
into a double-taxation treaty with the PRC, you may be entitled
to a reduction in the amount of tax withheld, if any, imposed on
the payment of dividends. The PRC currently has such treaties
with a number of countries, including but not limited to:



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

Capital
Gains

The Tax Notice provides that gains realized by foreign
enterprises upon the sale of Overseas Shares which are not held
by entities established by such enterprises in the PRC and gains
realized by foreign individuals upon the sale of Overseas Shares
are not subject to withholding tax for the time being. However,
as far as individuals are concerned, the Individual Income Tax
Law of the PRC, as amended on October 31, 1993 and
effective on January 1, 1994, provides for a capital gains
tax of 20% on individuals. On January 28, 1994, the
Provisions for Implementing the Individual Income Tax Law of the
PRC was promulgated which provides that the measures to levy
individual income tax on the gains realized on the sale of
shares will be made in the future by the Ministry of Finance and
subject to the approval of the State Council. On June 20,
1994, February 9, 1996 and March 30, 1998, the
Ministry of Finance and the State Administration of Taxation
issued notices

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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.

United States Federal Income Taxation

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




    tax-exempt entities;
    certain insurance companies;
    broker-dealers;
    traders in securities that elect to mark to market;
    U.S. holders liable for alternative minimum tax;
    U.S. holders that own 10% or more of our voting stock;
    U.S. holders that hold the H shares or ADSs as part of a
    straddle or a hedging or conversion transaction; or
    U.S. holders whose functional currency is not the
    U.S. dollar.This discussion is based on the Code, its legislative history,
final, temporary and proposed United States Treasury regulations
promulgated thereunder, published rulings and court decisions as
in effect on the date hereof, all of which are subject to
change, or changes in interpretation, possibly with retroactive
effect. In addition, this discussion is based in part upon
representations of the depositary and the assumption that each
obligation in the deposit agreement and any related agreements
will be performed according to its terms.

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You are a U.S. holder if you are:




    a citizen or resident of the United States for United States
    federal income tax purposes;
    a corporation, or other entity treated as a corporation for
    United States federal income tax purposes, created or organized
    under the laws of the United States or any political subdivision
    thereof;
    an estate the income of which is subject to United States
    federal income tax without regard to its source; or
    a trust:


    subject to the primary supervision of a United States court and
    the control of one or more United States persons; or
    that has elected to be treated as a United States person under
    applicable United States Treasury regulations.If a partnership holds the H shares or ADSs, the tax treatment
of a partner generally will depend on the status of the partner
and the activities of the partnership. If you are a partner of a
partnership that holds the H shares or ADSs, we urge you to
consult your tax advisors regarding the consequences of the
purchase, ownership and disposition of the H shares or ADSs.

This discussion does not address any aspects of United States
taxation other than federal income taxation.

We urge you to consult your tax advisors regarding the United
States federal, state, local and non-United States tax
consequences of the purchase, ownership and disposition of the
H shares or ADSs.

In general, if you hold ADRs evidencing ADSs, you will be
treated as the owner of the H shares represented by the
ADSs. The following discussion assumes that we are not a passive
foreign investment company, or PFIC, as discussed under
PFIC Rules below.



Distributions on the H Shares or ADSsThe gross amount of any distribution (without reduction for any
PRC tax withheld) we make on the H shares or ADSs out of
our current or accumulated earnings and profits (as determined
for United States federal income tax purposes) will be
includible in your gross income as dividend income when the
distribution is actually or constructively received by you, in
the case of the H shares, or by the depositary in the case
of ADSs. Subject to certain limitations, dividends paid to
non-corporate U.S. holders, including individuals, may be
eligible for a reduced rate of taxation if we are deemed to be a
qualified foreign corporation for U.S. federal
income tax purposes. A qualified foreign corporation includes:




    a foreign corporation that is eligible for the benefits of a
    comprehensive income tax treaty with the United States that
    includes an exchange of information program; and
    a foreign corporation if its stock with respect to which a
    dividend is paid (or ADSs backed by such stock) is readily
    tradable on an established securities market within the United
    States,but does not include an otherwise qualified foreign corporation
that is a PFIC. We believe that we will be a qualified foreign
corporation so long as we are not a PFIC and we are considered
eligible for the benefits of the Agreement between the
Government of the United States of America and the Government of
the Peoples Republic of China for the Avoidance of Double
Taxation and the Prevention of Tax Evasion with Respect to Taxes
on Income, or the Treaty. Our status as a qualified foreign
corporation, however, may change.

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Distributions that exceed our current and accumulated earnings
and profits will be treated as a return of capital to you to the
extent of your basis in the H shares or ADSs and thereafter as
capital gain. Any dividend will not be eligible for the
dividends-received deduction generally allowed to United States
corporations in respect of dividends received from United States
corporations. The amount of any distribution of property other
than cash will be the fair market value of such property on the
date of such distribution.

If we make a distribution paid in HK dollars, you will be
considered to receive the U.S. dollar value of the
distribution determined at the spot HK dollar/U.S. dollar
rate on the date such distribution is received by you or by the
depositary, regardless of whether you or the depositary convert
the distribution into U.S. dollars. Any gain or loss
resulting from currency exchange fluctuations during the period
from the date the dividend payment is includible in your income
to the date you or the depositary convert the distribution into
U.S. dollars will be treated as United States source
ordinary income or loss for foreign tax credit limitation
purposes.

Subject to various limitations, any PRC tax withheld from
distributions in accordance with PRC law, as limited by the
Treaty, will be deductible or creditable against your United
States federal income tax liability. For foreign tax credit
limitation purposes, dividends paid on the H shares or ADSs will
be foreign source income, and for taxable years beginning on or
before December 31, 2006, generally will be treated as
passive income or, in the case of some
U.S. holders, financial services income. For
taxable years beginning after December 31, 2006, such
dividends generally will be treated as passive category
income or, in the case of some U.S. holders,
general category income. You may not be able to
claim a foreign tax credit (and instead may claim a deduction)
for non-United States taxes imposed on dividends paid on the H
Shares or ADSs if you (i) have held the H Shares or ADSs
for less than a specified minimum period during which you are
not protected from risk of loss with respect to such shares, or
(ii) are obligated to make payments related to the
dividends (for example, pursuant to a short sale).



Sale, Exchange or Other DispositionUpon a sale, exchange or other disposition of the H shares or
ADSs, you will recognize a capital gain or loss for United
States federal income tax purposes in an amount equal to the
difference between the U.S. dollar value of the amount
realized and your tax basis, determined in U.S. dollars, in
such H shares or ADSs. Any gain or loss will generally be United
States source gain or loss for foreign tax credit limitation
purposes. Capital gain of certain non-corporate
U.S. holders, including individuals, is generally taxed at
a maximum rate of 15% where the property has been held more than
one year. Your ability to deduct capital losses is subject to
limitations.

If you are paid in a currency other than U.S. dollars, any
gain or loss resulting from currency exchange fluctuations
during the period from the date of the payment resulting from
sale, exchange or other disposition to the date you convert the
payment into U.S. dollars will be treated as United States
source ordinary income or loss for foreign tax credit limitation
purposes.



PFIC RulesIn general, a foreign corporation is a PFIC for any taxable year
in which, after applying relevant look-through rules with
respect to the income and assets of subsidiaries:




    75% or more of its gross income consists of passive income, such
    as dividends, interest, rents and royalties; or
    50% or more of the average quarterly value of its assets
    consists of assets that produce, or are held for the production
    of, passive income.We believe that we will not meet either of the PFIC tests in the
current or subsequent taxable years and therefore will not be
treated as a PFIC for such periods. However, there can be no
assurance that we will not be a PFIC in the current or
subsequent taxable years.

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If we were a PFIC in any taxable year that you held the
H shares or ADSs, you generally would be subject to special
rules with respect to excess distributions made by
us on the H shares or ADSs and with respect to gain from
your disposition of the H shares or ADSs. An excess
distribution generally is defined as the excess of the
distributions you receive with respect to the H shares or
ADSs in any taxable year over 125% of the average annual
distributions you have received from us during the shorter of
the three preceding years, or your holding period for the
H shares or ADSs. Generally, you would be required to
allocate any excess distribution or gain from the disposition of
the H shares or ADSs ratably over your holding period for
the H shares or ADSs. The portion of the excess
distribution or gain allocated to a prior taxable year, other
than a year prior to the first year in which we became a PFIC,
would be taxed at the highest United States federal income tax
rate on ordinary income in effect for such taxable year, and you
would be subject to an interest charge on the resulting tax
liability, determined as if the tax liability had been due with
respect to such particular taxable years. The portion of the
excess distribution or gain that is not allocated to prior
taxable years, together with the portion allocated to the years
prior to the first year in which we became a PFIC, would be
included in your gross income for the taxable year of the excess
distribution or disposition and taxed as ordinary income.

The foregoing rules with respect to excess distributions and
dispositions may be avoided or reduced if you are eligible for
and timely make a valid mark-to-market election. If
your H shares or ADSs were treated as shares regularly
traded on a qualified exchange for United States
federal income tax purposes and a valid mark-to-market election
was made, in calculating your taxable income for each taxable
year you generally would be required to take into account as
ordinary income or loss the difference, if any, between the fair
market value and the adjusted tax basis of your H shares or
ADSs at the end of your taxable year. However, the amount of
loss you would be allowed is limited to the extent of the net
amount of previously included income as a result of the
mark-to-market election. The New York Stock Exchange on which
the ADSs are traded is a qualified exchange for United States
federal income tax purposes.

Alternatively, a timely election to treat us as a qualified
electing fund under Section 1295 of the Code could be made
to avoid the foregoing rules with respect to excess
distributions and dispositions. You should be aware, however,
that if we become a PFIC, we do not intend to satisfy record
keeping requirements that would permit you to make a qualified
electing fund election.

If you own the H shares or ADSs during any year that we are
a PFIC, you must file Internal Revenue Service, or IRS,
Form 8621. We encourage you to consult your own tax advisor
concerning the United States federal income tax consequences of
holding the H shares or ADSs that would arise if we were
considered a PFIC.



Backup Withholding and Information ReportingIn general, information reporting requirements will apply to
dividends in respect of the H shares or ADSs or the
proceeds of the sale, exchange, or redemption of the
H shares or ADSs paid within the United States, and in some
cases, outside of the United States, other than to various
exempt recipients, including corporations. In addition, you may,
under some circumstances, be subject to backup
withholding with respect to dividends paid on the
H shares or ADSs or the proceeds of any sale, exchange or
transfer of the H shares or ADSs, unless you




    are a corporation or fall within various other exempt
    categories, and, when required, demonstrate this fact; or
    provide a correct taxpayer identification number on a properly
    completed IRS Form W-9 or a substitute form, certify that
    you are exempt from backup withholding and otherwise comply with
    applicable requirements of the backup withholding rules.Any amount withheld under the backup withholding rules generally
will be creditable against your United States federal income tax
liability provided that you furnish the required information to

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the IRS in a timely manner. If you do not provide a correct
taxpayer identification number you may be subject to penalties
imposed by the IRS.





Significant Differences in Corporate Governance Practices

We have filed a summary of the significant differences in our
corporate governance practices for purposes of
Section 303A.11 of the New York Stock Exchange Listed
Company Manual with the Commission as an exhibit to this annual
report on
Form 20-F and have
disclosed the same on our website, www.petrochina.com.cn,
which may be accessed as follows:



1.
    From our main web page, first click on Investor
    Relations.2.
    Next, click on Corporate Governance Structure.3.
    Finally, click on Significant Differences In Corporate
    Governance Practices For Purposes Of Section 303A.11 of The
    New York Stock Exchange Listed Company Manual.



Documents on Display

You may read and copy documents referred to in this annual
report on
Form 20-F that
have been filed with the U.S. Securities and Exchange
Commission at the Commissions public reference room
located at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Please call the Commission at
1-800-SEC-0330 for further information on the public reference
rooms and their copy charges.

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

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ITEM 11  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

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

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

Interest Rate Risk

Our interest risk exposure arises from changing interest rates.
The tables below provide information about our financial
instruments including various debt obligations that are
sensitive to changes in interest rates. The tables present
principal cash flows and related weighted-average interest rates
at expected maturity dates. Weighted-average variable rates are
based on effective rates as of December 31, 2003, 2004 and
2005. The information is presented in Renminbi equivalents, our
reporting currency.

Foreign Exchange Rate Risk

We conduct our business primarily in Renminbi. However, a
portion of our RMB revenues are converted into other currencies
to meet foreign currency financial instrument obligations and to
pay for imported equipment, crude oil and other materials.
Foreign currency payments for imported equipment represented
15.5%, 18.6% and 29.1% of our total payments for equipment in
2003, 2004 and 2005 respectively. Foreign currency payments for
imported crude oil and other materials represented 10.8%, 9.6%
and 3.4% of our total payments for materials in 2003, 2004 and
2005 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, 2003, 2004 and 2005, respectively.

December 31, 2005

|               |                       |                                                  |  |            |           |  |  |        |  |  |      |       |  |      |  |       |            |  |  |       |  |  |        |       |  |       |  |        |  |  |  |        |  |  |  |        | 
|-------------- | --------------------- | ------------------------------------------------ |  | ---------- | --------- |  |  | ------ |  |  | ---- | ----- |  | ---- |  | ----- | ---------- |  |  | ----- |  |  | ------ | ----- |  | ----- |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|               |                       |                                                  |  | Percentage |           |  | 
|               |                       | Expected maturity date                           |  |            | to total  |  |  |       
|               |                       |                                                  |  |            | long-term |  |  | Fair   | 
|               |                       | 2006                                             |  |            | 2007      |  |  | 2008   |  |  | 2009 |       |  | 2010 |  |       | Thereafter |  |  | Total |  |  | debt % |       |  | value | 
|               |                       |                                                  |  |            |           |  |  |        |  |  |      |       |  |      |  |       |            |  |  |       |  |  |        |       |  |       | 
|               |                       | (RMB equivalent in millions, except percentages) | 
|Long term debt |                       |                                                  |  |            |           |  |  |        |  |  |      |       |  |      |  |       |            |  |  |       |  |  |        |       |  |       |  |        |  |  |  |        |  |  |  |       
|Loan in RMB    |                       |                                                  |  |            |           |  |  |        |  |  |      |       |  |      |  |       |            |  |  |       |  |  |        |       |  |       |  |        |  |  |  |        |  |  |  |       
|               | Fixed rate            |                                                  |  |           |           |  |  | 66     |  |  |      | 274   |  |      |  |      |            |  |  |      |  |  |        | 1     |  |       |  | 341    |  |  |  | 0.57%  |  |  |  | 323    | 
|               | Average interest rate |                                                  |  | 1.53%      |           |  |  | 4.18%  |  |  |      | 3.80% |  |      |  |      |            |  |  |      |  |  |        |      |  |       |  |        |  |  |  |        |  |  |  |        | 
|               | Variable
    rate(1)  |                                                  |  | 9,128      |           |  |  | 13,740 |  |  |      | 6,390 |  |      |  | 100   |            |  |  | 911   |  |  |        | 6,000 |  |       |  | 36,269 |  |  |  | 60.54% |  |  |  | 36,269 | 
|               | Average interest rate |                                                  |  | 5.18%      |           |  |  | 5.08%  |  |  |      | 5.12% |  |      |  | 5.51% |            |  |  | 4.77% |  |  |        | 4.90% |  |       |  |        |  |  |  |        |  |  |  |        | 

130



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##### Table of Contents



|                                  |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |        |       |  |       |        |        |  |  |      |        |  |  |        |        | 
|--------------------------------- | --------------------- | ------------------------------------------------ | ------ | ---------- | --------- |  | ------ | ----- |  |  | ------ | ----- |  | ---- | ----- | ----- | ---------- |  | ----- | ----- |  |  | ------ | ----- |  | ----- | ------ | ------ |  |  | ---- | ------ |  |  | ------ | ------ | 
|                                  |                       |                                                  |        | Percentage |           |  |       
|                                  |                       | Expected maturity date                           |        |            | to total  |  |        |      
|                                  |                       |                                                  |        |            | long-term |  |        | Fair  | 
|                                  |                       | 2006                                             |        |            | 2007      |  |        | 2008  |  |  | 2009   |       |  | 2010 |       |       | Thereafter |  |       | Total |  |  | debt % |       |  | value |       
|                                  |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |        |       |  |       |       
|                                  |                       | (RMB equivalent in millions, except percentages) |       
|Loan in Euro                      |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |        |       |  |       |        |        |  |  |      |        |  |  |        |       
|                                  | Fixed rate            |                                                  |        | 16         |           |  |        | 16    |  |  |        | 16    |  |      |       | 16    |            |  |       | 15    |  |  |        | 177   |  |       |        | 256    |  |  |      | 0.43%  |  |  |        | 221    | 
|                                  | Average interest rate |                                                  |        | 2.11%      |           |  |        | 2.11% |  |  |        | 2.11% |  |      |       | 2.11% |            |  |       | 2.11% |  |  |        | 2.11% |  |       |        |        |  |  |      |        |  |  |        |        | 
|                                  | Variable rate         |                                                  |        |           |           |  |        |      |  |  |        |      |  |      |       |      |            |  |       |      |  |  |        |      |  |       |        |       |  |  |      |       |  |  |        |       | 
|                                  | Average interest rate |                                                  |        |           |           |  |        |      |  |  |        |      |  |      |       |      |            |  |       |      |  |  |        |      |  |       |        |        |  |  |      |        |  |  |        |        | 
|Loan in United States Dollar      |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |        |       |  |       |        |        |  |  |      |        |  |  |        |       
|                                  | Fixed rate            |                                                  |        | 409        |           |  |        | 621   |  |  |        | 142   |  |      |       | 74    |            |  |       | 43    |  |  |        | 624   |  |       |        | 1,913  |  |  |      | 3.19%  |  |  |        | 1,633  | 
|                                  | Average interest rate |                                                  |        | 6.26%      |           |  |        | 7.56% |  |  |        | 5.02% |  |      |       | 3.92% |            |  |       | 1.43% |  |  |        | 1.39% |  |       |        |        |  |  |      |        |  |  |        |        | 
|                                  | Variable rate         |                                                  |        | 5,508      |           |  |        | 2,497 |  |  |        | 4,371 |  |      |       | 2,293 |            |  |       | 79    |  |  |        | 1,649 |  |       |        | 16,397 |  |  |      | 27.38% |  |  |        | 16,397 | 
|                                  | Average interest rate |                                                  |        | 5.60%      |           |  |        | 5.42% |  |  |        | 5.99% |  |      |       | 5.37% |            |  |       | 2.69% |  |  |        | 4.69% |  |       |        |        |  |  |      |        |  |  |        |        | 
|Loan in British Pound             |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |        |       |  |       |        |        |  |  |      |        |  |  |        |       
|                                  | Fixed rate            |                                                  |        | 116        |           |  |        | 44    |  |  |        |      |  |      |       |      |            |  |       |      |  |  |        |      |  |       |        | 160    |  |  |      | 0.27%  |  |  |        | 156    | 
|                                  | Average interest rate |                                                  |        | 2.85%      |           |  |        | 2.85% |  |  |        |      |  |      |       |      |            |  |       |      |  |  |        |      |  |       |        |        |  |  |      |        |  |  |        |        | 
|Loan in Japanese Yen              |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |        |       |  |       |        |        |  |  |      |        |  |  |        |       
|                                  | Fixed rate            |                                                  |        | 148        |           |  |        | 39    |  |  |        | 21    |  |      |       | 9     |            |  |       | 9     |  |  |        |      |  |       |        | 226    |  |  |      | 0.38%  |  |  |        | 242    | 
|                                  | Average interest rate |                                                  |        | 4.74%      |           |  |        | 4.84% |  |  |        | 4.48% |  |      |       | 5.02% |            |  |       | 5.02% |  |  |        |      |  |       |        |        |  |  |      |        |  |  |        |        | 
|                                  | Variable rate         |                                                  |        |           |           |  |        |      |  |  |        |      |  |      |       |      |            |  |       |      |  |  |        |      |  |       |        |       |  |  |      |       |  |  |        |       | 
|                                  | Average interest rate |                                                  |        |           |           |  |        |      |  |  |        |      |  |      |       |      |            |  |       |      |  |  |        |      |  |       |        |        |  |  |      |        |  |  |        |        | 
|Debenture in United States Dollar |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |        |       |  |       |        |        |  |  |      |        |  |  |        |       
|                                  | Fixed rate            |                                                  |        |           |           |  |        |      |  |  |        | 179   |  |      |       |      |            |  |       |      |  |  |        | 1,304 |  |       |        | 1,483  |  |  |      | 2.48%  |  |  |        | 1,509  | 
|                                  | Average interest rate |                                                  |        |           |           |  |        |      |  |  |        | 15%   |  |      |       |      |            |  |       |      |  |  |        | 8.25% |  |       |        |        |  |  |      |        |  |  |        |        | 
|Debenture in RMB                  |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |        |       |  |       |        |        |  |  |      |        |  |  |        |       
|                                  | Fixed rate            |                                                  |        |           |           |  |        | 1,350 |  |  |        |      |  |      |       |      |            |  |       |      |  |  |        | 1,500 |  |       |        | 2,850  |  |  |      | 4.76%  |  |  |        | 2,664  | 
|                                  | Average interest rate |                                                  |        |           |           |  |        |      |  |  |        |      |  |      |       |      |            |  |       |      |  |  |        | 4.11% |  |       |        |        |  |  |      |        |  |  |        |        | 
|                                  |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |        |       |  |       |       
|Total                             |                       |                                                  | 15,325 |            |           |  | 18,373 |       |  |  | 11,393 |       |  |      | 2,492 |       |            |  | 1,057 |       |  |  | 11,255 |       |  |       | 59,895 |        |  |  | 100% |        |  |  | 59,414 |       
|                                  |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |        |       |  |       |       

December 31, 2004


|               |                       |                                                  |  |            |           |  |  |       |  |  |      |        |  |      |  |       |            |  |  |       |  |  |          |       |  |       |  |        |  |  |  |        |  |  |  |        | 
|-------------- | --------------------- | ------------------------------------------------ |  | ---------- | --------- |  |  | ----- |  |  | ---- | ------ |  | ---- |  | ----- | ---------- |  |  | ----- |  |  | -------- | ----- |  | ----- |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|               |                       |                                                  |  | Percentage |           |  | 
|               |                       | Expected maturity date                           |  |            | to total  |  |  |      
|               |                       |                                                  |  |            | long-term |  |  | Fair  | 
|               |                       | 2005                                             |  |            | 2006      |  |  | 2007  |  |  | 2008 |        |  | 2009 |  |       | Thereafter |  |  | Total |  |  | debt (%) |       |  | value | 
|               |                       |                                                  |  |            |           |  |  |       |  |  |      |        |  |      |  |       |            |  |  |       |  |  |          |       |  |       | 
|               |                       | (RMB equivalent in millions, except percentages) | 
|Long term debt |                       |                                                  |  |            |           |  |  |       |  |  |      |        |  |      |  |       |            |  |  |       |  |  |          |       |  |       |  |        |  |  |  |        |  |  |  |       
|Loan in RMB    |                       |                                                  |  |            |           |  |  |       |  |  |      |        |  |      |  |       |            |  |  |       |  |  |          |       |  |       |  |        |  |  |  |        |  |  |  |       
|               | Fixed rate            |                                                  |  | 1,021      |           |  |  | 221   |  |  |      | 100    |  |      |  | 200   |            |  |  |      |  |  |          | 1     |  |       |  | 1,543  |  |  |  | 2.43%  |  |  |  | 1,529  | 
|               | Average interest rate |                                                  |  | 4.57%      |           |  |  | 4.32% |  |  |      | 4.25%  |  |      |  | 3.60% |            |  |  |      |  |  |          | 6.10% |  |       |  |        |  |  |  |        |  |  |  |        | 
|               | Variable
    rate(1)  |                                                  |  | 12,234     |           |  |  | 6,366 |  |  |      | 13,718 |  |      |  | 4,440 |            |  |  | 100   |  |  |          | 4,500 |  |       |  | 41,358 |  |  |  | 65.01% |  |  |  | 41,358 | 
|               | Average interest rate |                                                  |  | 5.08%      |           |  |  | 5.12% |  |  |      | 4.85%  |  |      |  | 5.03% |            |  |  | 5.18% |  |  |          | 4.62% |  |       |  |        |  |  |  |        |  |  |  |        | 
|Loan in Euro   |                       |                                                  |  |            |           |  |  |       |  |  |      |        |  |      |  |       |            |  |  |       |  |  |          |       |  |       |  |        |  |  |  |        |  |  |  |       
|               | Fixed rate            |                                                  |  | 36         |           |  |  | 35    |  |  |      | 17     |  |      |  | 17    |            |  |  | 17    |  |  |          | 238   |  |       |  | 360    |  |  |  | 0.57%  |  |  |  | 302    | 
|               | Average interest rate |                                                  |  | 5.47%      |           |  |  | 5.42% |  |  |      | 2.13%  |  |      |  | 2.13% |            |  |  | 2.13% |  |  |          | 2.01% |  |       |  |        |  |  |  |        |  |  |  |        | 
|               | Variable rate         |                                                  |  |           |           |  |  |      |  |  |      |       |  |      |  |      |            |  |  |      |  |  |          |      |  |       |  |       |  |  |  |       |  |  |  |       | 
|               | Average interest rate |                                                  |  |           |           |  |  |      |  |  |      |       |  |      |  |      |            |  |  |      |  |  |          |      |  |       |  |        |  |  |  |        |  |  |  |        | 

131



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##### Table of Contents



|                             |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |        |        |  |  |      |        |  |  |        |        | 
|---------------------------- | --------------------- | ------------------------------------------------ | ------ | ---------- | --------- |  | ------ | ----- |  |  | ------ | ----- |  | ---- | ----- | ----- | ---------- |  | ----- | ----- |  |  | -------- | ----- |  | ----- | ------ | ------ |  |  | ---- | ------ |  |  | ------ | ------ | 
|                             |                       |                                                  |        | Percentage |           |  |       
|                             |                       | Expected maturity date                           |        |            | to total  |  |        |      
|                             |                       |                                                  |        |            | long-term |  |        | Fair  | 
|                             |                       | 2005                                             |        |            | 2006      |  |        | 2007  |  |  | 2008   |       |  | 2009 |       |       | Thereafter |  |       | Total |  |  | debt (%) |       |  | value |       
|                             |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |       
|                             |                       | (RMB equivalent in millions, except percentages) |       
|Loan in United States Dollar |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |        |        |  |  |      |        |  |  |        |       
|                             | Fixed rate            |                                                  |        | 480        |           |  |        | 406   |  |  |        | 586   |  |      |       | 169   |            |  |       | 103   |  |  |          | 693   |  |       |        | 2,437  |  |  |      | 3.83%  |  |  |        | 2,172  | 
|                             | Average interest rate |                                                  |        | 6.46%      |           |  |        | 6.29% |  |  |        | 7.57% |  |      |       | 5.48% |            |  |       | 4.50% |  |  |          | 1.57% |  |       |        |        |  |  |      |        |  |  |        |        | 
|                             | Variable rate         |                                                  |        | 4,868      |           |  |        | 2,817 |  |  |        | 2,442 |  |      |       | 960   |            |  |       | 2,725 |  |  |          | 482   |  |       |        | 14,294 |  |  |      | 22.47% |  |  |        | 14,294 | 
|                             | Average interest rate |                                                  |        | 3.78%      |           |  |        | 4.43% |  |  |        | 3.41% |  |      |       | 3.19% |            |  |       | 3.41% |  |  |          | 2.10% |  |       |        |        |  |  |      |        |  |  |        |        | 
|Loan in British Pound        |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |        |        |  |  |      |        |  |  |        |       
|                             | Fixed rate            |                                                  |        | 154        |           |  |        | 133   |  |  |        | 51    |  |      |       |      |            |  |       |      |  |  |          |      |  |       |        | 338    |  |  |      | 0.53%  |  |  |        | 326    | 
|                             | Average interest rate |                                                  |        | 2.85%      |           |  |        | 2.85% |  |  |        | 2.85% |  |      |       |      |            |  |       |      |  |  |          |      |  |       |        |        |  |  |      |        |  |  |        |        | 
|Loan in Japanese Yen         |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |        |        |  |  |      |        |  |  |        |       
|                             | Fixed rate            |                                                  |        | 170        |           |  |        | 167   |  |  |        | 43    |  |      |       | 24    |            |  |       | 9     |  |  |          | 17    |  |       |        | 430    |  |  |      | 0.68%  |  |  |        | 463    | 
|                             | Average interest rate |                                                  |        | 4.63%      |           |  |        | 4.62% |  |  |        | 4.84% |  |      |       | 4.45% |            |  |       | 5.02% |  |  |          | 5.02% |  |       |        |        |  |  |      |        |  |  |        |        | 
|                             | Variable rate         |                                                  |        |           |           |  |        |      |  |  |        |      |  |      |       |      |            |  |       |      |  |  |          |      |  |       |        |       |  |  |      |       |  |  |        |       | 
|                             | Average interest rate |                                                  |        |           |           |  |        |      |  |  |        |      |  |      |       |      |            |  |       |      |  |  |          |      |  |       |        |        |  |  |      |        |  |  |        |        | 
|Debenture in RMB             |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |        |        |  |  |      |        |  |  |        |       
|                             | Fixed rate            |                                                  |        |           |           |  |        |      |  |  |        | 1,350 |  |      |       |      |            |  |       |      |  |  |          | 1,500 |  |       |        | 2,850  |  |  |      | 4.48%  |  |  |        | 2,632  | 
|                             | Average interest rate |                                                  |        |           |           |  |        |      |  |  |        | 4.50% |  |      |       |      |            |  |       |      |  |  |          | 4.11% |  |       |        |        |  |  |      |        |  |  |        |        | 
|                             |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |       
|Total                        |                       |                                                  | 18,963 |            |           |  | 10,145 |       |  |  | 18,307 |       |  |      | 5,810 |       |            |  | 2,954 |       |  |  | 7,431    |       |  |       | 63,610 |        |  |  | 100% |        |  |  | 63,076 |       
|                             |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |       

December 31, 2003


|                             |                       |                                                  |  |            |           |  |  |        |  |  |      |       |  |      |  |       |            |  |  |       |  |  |          |       |  |       |  |        |  |  |  |        |  |  |  |        | 
|---------------------------- | --------------------- | ------------------------------------------------ |  | ---------- | --------- |  |  | ------ |  |  | ---- | ----- |  | ---- |  | ----- | ---------- |  |  | ----- |  |  | -------- | ----- |  | ----- |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                             |                       |                                                  |  | Percentage |           |  | 
|                             |                       | Expected maturity date                           |  |            | to total  |  |  |       
|                             |                       |                                                  |  |            | long-term |  |  | Fair   | 
|                             |                       | 2004                                             |  |            | 2005      |  |  | 2006   |  |  | 2007 |       |  | 2008 |  |       | Thereafter |  |  | Total |  |  | debt (%) |       |  | value | 
|                             |                       |                                                  |  |            |           |  |  |        |  |  |      |       |  |      |  |       |            |  |  |       |  |  |          |       |  |       | 
|                             |                       | (RMB equivalent in millions, except percentages) | 
|Long term debt               |                       |                                                  |  |            |           |  |  |        |  |  |      |       |  |      |  |       |            |  |  |       |  |  |          |       |  |       |  |        |  |  |  |        |  |  |  |       
|Loan in RMB                  |                       |                                                  |  |            |           |  |  |        |  |  |      |       |  |      |  |       |            |  |  |       |  |  |          |       |  |       |  |        |  |  |  |        |  |  |  |       
|                             | Fixed rate            |                                                  |  | 61         |           |  |  | 800    |  |  |      | 153   |  |      |  |      |            |  |  | 14    |  |  |          | 3     |  |       |  | 1,031  |  |  |  | 1.47%  |  |  |  | 1,029  | 
|                             | Average interest rate |                                                  |  | 3.18%      |           |  |  | 4.39%  |  |  |      | 4.55% |  |      |  |      |            |  |  | 3%    |  |  |          | 2.03% |  |       |  |        |  |  |  |        |  |  |  |        | 
|                             | Variable
    rate(1)  |                                                  |  | 16,686     |           |  |  | 12,448 |  |  |      | 6,366 |  |      |  | 3,720 |            |  |  | 3,720 |  |  |          | 3,000 |  |       |  | 45,940 |  |  |  | 65.42% |  |  |  | 45,940 | 
|                             | Average interest rate |                                                  |  | 5.05%      |           |  |  | 5.08%  |  |  |      | 5.12% |  |      |  | 5.18% |            |  |  | 5.10% |  |  |          | 4.65% |  |       |  |        |  |  |  |        |  |  |  |        | 
|Loan in Euro                 |                       |                                                  |  |            |           |  |  |        |  |  |      |       |  |      |  |       |            |  |  |       |  |  |          |       |  |       |  |        |  |  |  |        |  |  |  |       
|                             | Fixed rate            |                                                  |  | 43         |           |  |  | 39     |  |  |      | 34    |  |      |  | 16    |            |  |  | 16    |  |  |          | 233   |  |       |  | 381    |  |  |  | 0.54%  |  |  |  | 319    | 
|                             | Average interest rate |                                                  |  | 6.08%      |           |  |  | 5.47%  |  |  |      | 5.33% |  |      |  | 2.11% |            |  |  | 2.11% |  |  |          | 2.10% |  |       |  |        |  |  |  |        |  |  |  |        | 
|                             | Variable rate         |                                                  |  |           |           |  |  |       |  |  |      |      |  |      |  |      |            |  |  |      |  |  |          |      |  |       |  |       |  |  |  |       |  |  |  |       | 
|                             | Average interest rate |                                                  |  |           |           |  |  |       |  |  |      |      |  |      |  |      |            |  |  |      |  |  |          |      |  |       |  |        |  |  |  |        |  |  |  |        | 
|Loan in United States Dollar |                       |                                                  |  |            |           |  |  |        |  |  |      |       |  |      |  |       |            |  |  |       |  |  |          |       |  |       |  |        |  |  |  |        |  |  |  |       
|                             | Fixed rate            |                                                  |  | 596        |           |  |  | 582    |  |  |      | 879   |  |      |  | 349   |            |  |  | 257   |  |  |          | 1,152 |  |       |  | 3,815  |  |  |  | 5.43%  |  |  |  | 3,662  | 
|                             | Average interest rate |                                                  |  | 6.05%      |           |  |  | 6.03%  |  |  |      | 7.09% |  |      |  | 5.65% |            |  |  | 5.34% |  |  |          | 3.15% |  |       |  |        |  |  |  |        |  |  |  |        | 
|                             | Variable rate         |                                                  |  | 4,066      |           |  |  | 6,223  |  |  |      | 2,391 |  |      |  | 840   |            |  |  | 845   |  |  |          | 813   |  |       |  | 15,178 |  |  |  | 21.61% |  |  |  | 15,178 | 
|                             | Average interest rate |                                                  |  | 2.69%      |           |  |  | 2.11%  |  |  |      | 3.17% |  |      |  | 1.73% |            |  |  | 1.73% |  |  |          | 2.32% |  |       |  |        |  |  |  |        |  |  |  |        | 
|Loan in British Pound        |                       |                                                  |  |            |           |  |  |        |  |  |      |       |  |      |  |       |            |  |  |       |  |  |          |       |  |       |  |        |  |  |  |        |  |  |  |       
|                             | Fixed rate            |                                                  |  | 143        |           |  |  | 142    |  |  |      | 122   |  |      |  | 47    |            |  |  |      |  |  |          |      |  |       |  | 454    |  |  |  | 0.65%  |  |  |  | 432    | 
|                             | Average interest rate |                                                  |  | 2.85%      |           |  |  | 2.85%  |  |  |      | 2.85% |  |      |  | 2.85% |            |  |  |      |  |  |          |      |  |       |  |        |  |  |  |        |  |  |  |        | 

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|                     |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |        |       |  |  |      |       |  |  |        |       | 
|-------------------- | --------------------- | ------------------------------------------------ | ------ | ---------- | --------- |  | ------ | ----- |  |  | ------ | ----- |  | ---- | ----- | ----- | ---------- |  | ----- | ----- |  |  | -------- | ----- |  | ----- | ------ | ----- |  |  | ---- | ----- |  |  | ------ | ----- | 
|                     |                       |                                                  |        | Percentage |           |  |       
|                     |                       | Expected maturity date                           |        |            | to total  |  |        |      
|                     |                       |                                                  |        |            | long-term |  |        | Fair  | 
|                     |                       | 2004                                             |        |            | 2005      |  |        | 2006  |  |  | 2007   |       |  | 2008 |       |       | Thereafter |  |       | Total |  |  | debt (%) |       |  | value |       
|                     |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |       
|                     |                       | (RMB equivalent in millions, except percentages) |       
|Loan in Japanese Yen |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |        |       |  |  |      |       |  |  |        |      
|                     | Fixed rate            |                                                  |        | 164        |           |  |        | 162   |  |  |        | 162   |  |      |       | 42    |            |  |       | 23    |  |  |          | 25    |  |       |        | 578   |  |  |      | 0.82% |  |  |        | 628   | 
|                     | Average interest rate |                                                  |        | 4.50%      |           |  |        | 4.49% |  |  |        | 4.49% |  |      |       | 4.35% |            |  |       | 3.56% |  |  |          | 2.68% |  |       |        |       |  |  |      |       |  |  |        |       | 
|                     | Variable rate         |                                                  |        |           |           |  |        |      |  |  |        |      |  |      |       |      |            |  |       |      |  |  |          |      |  |       |        |      |  |  |      |      |  |  |        |      | 
|                     | Average interest rate |                                                  |        |           |           |  |        |      |  |  |        |      |  |      |       |      |            |  |       |      |  |  |          |      |  |       |        |       |  |  |      |       |  |  |        |       | 
|Debenture in RMB     |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |        |       |  |  |      |       |  |  |        |      
|                     | Fixed rate            |                                                  |        |           |           |  |        |      |  |  |        |      |  |      |       | 1,350 |            |  |       |      |  |  |          | 1,500 |  |       |        | 2,850 |  |  |      | 4.06% |  |  |        | 2,640 | 
|                     | Average interest rate |                                                  |        |           |           |  |        |      |  |  |        |      |  |      |       | 4.50% |            |  |       |      |  |  |          | 4.11% |  |       |        |       |  |  |      |       |  |  |        |       | 
|                     |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |       
|Total                |                       |                                                  | 21,759 |            |           |  | 20,396 |       |  |  | 10,107 |       |  |      | 6,364 |       |            |  | 4,875 |       |  |  | 6,726    |       |  |       | 70,227 |       |  |  | 100% |       |  |  | 69,828 |      
|                     |                       |                                                  |        |            |           |  |        |       |  |  |        |       |  |      |       |       |            |  |       |       |  |  |          |       |  |       |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Due to the declining interest rates in recent years in China,
    the PRC government has implemented a program to adjust interest
    rates on certain fixed RMB loans periodically to reflect the
    market rates in effect published by the Peoples Bank of
    China, or the PBOC, from time to time. As a result, these
    previously fixed RMB loans are categorized as variable rate
    loans as of December 31, 2003, 2004 and 2005. The newly
    adjusted rates usually become effective one year after the
    announcement by the PBOC. The average interest rates on these
    loans are calculated based on the then effective rates as of
    December 31, 2003, 2004 and 2005, respectively.

Commodity Price Risk




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ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN
EQUITY SECURITIES

Not applicable.





PART II

ITEM 13  DEFAULTS, DIVIDENDS ARREARAGES AND
DELINQUENCIES

None.





ITEM 14  MATERIAL MODIFICATIONS TO THE RIGHTS

TO SECURITY HOLDERS

None.





ITEM 15  CONTROLS AND PROCEDURES

Our Chairman, who performs the functions of Chief Executive
Officer, and our Chief Financial Officer, after evaluating the
effectiveness of PetroChinas disclosure controls and
procedures (as defined in the United States Exchange Act
Rules 13a-15(e) and 15d(e)) as of the end of the period
covered by this annual report, have concluded that, as of such
date, our companys disclosure controls and procedures were
effective to ensure that material information required to be
disclosed in the reports that we file and furnish under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange
Commissions rules and regulations.

In preparation for certain internal control reporting
requirements set forth in Section 404 of the Sarbanes-Oxley
Act, we are undertaking company-wide documentation of internal
controls, performing the system and process evaluation and
testing required (and any necessary remediation) in an effort to
comply with such requirements by the effective date for
compliance. Our efforts to implement standardized internal
control procedures and develop the internal tests necessary to
verify the proper application of the internal control procedures
and their effectiveness will be a key area of focus for our
board of directors, our audit committee and our senior
management.

In the course of preparation for the implementation of the
requirements of Section 404 of the Sarbanes-Oxley Act, we
have identified certain internal control deficiencies that could
adversely affect our ability to record, process, summarize and
report financial data consistent with our managements
assertions in our financial statements. The deficiencies and
weakness that we have discovered did not relate to fraud or
require any material adjustments to our financial statements.
Specifically, the identified areas would require us to:
(1) enhance our internal audit function by developing and
executing a formal audit plan, enhancing its effectiveness and
timely communicating identified deficiencies to management,
(2) enhance the security and access control of information
systems, and (3) improve the experience and knowledge of
our employees.

Following the identification of these issues, we commenced
planning for remedial measures to make the necessary
improvements as soon as practicable. Our board of directors and
audit committee have been advised of these issues. Under the
supervision and with the participation of our senior management,
including our Chairman and Chief Financial Officer, we are in
the process of conducting further evaluation and testing of our
internal control over financial reporting. We have taken steps
to enhance our internal control process and procedures to
address the existing issues and any other issues that might be
identified through our evaluation and testing. As we are still
in the preliminary evaluation process, we might, for the time
being, be unable to identify all the issues that may result in
deficiencies or material flaws. If and when we identify any
additional conditions that may result in deficiencies or
material flaws in the future, we will take action to correct
them and implement the

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##### Table of Contents

follow-up testing necessary for the process relating to the
evaluation by the management of the internal control over
financial reporting. We are committed to taking appropriate
steps for remediation, as needed.





ITEM 16A  AUDIT COMMITTEE FINANCIAL EXPERT

Our audit committee is composed of three non-executive
independent directors, Messrs. Franco Bernabé,
Chee-Chen Tung and Liu Hongru, and one non-executive director,
Gong Huazhang. See Item 6  Directors,
Senior Management and Employees  Board
Practices  Audit Committee. Our board of
directors has determined that Liu Hongru, our non-executive
independent director is qualified as a financial
expert, as defined in Item 16A of Form 20-F. In
February 2006, with the consent of the audit committee, we
retained COSO Chairman, Dr. Larry E Rittenberg, as the
financial advisor to our audit committee to give assistance with
relevant work.





ITEM 16B  CODE OF ETHICS

We have adopted a Code of Ethics that applies to our Chief
Executive Officer, Chief Financial Officer, Chief Accounting
Officer, other executives and senior officers and a separate
Code of Ethics that applies to all of our employees. We have
included these two Codes of Ethics as Exhibit 16.1 and
Exhibit 16.2 to this annual report.

These two Codes of Ethics are also posted on our website,
www.petrochina.com.cn, and may be accessed as follows:



1.
    From our main web page, first click on Investor
    Relations.2.
    Next, click on Corporate Governance Structure.3.
    Finally, click on Code of Ethics for Senior
    Management or Code of Ethics for Employees of
    PetroChina Company Limited.



ITEM 16C  PRINCIPAL ACCOUNTANT FEES AND
SERVICES

PricewaterhouseCoopers has served as PetroChinas
independent public accountants for each of the fiscal years in
the three-year period ended December 31, 2005, for which
audited financial statements appear in this annual report on
Form 20-F. The auditors are elected annually at the annual
general meeting of PetroChina.

The offices of PricewaterhouseCoopers are located at
Princes Building, 22nd Floor, Central, Hong Kong.

The following table presents the aggregate fees for professional
audit services and other services rendered by
PricewaterhouseCoopers to PetroChina for each of the years ended
December 31, 2004 and 2005.

|                   |  |               |    |  |      |  |    | 
|------------------ |  | ------------- | -- |  | ---- |  | -- | 
|                   |  | December 31,  |   
|                   |  |               |   
|                   |  | 2004          |    |  | 2005 | 
|                   |  |               |    |  |      | 
|                   |  | RMB           |    |  | RMB  | 
|                   |  | (in millions) |   
|Audit fees         |  |               | 43 |  |      |  | 50 | 
|Audit-related fees |  |               |   |  |      |  |   | 
|Tax fees           |  |               |   |  |      |  |   | 
|All other fees     |  |               | 23 |  |      |  |   | 
|                   |  |               |    |  |      | 
|Total              |  |               | 66 |  |      |  | 50 | 
|                   |  |               |    |  |      | 

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Audit fees consist of fees billed for the annual audit services
and other audit services, which are those services that only the
external auditor reasonably can provide, and include the group
audit, statutory audits, and assistance with and review of
documents filed with SEC.

All other fees mainly include fees billed for advisory services
in assisting our management to evaluate and improve our internal
control procedures over financial reporting as required under
Section 404 of the Sarbanes-Oxley Act.



Audit Committee Pre-approved Policies and
    ProceduresCurrently, all non-audit services to be provided by our
independent public accountants, PricewaterhouseCoopers, must be
approved by our audit committee.

During 2005, services relating to all audit-related fees
provided to us by PricewaterhouseCoopers were approved by our
audit committee in accordance with the de minimis
exception to the pre-approval requirement provided by
paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X.





ITEM 16D  EXEMPTIONS FROM LISTING STANDARDS FOR
AUDIT COMMITTEES

None.





ITEM 16E  PURCHASES OF EQUITY SECURITIES BY THE
ISSUER AND AFFILIATED PURCHASERS

Not applicable.





PART III

ITEM 17  FINANCIAL STATEMENTS

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





ITEM 18  FINANCIAL STATEMENTS

See page F-1 to
F-78 following Item 19.





ITEM 19  EXHIBITS

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

(b) Exhibits to this annual report.

|        |  |                                                                                                                                                                 
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                 
|Number  |  | Description of Exhibits                                                                                                                                         
|        |  |                                                                                                                                                                 
|1.1     |  | Articles of Association (as
    amended) (English translation)
    (1)                                                                                          
|1.2     |  | Articles of Association (as amended
    and pending for approval of SASAC) (English translation)                                                                
|4.1     |  | 2006 Management Performance
    Contract (English Translation)                                                                                                  
|4.2     |  | Crude Oil Mutual Supply Framework
    Agreement, dated March 10, 2006, between China Petroleum
    and Chemical Corporation and PetroChina (English translation)

136



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|        |  |                                                                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                              
|Number  |  | Description of Exhibits                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                              
|4.3     |  | Second Supplemental Agreement to
    Comprehensive products and Services Agreement, dated
    September 1, 2005, between CNPC and PetroChina (English
    translation)                                                                                                       
|4.4     |  | Capital Contribution Agreement,
    dated June 9, 2005, among China National Oil and Gas
    Exploration and Development Corporation, Central Asia Petroleum
    Company Limited, Zhong You Kan Tan Kai Fa Company Limited and
    PetroChina (English
    Translation)(2)   
|4.5     |  | Transfer Agreement, dated
    June 9, 2005, between Zhong You Kan Tan Kai Fa Company
    Limited and PetroChina (English
    Translation)(2)                                                                                                                                 
|4.6     |  | Supplementary Agreement to
    Comprehensive Products and Services Agreement, dated
    June 9, 2005, between CNPC and PetroChina (English
    Translation)(2)                                                                                                               
|4.7     |  | Form of Non-competition Agreement
    between CNPC and PetroChina (together with English
    translation)(3)                                                                                                                                                                 
|4.8     |  | Form of Comprehensive Products and
    Services Agreement between CNPC and PetroChina (together with
    English
    translation)(3)                                                                                                                                         
|4.9     |  | Form of Land Use Rights Leasing
    Contract between CNPC and PetroChina (together with English
    translation)(3)                                                                                                                                                          
|4.10    |  | Form of Buildings Leasing Contract
    between CNPC and PetroChina (together with English
    translation)(3)                                                                                                                                                                
|4.11    |  | Form of Trademark Licensing
    Contract between CNPC and PetroChina (together with English
    translation)(3)                                                                                                                                                              
|4.12    |  | Form of Patent and Know-how
    Licensing Contract between CNPC and PetroChina (together with
    English
    translation)(3)                                                                                                                                                
|4.13    |  | Form of Computer Software Licensing
    Contract between CNPC and PetroChina (together with English
    translation)(3)                                                                                                                                                      
|4.14    |  | Form of Contract for Transfer of
    Rights under Production Sharing Contracts between CNPC and
    PetroChina (together with English
    translation)(3)                                                                                                                    
|4.15    |  | Form of Guarantee of Debts Contract
    between CNPC and PetroChina (together with English
    translation)(3)                                                                                                                                                               
|4.16    |  | Form of Contract for the
    Supervision of Certain Sales Enterprises between CNPC and
    PetroChina (together with English
    translation)(3)                                                                                                                             
|4.17    |  | Form of Agreement for Transfer of
    Rights and Interests under the Crude Oil Premium and Discount
    Calculation Agreement between China Petrochemical Corporation,
    CNPC and PetroChina (together with English
    translation)(3)                                    
|4.18    |  | Form of Agreement for the Transfer
    of Rights and Interests under the Retainer Contracts relating to
    Oil Exploration and Exploitation in Lengjiapu Area, Liaohe Oil
    Region and No. 9.1-9.5 Areas, Karamay Oil Field (together
    with English
    translation)(3)
|8.1     |  | List of major subsidiaries                                                                                                                                                                                                                                                   
|10.1    |  | Significant Differences in
    Corporate Governance Practices for Purposes of
    Section 303A.11 of the New York Exchange Listed Company
    Manual(2)                                                                                                                      
|12.1    |  | Certification of Chief Executive
    Officer required by Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                                                  
|12.2    |  | Certification of Chief Financial
    Officer required by Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                                                  

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|        |  |                                                                                                                                                           
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                           
|Number  |  | Description of Exhibits                                                                                                                                   
|        |  |                                                                                                                                                           
|13.1    |  | Certification of Chief Executive
    Officer required by 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|13.2    |  | Certification of Chief Financial
    Officer required by 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|16.1    |  | Code of Ethics for Senior
    Management(2)                                                                                                               
|16.2    |  | Code of Ethics for
    Employees(2)                                                                                                                       






|    |                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to our annual report on Form 20-F
    for the fiscal year ended December 31, 2001 (File
    No. 1-15006) filed with the Commission.       
|   
|(2) | Incorporated by reference to our annual report on Form 20-F
    for the fiscal year ended December 31, 2004 (File
    No. 1-15006) filed with the Commission.       
|   
|(3) | Incorporated by reference to our Registration Statement on
    Form F-1 (File No. 333-11566) filed with the
    Commission, as declared effective on March 29, 2000.

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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 HUAIQIName: Li HuaiqiTitle:   Secretary to Board of DirectorsDate: June 20, 2006

139



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##### Table of Contents

INDEX OF FINANCIAL STATEMENTS

|                                                    |                                                                                                                        |      |  |      | 
|--------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ---- |  | ---- | 
|                                                    |                                                                                                                        | Page | 
|                                                    |                                                                                                                        |      | 
|PetroChina Company Limited and
    its Subsidiaries |                                                                                                                        |      |  |     
|                                                    | Consolidated Financial
    Statements                                                                                  |      |  |      | 
|                                                    | Report of
    Independent Registered Public Accounting Firm                                                            |      |  | F-2  | 
|                                                    | Consolidated
    Statements of Income for each of the three years in the period
    ended December 31, 2005            |      |  | F-3  | 
|                                                    | Consolidated
    Balance Sheets as of December 31, 2004 and 2005                                                       |      |  | F-4  | 
|                                                    | Consolidated
    Statements of Cash Flows for each of the three years in the
    period ended December 31, 2005        |      |  | F-5  | 
|                                                    | Consolidated
    Statements of Changes in Equity for each of the three years in
    the period ended December 31, 2005 |      |  | F-7  | 
|                                                    | Notes to the
    Consolidated Financial Statements                                                                     |      |  | F-9  | 
|                                                    | Supplementary
    Petroleum Data (unaudited)                                                                           |      |  | F-73 | 

F-1



---



##### Table of Contents

Report of Independent Registered Public Accounting Firm

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

In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, of cash flows and
of changes in equity present fairly, in all material respects,
the consolidated financial position of PetroChina Company
Limited (the Company) and its subsidiaries (the
Group) at December 31, 2004 and 2005, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2005, in
conformity with International Financial Reporting Standards.
These financial statements are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.

International Financial Reporting Standards vary in certain
significant respects from accounting principles generally
accepted in the United States. The application of the latter
would have affected the determination of consolidated net income
for each of the three years in the period ended
December 31, 2005 and the determination of consolidated
shareholders equity at December 31, 2004 and 2005 to
the extent summarized in Note 37 to the consolidated
financial statements.



PricewaterhouseCoopersCertified Public AccountantsHong Kong, June 19, 2006

F-2



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##### Table of Contents

PETROCHINA COMPANY LIMITED





CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2003, 2004 and 2005

(Amounts in millions except for per share data)

|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |          |         |  |          |          |         | 
|----------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | --------------------------------- | -- | ----------------------- | ---- |  | -------- | ------- | ------ | --- | -------- | -------- | ------- |  | -------- | -------- | ------- | 
|                                                                                                                        |                                                           |                                   |    | Year Ended December 31, |     
|                                                                                                                        |                                                           |                                   |    |                         |     
|                                                                                                                        |                                                           | Notes                             |    |                         | 2003 |  |          | 2004    |        |     | 2005     |         
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|                                                                                                                        |                                                           |                                   |    | RMB                     |      |  | RMB      |         |        | RMB |         
|REVENUES                                                                                                                |                                                           |                                   |    |                         |      |  |          |         |        |     |          |          |         |  |          |         
|                                                                                                                        | Sales and other operating revenues                        |                                   |    |                         |      |  |          | 310,431 |        |     |          | 397,354  |         |  |          | 552,229  |        
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|OPERATING EXPENSES                                                                                                      |                                                           |                                   |    |                         |      |  |          |         |        |     |          |          |         |  |          |         
|                                                                                                                        | Purchases, services and other                             |                                   |    |                         |      |  |          | (89,741 | )      |     |          | (114,249 | )       |  |          | (200,321 | )      
|                                                                                                                        | Employee compensation costs                               |                                   |    | 5                       |      |  |          | (20,044 | )      |     |          | (22,934  | )       |  |          | (29,675  | )      
|                                                                                                                        | Exploration expenses, including
    exploratory dry holes |                                   |    |                         |      |  |          | (10,624 | )      |     |          | (12,090  | )       |  |          | (15,566  | )      
|                                                                                                                        | Depreciation, depletion and
    amortization              |                                   |    |                         |      |  |          | (42,163 | )      |     |          | (48,362  | )       |  |          | (51,305  | )      
|                                                                                                                        | Selling, general and administrative
    expenses          |                                   |    |                         |      |  |          | (25,982 | )      |     |          | (28,302  | )       |  |          | (36,538  | )      
|                                                                                                                        | Shut down of manufacturing assets                         |                                   |    | 6                       |      |  |          | (2,355  | )      |     |          | (220     | )       |  |          |         |        
|                                                                                                                        | Taxes other than income taxes                             |                                   |    |                         |      |  |          | (16,821 | )      |     |          | (19,943  | )       |  |          | (23,616  | )      
|                                                                                                                        | Revaluation loss of property, plant
    and equipment     |                                   |    | 17                      |      |  |          | (391    | )      |     |          |         |         |  |          |         |        
|                                                                                                                        | Other expense, net                                        |                                   |    |                         |      |  |          | (598    | )      |     |          | (116     | )       |  |          | (3,037   | )      
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|TOTAL OPERATING
    EXPENSES                                                                                            |                                                           |                                   |    |                         |      |  | (208,719 | )       |        |     | (246,216 | )        |         |  | (360,058 | )       
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|INCOME FROM OPERATIONS                                                                                                  |                                                           |                                   |    |                         |      |  | 101,712  |         |        |     | 151,138  |          |         |  | 192,171  |         
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|FINANCE COSTS                                                                                                           |                                                           |                                   |    |                         |      |  |          |         |        |     |          |          |         |  |          |         
|                                                                                                                        | Exchange gain                                             |                                   |    |                         |      |  |          | 224     |        |     |          | 225      |         |  |          | 942      |        
|                                                                                                                        | Exchange loss                                             |                                   |    |                         |      |  |          | (260    | )      |     |          | (217     | )       |  |          | (854     | )      
|                                                                                                                        | Interest income                                           |                                   |    |                         |      |  |          | 973     |        |     |          | 1,373    |         |  |          | 1,924    |        
|                                                                                                                        | Interest expense                                          |                                   |    | 7                       |      |  |          | (2,889  | )      |     |          | (2,896   | )       |  |          | (2,762   | )      
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|TOTAL FINANCE COSTS                                                                                                     |                                                           |                                   |    |                         |      |  | (1,952   | )       |        |     | (1,515   | )        |         |  | (750     | )       
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|INCOME FROM EQUITY
    AFFILIATES                                                                                       |                                                           |                                   | 18 |                         |      |  | 933      |         |        |     | 1,621    |          |         |  | 2,401    |         
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|INCOME BEFORE INCOME
    TAXES                                                                                          |                                                           |                                   |    |                         |      |  | 100,693  |         |        |     | 151,244  |          |         |  | 193,822  |         
|INCOME TAXES                                                                                                            |                                                           |                                   | 8  |                         |      |  | (28,796  | )       |        |     | (43,598  | )        |         |  | (54,180  | )       
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|INCOME FOR THE YEAR                                                                                                     |                                                           |                                   |    |                         |      |  | 71,897   |         |        |     | 107,646  |          |         |  | 139,642  |         
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|ATTRIBUTABLE TO:                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |          |         |  |          |         
|                                                                                                                        |                                                           | EQUITY HOLDERS OF THE
    COMPANY |    |                         |      |  |          |         | 69,835 |     |          |          | 103,843 |  |          |          | 133,362 | 
|                                                                                                                        |                                                           | MINORITY INTERESTS                |    |                         |      |  |          |         | 2,062  |     |          |          | 3,803   |  |          |          | 6,280   | 
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|                                                                                                                        |                                                           |                                   |    |                         |      |  | 71,897   |         |        |     | 107,646  |          |         |  | 139,642  |         
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|BASIC AND DILUTED NET INCOME PER
    SHARE FOR INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
    DURING THE YEAR |                                                           |                                   | 9  |                         |      |  | 0.40     |         |        |     | 0.59     |          |         |  | 0.75     |         
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|NUMBER OF SHARES                                                                                                        |                                                           |                                   | 9  |                         |      |  | 175,824  |         |        |     | 175,824  |          |         |  | 179,021  |         
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|DIVIDENDS ATTRIBUTABLE TO EQUITY
    HOLDERS OF THE COMPANY:                                                            |                                                           |                                   |    |                         |      |  |          |         |        |     |          |          |         |  |          |         
|                                                                                                                        | Interim dividend declared during
    the year             |                                   |    | 10                      |      |  |          | 17,379  |        |     |          | 20,381   |         |  |          | 27,731   |        
|                                                                                                                        | Final dividend proposed after the
    balance sheet date  |                                   |    | 10                      |      |  |          | 13,947  |        |     |          | 25,936   |         |  |          | 32,282   |        
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         
|                                                                                                                        |                                                           |                                   |    |                         |      |  | 31,326   |         |        |     | 46,317   |          |         |  | 60,013   |         
|                                                                                                                        |                                                           |                                   |    |                         |      |  |          |         |        |     |          |         



F-3



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##### Table of Contents

PETROCHINA COMPANY LIMITED





CONSOLIDATED BALANCE SHEETS

As of December 31, 2004 and 2005

(Amounts in millions)

|                                                                                             |  |       |    |              |      |  |         |      |  |  |         |  
|-------------------------------------------------------------------------------------------- |  | ----- | -- | ------------ | ---- |  | ------- | ---- |  |  | ------- | -
|                                                                                             |  |       |    | At           |     
|                                                                                             |  |       |    | December 31, |     
|                                                                                             |  |       |    |              |     
|                                                                                             |  | Notes |    |              | 2004 |  |         | 2005 | 
|                                                                                             |  |       |    |              |      |  |         |      | 
|                                                                                             |  |       |    | RMB          |      |  | RMB     |     
|ASSETS                                                                                       |  |       |    |              |      |  |         |      |  |  |         |  
|Current assets                                                                               |  |       |    |              |      |  |         |      |  |  |         |  
|Cash and cash equivalents                                                                    |  |       | 11 |              |      |  | 11,688  |      |  |  | 80,905  |  
|Time deposits with maturities over
    three months but within one year                      |  |       |    |              |      |  | 1,425   |      |  |  | 1,691   |  
|Investments in collateralized loans                                                          |  |       | 12 |              |      |  | 33,217  |      |  |  | 235     |  
|Notes receivable                                                                             |  |       | 13 |              |      |  | 4,838   |      |  |  | 3,028   |  
|Accounts receivable, less allowance
    for impairment of receivables                        |  |       | 14 |              |      |  | 3,842   |      |  |  | 4,630   |  
|Inventories                                                                                  |  |       | 15 |              |      |  | 47,377  |      |  |  | 62,733  |  
|Prepaid expenses and other current
    assets                                                |  |       | 16 |              |      |  | 19,866  |      |  |  | 22,673  |  
|                                                                                             |  |       |    |              |      |  |         |      | 
|TOTAL CURRENT ASSETS                                                                         |  |       |    |              |      |  | 122,253 |      |  |  | 175,895 |  
|Property, plant and equipment, less
    accumulated depreciation, depletion and amortization |  |       | 17 |              |      |  | 485,612 |      |  |  | 563,890 |  
|Investments in equity affiliates                                                             |  |       | 18 |              |      |  | 9,898   |      |  |  | 12,378  |  
|Available-for-sale investments                                                               |  |       | 19 |              |      |  | 1,606   |      |  |  | 1,230   |  
|Advance operating lease payments                                                             |  |       | 20 |              |      |  | 12,307  |      |  |  | 16,235  |  
|Intangible and other assets                                                                  |  |       | 21 |              |      |  | 3,020   |      |  |  | 5,011   |  
|Time deposits with maturities over
    one year                                              |  |       |    |              |      |  | 3,751   |      |  |  | 3,428   |  
|                                                                                             |  |       |    |              |      |  |         |      | 
|TOTAL ASSETS                                                                                 |  |       |    |              |      |  | 638,447 |      |  |  | 778,067 |  
|                                                                                             |  |       |    |              |      |  |         |      | 
|LIABILITIES AND
    SHAREHOLDERS EQUITY                                                     |  |       |    |              |      |  |         |      |  |  |         |  
|Current liabilities                                                                          |  |       |    |              |      |  |         |      |  |  |         |  
|Short-term debt                                                                              |  |       | 23 |              |      |  | 34,937  |      |  |  | 28,689  |  
|Accounts payable and accrued
    liabilities                                                 |  |       | 22 |              |      |  | 73,072  |      |  |  | 99,758  |  
|Income tax payable                                                                           |  |       |    |              |      |  | 17,484  |      |  |  | 20,567  |  
|Other taxes payable                                                                          |  |       |    |              |      |  | 5,032   |      |  |  | 4,824   |  
|                                                                                             |  |       |    |              |      |  |         |      | 
|TOTAL CURRENT
    LIABILITIES                                                                |  |       |    |              |      |  | 130,525 |      |  |  | 153,838 |  
|Long-term debt                                                                               |  |       | 23 |              |      |  | 44,648  |      |  |  | 44,570  |  
|Other long-term obligations                                                                  |  |       |    |              |      |  | 2,481   |      |  |  | 1,046   |  
|Asset retirement obligations                                                                 |  |       | 24 |              |      |  | 919     |      |  |  | 14,187  |  
|Deferred income taxes                                                                        |  |       | 25 |              |      |  | 16,902  |      |  |  | 20,759  |  
|                                                                                             |  |       |    |              |      |  |         |      | 
|TOTAL LIABILITIES                                                                            |  |       |    |              |      |  | 195,475 |      |  |  | 234,400 |  
|                                                                                             |  |       |    |              |      |  |         |      | 
|EQUITY ATTRIBUTABLE TO EQUITY
    HOLDERS OF THE COMPANY:                                    |  |       |    |              |      |  |         |      |  |  |         |  
|State-owned shares                                                                           |  |       | 26 |              |      |  | 158,242 |      |  |  | 157,922 |  
|H shares                                                                                     |  |       | 26 |              |      |  | 17,582  |      |  |  | 21,099  |  
|                                                                                             |  |       |    |              |      |  |         |      | 
|Share capital, issued and
    outstanding, RMB1.00 Par value                                 |  |       | 26 |              |      |  | 175,824 |      |  |  | 179,021 |  
|Retained earnings                                                                            |  |       |    |              |      |  | 143,115 |      |  |  | 203,812 |  
|Capital reserve                                                                              |  |       | 27 |              |      |  | (25,376 | )    |  |  | (8,881  | )
|Revaluation reserve                                                                          |  |       | 27 |              |      |  | 79,946  |      |  |  | 79,946  |  
|Statutory common reserve fund                                                                |  |       | 27 |              |      |  | 36,071  |      |  |  | 48,736  |  
|Statutory common welfare fund                                                                |  |       | 27 |              |      |  | 21,504  |      |  |  | 27,837  |  
|Currency translation differences                                                             |  |       | 27 |              |      |  | (111    | )    |  |  | (379    | )
|Other reserves                                                                               |  |       | 27 |              |      |  | (3,200  | )    |  |  | (14,703 | )
|MINORITY INTEREST                                                                            |  |       |    |              |      |  | 15,199  |      |  |  | 28,278  |  
|                                                                                             |  |       |    |              |      |  |         |      | 
|TOTAL EQUITY                                                                                 |  |       |    |              |      |  | 442,972 |      |  |  | 543,667 |  
|                                                                                             |  |       |    |              |      |  |         |      | 
|TOTAL LIABILITIES AND
    EQUITY                                                             |  |       |    |              |      |  | 638,447 |      |  |  | 778,067 |  
|                                                                                             |  |       |    |              |      |  |         |      | 



F-4



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##### Table of Contents

PETROCHINA COMPANY LIMITED





CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2003, 2004 and 2005

(Amounts in millions)

|                                              |                                                    |                                                                         |  |                         |        |  |         |         |        |     |         |         |         |   |         |         |         |  
|--------------------------------------------- | -------------------------------------------------- | ----------------------------------------------------------------------- |  | ----------------------- | ------ |  | ------- | ------- | ------ | --- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                              |                                                    |                                                                         |  | Year Ended December 31, |       
|                                              |                                                    |                                                                         |  |                         |       
|                                              |                                                    | Notes                                                                   |  |                         | 2003   |  |         | 2004    |        |     | 2005    |        
|                                              |                                                    |                                                                         |  |                         |        |  |         |         |        |     |         |        
|                                              |                                                    |                                                                         |  | RMB                     |        |  | RMB     |         |        | RMB |        
|CASH FLOWS FROM OPERATING
    ACTIVITIES      |                                                    |                                                                         |  |                         |        |  |         |         |        |     |         |         |         |   |         |        
|                                              | Net income                                         |                                                                         |  |                         |        |  |         | 71,897  |        |     |         | 107,646 |         |   |         | 139,642 |        
|                                              | Adjustments for:                                   |                                                                         |  |                         |        |  |         |         |        |     |         |         |         |   |         |         |        
|                                              |                                                    | Income taxes                                                            |  |                         | 8      |  |         |         | 28,796 |     |         |         | 43,598  |   |         |         | 54,180  |  
|                                              |                                                    | Depreciation, depletion and
    amortization                            |  |                         |        |  |         |         | 42,163 |     |         |         | 48,362  |   |         |         | 51,305  |  
|                                              |                                                    | Provision for shut down of
    manufacturing assets                     |  |                         | 6      |  |         |         | 2,355  |     |         |         | 220     |   |         |         |        |  
|                                              |                                                    | Dry hole costs                                                          |  |                         |        |  |         |         | 4,691  |     |         |         | 4,741   |   |         |         | 6,547   |  
|                                              |                                                    | Income from equity affiliates                                           |  |                         | 18     |  |         |         | (933   | )   |         |         | (1,621  | ) |         |         | (2,401  | )
|                                              |                                                    | Impairment of receivables, net                                          |  |                         | 14, 16 |  |         |         | 1,513  |     |         |         | 676     |   |         |         | (455    | )
|                                              |                                                    | Write down in inventories, net                                          |  |                         | 15     |  |         |         | 161    |     |         |         | 147     |   |         |         | (139    | )
|                                              |                                                    | Impairment of available-for-sale
    investments, net                   |  |                         | 19     |  |         |         | 158    |     |         |         | 26      |   |         |         | (23     | )
|                                              |                                                    | Loss on disposal of property, plant
    and equipment                   |  |                         |        |  |         |         | 1,056  |     |         |         | 2,818   |   |         |         | 2,026   |  
|                                              |                                                    | Loss on disposal of equity
    affiliates                               |  |                         |        |  |         |         |       |     |         |         | 33      |   |         |         | 2       |  
|                                              |                                                    | Loss on disposal of
    available-for-sale investments                  |  |                         |        |  |         |         | 21     |     |         |         | 6       |   |         |         | 27      |  
|                                              |                                                    | Loss on disposal of intangible and
    other assets                     |  |                         |        |  |         |         | 143    |     |         |         | 50      |   |         |         | 106     |  
|                                              |                                                    | Revaluation loss of property, plant
    and equipment                   |  |                         | 17     |  |         |         | 391    |     |         |         |        |   |         |         |        |  
|                                              |                                                    | Dividend income                                                         |  |                         | 19     |  |         |         | (69    | )   |         |         | (113    | ) |         |         | (109    | )
|                                              |                                                    | Interest income                                                         |  |                         |        |  |         |         | (973   | )   |         |         | (1,373  | ) |         |         | (1,924  | )
|                                              |                                                    | Interest expense                                                        |  |                         | 7      |  |         |         | 2,889  |     |         |         | 2,896   |   |         |         | 2,762   |  
|                                              | Advance payments on long-term
    operating leases |                                                                         |  |                         |        |  |         | (1,584  | )      |     |         | (5,624  | )       |   |         | (5,170  | )      
|                                              | Changes in working capital:                        |                                                                         |  |                         |        |  |         |         |        |     |         |         |         |   |         |         |        
|                                              |                                                    |  accounts receivable and
    prepaid expenses and other current assets |  |                         |        |  |         |         | 2,261  |     |         |         | (6,195  | ) |         |         | 165     |  
|                                              |                                                    |  inventories                                                           |  |                         |        |  |         |         | (744   | )   |         |         | (17,460 | ) |         |         | (15,896 | )
|                                              |                                                    |  accounts payable and
    accrued liabilities                          |  |                         |        |  |         |         | 8,963  |     |         |         | 398     |   |         |         | 22,089  |  
|                                              |                                                    |                                                                         |  |                         |        |  |         |         |        |     |         |        
|CASH GENERATED FROM
    OPERATIONS            |                                                    |                                                                         |  |                         |        |  | 163,155 |         |        |     | 179,231 |         |         |   | 252,734 |        
|                                              | Interest received                                  |                                                                         |  |                         |        |  |         | 973     |        |     |         | 1,373   |         |   |         | 1,917   |        
|                                              | Interest paid                                      |                                                                         |  |                         |        |  |         | (4,312  | )      |     |         | (3,998  | )       |   |         | (3,628  | )      
|                                              | Income taxes paid                                  |                                                                         |  |                         |        |  |         | (20,246 | )      |     |         | (34,915 | )       |   |         | (47,138 | )      
|                                              |                                                    |                                                                         |  |                         |        |  |         |         |        |     |         |        
|NET CASH PROVIDED BY OPERATING
    ACTIVITIES |                                                    |                                                                         |  |                         |        |  | 139,570 |         |        |     | 141,691 |         |         |   | 203,885 |        
|                                              |                                                    |                                                                         |  |                         |        |  |         |         |        |     |         |        



F-5



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##### Table of Contents

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

For the Years Ended December 31, 2003, 2004 and 2005

(Amounts in millions)

|                                           |                                                                                                                         |       |  |                         |      |  |          |         |   |     |          |         |   |  |         |          |  
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------- | ----- |  | ----------------------- | ---- |  | -------- | ------- | - | --- | -------- | ------- | - |  | ------- | -------- | -
|                                           |                                                                                                                         |       |  | Year Ended December 31, |     
|                                           |                                                                                                                         |       |  |                         |     
|                                           |                                                                                                                         | Notes |  |                         | 2003 |  |          | 2004    |   |     | 2005     |        
|                                           |                                                                                                                         |       |  |                         |      |  |          |         |   |     |          |        
|                                           |                                                                                                                         |       |  | RMB                     |      |  | RMB      |         |   | RMB |         
|CASH FLOWS FROM INVESTING
    ACTIVITIES   |                                                                                                                         |       |  |                         |      |  |          |         |   |     |          |         |   |  |         |         
|                                           | Capital expenditures                                                                                                    |       |  |                         |      |  |          | (83,588 | ) |     |          | (94,045 | ) |  |         | (119,227 | )
|                                           | Acquisition of equity affiliates                                                                                        |       |  |                         |      |  |          | (2,467  | ) |     |          | (1,000  | ) |  |         | (2,334   | )
|                                           | Acquisition of available-for-sale
    investments                                                                       |       |  |                         |      |  |          | (788    | ) |     |          | (476    | ) |  |         | (782     | )
|                                           | Net (acquisition)/proceeds of
    investments in collateralized loans with maturities not greater
    than three months |       |  |                         |      |  |          | (10,182 | ) |     |          | (8,049  | ) |  |         | 26,896   |  
|                                           | Acquisition of investments in
    collateralized loans with maturities over three months                                |       |  |                         |      |  |          | (4,676  | ) |     |          | (8,301  | ) |  |         | (443     | )
|                                           | Acquisition of intangible assets                                                                                        |       |  |                         |      |  |          | (476    | ) |     |          | (531    | ) |  |         | (1,600   | )
|                                           | Acquisition of other non-current
    assets                                                                             |       |  |                         |      |  |          | (569    | ) |     |          | (280    | ) |  |         | (1,133   | )
|                                           | Acquisition of subsidiaries                                                                                             |       |  | 32                      |      |  |          | (1,075  | ) |     |          |        |   |  |         |         |  
|                                           | Return capital to minority
    interests due to liquidation of subsidiaries                                             |       |  |                         |      |  |          |        |   |     |          |        |   |  |         | (935     | )
|                                           | Purchase from minority interests of
    listed subsidiaries                                                             |       |  | 38                      |      |  |          |        |   |     |          |        |   |  |         | (2,019   | )
|                                           | Other purchase from minority
    interest                                                                               |       |  |                         |      |  |          |        |   |     |          |        |   |  |         | (376     | )
|                                           | Proceeds from investments in
    collateralized loans with maturities over three months                                 |       |  |                         |      |  |          | 420     |   |     |          | 7,357   |   |  |         | 6,529    |  
|                                           | Repayment of capital by equity
    affiliates                                                                           |       |  |                         |      |  |          | 336     |   |     |          | 272     |   |  |         | 115      |  
|                                           | Proceeds from disposal of property,
    plant and equipment                                                             |       |  |                         |      |  |          | 268     |   |     |          | 873     |   |  |         | 898      |  
|                                           | Proceeds from disposal of equity
    affiliates                                                                         |       |  |                         |      |  |          | 23      |   |     |          | 27      |   |  |         | 1,102    |  
|                                           | Proceeds from disposal of
    available-for-sale investments                                                            |       |  |                         |      |  |          | 87      |   |     |          | 83      |   |  |         | 976      |  
|                                           | Proceeds from disposal of
    intangible and other non-current assets                                                   |       |  |                         |      |  |          |        |   |     |          | 37      |   |  |         | 22       |  
|                                           | Dividends received                                                                                                      |       |  |                         |      |  |          | 152     |   |     |          | 800     |   |  |         | 678      |  
|                                           | (Increase)/Decrease in time
    deposits with maturities over three months                                              |       |  |                         |      |  |          | (14     | ) |     |          | 957     |   |  |         | 57       |  
|                                           |                                                                                                                         |       |  |                         |      |  |          |         |   |     |          |        
|NET CASH USED FOR INVESTING
    ACTIVITIES |                                                                                                                         |       |  |                         |      |  | (102,549 | )       |   |     | (102,276 | )       |   |  | (91,576 | )       
|                                           |                                                                                                                         |       |  |                         |      |  |          |         |   |     |          |        
|CASH FLOWS FROM FINANCING
    ACTIVITIES   |                                                                                                                         |       |  |                         |      |  |          |         |   |     |          |         |   |  |         |         
|                                           | Repayments of short-term debt                                                                                           |       |  |                         |      |  |          | (30,907 | ) |     |          | (23,862 | ) |  |         | (34,529  | )
|                                           | Repayments of long-term debt                                                                                            |       |  |                         |      |  |          | (7,954  | ) |     |          | (28,331 | ) |  |         | (19,175  | )
|                                           | Principal payment on capital lease
    obligations                                                                      |       |  |                         |      |  |          | (66     | ) |     |          | (35     | ) |  |         | (21      | )
|                                           | Dividends paid to minority interests                                                                                    |       |  |                         |      |  |          | (211    | ) |     |          | (736    | ) |  |         | (1,486   | )
|                                           | Cash payment for acquisition of
    CNPC marketing enterprises                                                          |       |  |                         |      |  |          | (170    | ) |     |          | (1,476  | ) |  |         |         |  
|                                           | Dividends paid to equity holders of
    the Company                                                                     |       |  | 10                      |      |  |          | (29,678 | ) |     |          | (34,328 | ) |  |         | (53,667  | )
|                                           | Increase in short-term debt                                                                                             |       |  |                         |      |  |          | 28,530  |   |     |          | 28,113  |   |  |         | 32,019   |  
|                                           | Increase in long-term debt                                                                                              |       |  |                         |      |  |          | 4,247   |   |     |          | 18,453  |   |  |         | 15,514   |  
|                                           | Capital contribution from minority
    interests                                                                        |       |  |                         |      |  |          | 313     |   |     |          | 2,145   |   |  |         | 454      |  
|                                           | Change in other long-term
    obligations                                                                               |       |  |                         |      |  |          | 303     |   |     |          | 471     |   |  |         | (1,435   | )
|                                           | Issuance of H share                                                                                                     |       |  | 26                      |      |  |          |        |   |     |          |        |   |  |         | 19,692   |  
|                                           |                                                                                                                         |       |  |                         |      |  |          |         |   |     |          |        
|NET CASH USED FOR FINANCING
    ACTIVITIES |                                                                                                                         |       |  |                         |      |  | (35,593  | )       |   |     | (39,586  | )       |   |  | (42,634 | )       
|                                           |                                                                                                                         |       |  |                         |      |  |          |         |   |     |          |        
|TRANSLATION OF FOREIGN
    CURRENCY        |                                                                                                                         |       |  |                         |      |  | 19       |         |   |     | 246      |         |   |  | (458    | )       
|                                           |                                                                                                                         |       |  |                         |      |  |          |         |   |     |          |        
|                                           | Increase in cash and cash
    equivalents                                                                               |       |  |                         |      |  |          | 1,447   |   |     |          | 75      |   |  |         | 69,217   |  
|                                           | Cash and cash equivalents at
    beginning of year                                                                      |       |  | 11                      |      |  |          | 10,166  |   |     |          | 11,613  |   |  |         | 11,688   |  
|                                           |                                                                                                                         |       |  |                         |      |  |          |         |   |     |          |        
|                                           | Cash and cash equivalents at end of
    year                                                                            |       |  | 11                      |      |  |          | 11,613  |   |     |          | 11,688  |   |  |         | 80,905   |  
|                                           |                                                                                                                         |       |  |                         |      |  |          |         |   |     |          |        



F-6



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##### Table of Contents

PETROCHINA COMPANY LIMITED





CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Years Ended December 31, 2003, 2004 and 2005

(Amounts in millions)

|                                                                                                                                                                                                                                                                                                                  |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        |  |       |   |  |  |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------- |  | -------- |  | ------- | -------- |  | -------- | -------- | - | ----- | -------- | ------- | - | ------ |  | ----- | - |  |  | ------- | -
|                                                                                                                                                                                                                                                                                                                  |  | Attributable to equity holders |         |  |          |  |        
|                                                                                                                                                                                                                                                                                                                  |  | of the Company                 |         |  |          |  |        
|                                                                                                                                                                                                                                                                                                                  |  |                                |         |  |          |  |        
|                                                                                                                                                                                                                                                                                                                  |  | Share                          |         |  | Retained |  |         |          |  | Minority |          |   | Total |         
|                                                                                                                                                                                                                                                                                                                  |  | Capital                        |         |  | Earnings |  |         | Reserves |  |          | Subtotal |   |       | interest |         |   | equity | 
|                                                                                                                                                                                                                                                                                                                  |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|                                                                                                                                                                                                                                                                                                                  |  | RMB                            |         |  | RMB      |  |         | RMB      |  |          | RMB      |   |       | RMB      |         |   | RMB    | 
|Balance at January 1, 2003 as
    previously reported before adjusting for the acquisition of the
    refinery and petrochemical businesses and investment in Zhong
    You Kan Tan Kai Fa Company Limited and reclassification of
    minority interest resulting from adoption of IAS 1 and
    IAS 27 (Note 2) |  |                                | 175,824 |  |          |  | 59,004  |          |  |          | 81,848   |   |       |          | 316,676 |   |        |  |      |   |  |  | 316,676 |  
|Reclassification as a result of the
    adoption of revised IAS 1 and IAS 27 (Note 2)                                                                                                                                                                                                                             |  |                                |        |  |          |  |        |          |  |          |         |   |       |          |        |   |        |  | 4,854 |   |  |  | 4,854   |  
|Adjustment for the acquisition of
    the refinery and petrochemical businesses and investment in
    Zhong You Kan Tan Kai Fa Company Limited (Note 2)                                                                                                                                                           |  |                                |        |  |          |  | (1,646  | )        |  |          | 2,608    |   |       |          | 962     |   |        |  | 1,818 |   |  |  | 2,780   |  
|                                                                                                                                                                                                                                                                                                                  |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Balance at January 1, 2003
    adjusted for the acquisition of the refinery and petrochemical
    businesses and investment in Zhong You Kan Tan Kai Fa Company
    Limited and reclassification of minority interest resulting from
    adoption of IAS 1 and IAS 27 (Note 2)                                    |  |                                | 175,824 |  |          |  | 57,358  |          |  |          | 84,456   |   |       |          | 317,638 |   |        |  | 6,672 |   |  |  | 324,310 |  
|                                                                                                                                                                                                                                                                                                                  |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Currency translation differences                                                                                                                                                                                                                                                                                  |  |                                |        |  |          |  |        |          |  |          | 132      |   |       |          | 132     |   |        |  | 239   |   |  |  | 371     |  
|Revaluation surplus of property,
    plant and equipment, net of tax                                                                                                                                                                                                                                              |  |                                |        |  |          |  |        |          |  |          | 527      |   |       |          | 527     |   |        |  |      |   |  |  | 527     |  
|Revaluation loss offset against
    previous revaluation surplus of property, plant and equipment,
    net of tax                                                                                                                                                                                                 |  |                                |        |  |          |  |        |          |  |          | (526     | ) |       |          | (526    | ) |        |  |      |   |  |  | (526    | )
|                                                                                                                                                                                                                                                                                                                  |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Net income recognized directly in
    equity                                                                                                                                                                                                                                                                      |  |                                |        |  |          |  |        |          |  |          | 133      |   |       |          | 133     |   |        |  | 239   |   |  |  | 372     |  
|Net income for the year ended
    December 31, 2003                                                                                                                                                                                                                                                               |  |                                |        |  |          |  | 69,835  |          |  |          |         |   |       |          | 69,835  |   |        |  | 2,062 |   |  |  | 71,897  |  
|                                                                                                                                                                                                                                                                                                                  |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Total recognized income for 2003                                                                                                                                                                                                                                                                                  |  |                                |        |  |          |  | 69,835  |          |  |          | 133      |   |       |          | 69,968  |   |        |  | 2,301 |   |  |  | 72,269  |  
|                                                                                                                                                                                                                                                                                                                  |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Transfer to reserves (Note 27)                                                                                                                                                                                                                                                                                    |  |                                |        |  |          |  | (9,363  | )        |  |          | 9,363    |   |       |          |        |   |        |  |      |   |  |  |        |  
|Final dividend for 2002
    (Note 10)                                                                                                                                                                                                                                                                             |  |                                |        |  |          |  | (12,299 | )        |  |          |         |   |       |          | (12,299 | ) |        |  |      |   |  |  | (12,299 | )
|Interim dividend for 2003
    (Note 10)                                                                                                                                                                                                                                                                           |  |                                |        |  |          |  | (17,379 | )        |  |          |         |   |       |          | (17,379 | ) |        |  |      |   |  |  | (17,379 | )
|Dividends to minority interests                                                                                                                                                                                                                                                                                   |  |                                |        |  |          |  |        |          |  |          |         |   |       |          |        |   |        |  | (295  | ) |  |  | (295    | )
|Other movements of minority interest                                                                                                                                                                                                                                                                              |  |                                |        |  |          |  |        |          |  |          |         |   |       |          |        |   |        |  | 288   |   |  |  | 288     |  
|                                                                                                                                                                                                                                                                                                                  |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Balance at December 31, 2003                                                                                                                                                                                                                                                                                      |  |                                | 175,824 |  |          |  | 88,152  |          |  |          | 93,952   |   |       |          | 357,928 |   |        |  | 8,966 |   |  |  | 366,894 |  
|                                                                                                                                                                                                                                                                                                                  |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 



F-7



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##### Table of Contents

PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 
(Continued)

For the Years Ended December 31, 2003, 2004 and 2005

(Amounts in millions)

|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        |  |        |   |  |  |         |  
|------------------------------------------------------------------------------------------- |  | ------------------------------ | ------- |  | -------- |  | ------- | -------- |  | -------- | -------- | - | ----- | -------- | ------- | - | ------ |  | ------ | - |  |  | ------- | -
|                                                                                            |  | Attributable to equity holders |         |  |          |  |        
|                                                                                            |  | of the Company                 |         |  |          |  |        
|                                                                                            |  |                                |         |  |          |  |        
|                                                                                            |  | Share                          |         |  | Retained |  |         |          |  | Minority |          |   | Total |         
|                                                                                            |  | Capital                        |         |  | Earnings |  |         | Reserves |  |          | Subtotal |   |       | interest |         |   | equity | 
|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|                                                                                            |  | RMB                            |         |  | RMB      |  |         | RMB      |  |          | RMB      |   |       | RMB      |         |   | RMB    | 
|Currency translation differences                                                            |  |                                |        |  |          |  |        |          |  |          | 330      |   |       |          | 330     |   |        |  | 677    |   |  |  | 1,007   |  
|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Net income recognized directly in
    equity                                                |  |                                |        |  |          |  |        |          |  |          | 330      |   |       |          | 330     |   |        |  | 677    |   |  |  | 1,007   |  
|Net income for the year ended
    December 31, 2004                                         |  |                                |        |  |          |  | 103,843 |          |  |          |         |   |       |          | 103,843 |   |        |  | 3,803  |   |  |  | 107,646 |  
|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Total recognized income for 2004                                                            |  |                                |        |  |          |  | 103,843 |          |  |          | 330      |   |       |          | 104,173 |   |        |  | 4,480  |   |  |  | 108,653 |  
|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Transfer to reserves (Note 27)                                                              |  |                                |        |  |          |  | (14,552 | )        |  |          | 14,552   |   |       |          |        |   |        |  |       |   |  |  |        |  
|Final dividend for 2003
    (Note 10)                                                       |  |                                |        |  |          |  | (13,947 | )        |  |          |         |   |       |          | (13,947 | ) |        |  |       |   |  |  | (13,947 | )
|Interim dividend for 2004
    (Note 10)                                                     |  |                                |        |  |          |  | (20,381 | )        |  |          |         |   |       |          | (20,381 | ) |        |  |       |   |  |  | (20,381 | )
|Dividends to minority interests                                                             |  |                                |        |  |          |  |        |          |  |          |         |   |       |          |        |   |        |  | (656   | ) |  |  | (656    | )
|Other movements of minority interest                                                        |  |                                |        |  |          |  |        |          |  |          |         |   |       |          |        |   |        |  | 2,409  |   |  |  | 2,409   |  
|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Balance at December 31, 2004                                                                |  |                                | 175,824 |  |          |  | 143,115 |          |  |          | 108,834  |   |       |          | 427,773 |   |        |  | 15,199 |   |  |  | 442,972 |  
|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Currency translation differences                                                            |  |                                |        |  |          |  |        |          |  |          | (268     | ) |       |          | (268    | ) |        |  | (465   | ) |  |  | (733    | )
|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Net loss recognized directly in
    equity                                                  |  |                                |        |  |          |  |        |          |  |          | (268     | ) |       |          | (268    | ) |        |  | (465   | ) |  |  | (733    | )
|Net income for the year ended
    December 31, 2005                                         |  |                                |        |  |          |  | 133,362 |          |  |          |         |   |       |          | 133,362 |   |        |  | 6,280  |   |  |  | 139,642 |  
|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Total recognized income/(loss) for
    2005                                                 |  |                                |        |  |          |  | 133,362 |          |  |          | (268     | ) |       |          | 133,094 |   |        |  | 5,815  |   |  |  | 138,909 |  
|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Issue of shares (Note 26 and
    27)                                                        |  |                                | 3,197   |  |          |  |        |          |  |          | 16,495   |   |       |          | 19,692  |   |        |  |       |   |  |  | 19,692  |  
|Transfer to reserves (Note 27)                                                              |  |                                |        |  |          |  | (18,998 | )        |  |          | 18,998   |   |       |          |        |   |        |  |       |   |  |  |        |  
|Final dividend for 2004
    (Note 10)                                                       |  |                                |        |  |          |  | (25,936 | )        |  |          |         |   |       |          | (25,936 | ) |        |  |       |   |  |  | (25,936 | )
|Interim dividend for 2005
    (Note 10)                                                     |  |                                |        |  |          |  | (27,731 | )        |  |          |         |   |       |          | (27,731 | ) |        |  |       |   |  |  | (27,731 | )
|Payment to CNPC for the acquisition
    of the refinery and petrochemical business (Note 2) |  |                                |        |  |          |  |        |          |  |          | (9       | ) |       |          | (9      | ) |        |  |       |   |  |  | (9      | )
|Dividends to minority interests                                                             |  |                                |        |  |          |  |        |          |  |          |         |   |       |          |        |   |        |  | (1,568 | ) |  |  | (1,568  | )
|Return capital to minority
    interests due to liquidation of subsidiaries                 |  |                                |        |  |          |  |        |          |  |          |         |   |       |          |        |   |        |  | (935   | ) |  |  | (935    | )
|Purchase from minority interests of
    listed subsidiaries (Note 38)                       |  |                                |        |  |          |  |        |          |  |          | (1,438   | ) |       |          | (1,438  | ) |        |  | (581   | ) |  |  | (2,019  | )
|Other movement of minority interest                                                         |  |                                |        |  |          |  |        |          |  |          |         |   |       |          |        |   |        |  | 242    |   |  |  | 242     |  
|Capital contribution to Zhong You
    Kan Tan Kai Fa Company Limited (Note 2)               |  |                                |        |  |          |  |        |          |  |          | (10,056  | ) |       |          | (10,056 | ) |        |  | 10,106 |   |  |  | 50      |  
|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Balance at December 31, 2005                                                                |  |                                | 179,021 |  |          |  | 203,812 |          |  |          | 132,556  |   |       |          | 515,389 |   |        |  | 28,278 |   |  |  | 543,667 |  
|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 
|Balance at December 31, 2005
    in US$                                                     |  |                                | 22,183  |  |          |  | 25,255  |          |  |          | 16,425   |   |       |          | 63,863  |   |        |  | 3,504  |   |  |  | 67,367  |  
|                                                                                            |  |                                |         |  |          |  |         |          |  |          |          |   |       |          |         |   |        | 



F-8



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##### Table of Contents

PETROCHINA COMPANY LIMITED





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

1     ORGANIZATION AND PRINCIPAL
ACTIVITIES

PetroChina Company Limited (the Company) was
established in the Peoples Republic of China (the
PRC or China) on November 5, 1999
as a joint stock company with limited liability as a result of a
group restructuring (the Restructuring) of China
National Petroleum Corporation (CNPC) in preparation
for the listing of the Companys shares in Hong Kong and in
the United States of America (See Note 26). The Company and
its subsidiaries are collectively referred to as the
Group.

The Group is principally engaged in (i) the exploration,
development and production of crude oil and natural gas,
(ii) the refining, transportation, storage and marketing of
crude oil and petroleum products, (iii) the production and
sale of chemicals, and (iv) the transmission, marketing and
sale of natural gas (See Note 36).

2     BASIS OF PREPARATION

The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
(IFRS) issued by the International Accounting
Standards Board (IASB). The consolidated financial
statements have been prepared under the historical cost
convention except as disclosed in the accounting policies below.

The preparation of financial statements in conformity with IFRS
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the balance
sheet 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 2005, the Group adopted the newly revised IFRS below, which
are relevant to its operations. The 2004 comparative numbers
have been amended as required, in accordance with the relevant
requirements. The adoption of these IFRS revisions did not
result in substantial changes to the Groups accounting
policies. In summary:




    IAS 1 and 27 (both revised in 2003) affected the presentation of
    minority interest. IAS 1 (revised in 2003) also has affected the
    presentation of equity affiliates income sharing and requires
    the disclosure of critical accounting estimates.
    IAS 2, 8, 10, 16, 17, 21, 32, 33 (all revised in 2003) and 39
    (revised in 2004) and IFRS 2 had no material effect on the
    Groups accounting policies.
    IAS 24 (revised in 2003) affected the definition of related
    parties and related-party disclosures. (See Note 3 (k)
    and 34)
    IFRS 5 has resulted in a change in the accounting policy
    relating to the recognition of assets held for sale or
    discontinued operation, which did not have any material impact
    on the results and financial positions of the Group as the Group
    did not hold material assets in this category during the years
    presented.
    The Group early adopted IFRS 6, which did not require a change
    in the accounting policy for exploration and evaluation
    activities.In accordance with the acquisition agreement between the Company
and CNPC dated March 28, 2005, the Company acquired the
refining and petrochemical businesses owned by CNPCs
wholly-owned subsidiaries, Ningxia Dayuan Refinery and
Petrochemical Company Limited

F-9



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

(Dayuan) and Qingyang Refinery and Petrochemical
Company Limited (Qingyang) with a total
consideration of RMB 9.

The acquisition is a combination of businesses under common
control since the Company and the CNPCs refinery and
petrochemical businesses owned by Dayuan and Qingyang are under
the common control of CNPC. As a result, the Company accounted
for the acquisition in a manner similar to a uniting of
interests, whereby the assets and liabilities acquired are
accounted for at historical cost to CNPC (net liabilities of RMB
183 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 Group and
these refinery and petrochemical businesses have always been
combined. The difference between RMB 9 payable and the net
liabilities transferred from CNPC has been adjusted against
equity.

In August 2005 the shareholders of the Company approved the
acquisition and transfer agreements relating to the
Companys acquisition of a 50% ownership interest in Zhong
You Kan Tan Kai Fa Company Limited. Zhong You Kan Tan Kai Fa
Company Limited was formed in 2005 and was wholly owned by China
National Oil and Gas Exploration and Development Corporation
(CNODC, wholly owned by CNPC) and one of its
subsidiaries. Under the terms of the related agreements, CNODC
transferred certain oil and gas exploration operations into
Zhong You Kan Tan Kai Fa Company Limited and the Company
contributed to Zhong You Kan Tan Kai Fa Company Limited its
wholly-owned subsidiary, PetroChina International Limited
(PTRI), and cash amounting to approximately
RMB 20,162, which is the difference between the cash
contribution of RMB 20,741 payable by the Company according
to the acquisition agreement and cash consideration of
RMB 579 for PTRI receivable by the Company.

The terms of the agreements grant the Company the right to
appoint four of the seven directors of Zhong You Kan Tan Kai Fa
Company Limited and enable the Company to maintain effective
control over Zhong You Kan Tan Kai Fa Company Limited.

Similar to the acquisition of the refinery and petrochemical
businesses from CNPC described above, the investment in Zhong
You Kan Tan Kai Fa Company Limited and related transactions have
been accounted for in a manner similar to uniting of interests
as all entities involved are under common control by CNPC. The
consolidated financial statements of the Group have been
restated as if the operations of the Group and Zhong You Kan Tan
Kai Fa Company Limited have always been combined. The payment
was made directly to Zhong You Kan Tan Kai Fa Company Limited,
therefore the difference between RMB 20,162 paid and the
net assets of RMB 35,551 at the effective date acquired
(including RMB 20,162 contributed by the Company and
RMB 50 for the contributed paid-in capital by CNODC and its
subsidiary) has been adjusted against equity.

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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

The summarized results of operations for the years ended
December 31, 2003 and 2004 and the financial position as at
December 31, 2004 for the separate entities and on a
consolidation basis are set out below:

|                                                                                                                  |  |                |         |   |               |  |       |                 |  |  |              |   |  |  |         |  
|----------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ------------- |  | ----- | --------------- |  |  | ------------ | - |  |  | ------- | -
|                                                                                                                  |  | PetroChina     |         |   | Refinery and  |  |       | Zhong You Kan   |  |  |             
|                                                                                                                  |  | (As previously |         |   | petrochemical |  |       | Tan Kai Fa      |  |  |             
|                                                                                                                  |  | reported)      |         |   | business      |  |       | Company Limited |  |  | Consolidated |  
|                                                                                                                  |  |                |         |   |               |  |       |                 |  |  |              |  
|                                                                                                                  |  | RMB            |         |   | RMB           |  |       | RMB             |  |  | RMB          |  
|Results of operations of 2003:                                                                                    |  |                |         |   |               |  |       |                 |  |  |              |   |  |  |         |  
|Revenue                                                                                                           |  |                | 303,779 |   |               |  | 3,306 |                 |  |  | 8,511        |   |  |  | 310,431 |  
|Net income/(loss) for the year                                                                                    |  |                | 70,250  |   |               |  | (372  | )               |  |  | 2,019        |   |  |  | 71,897  |  
|Basic and diluted net income per
    share for income attributable to the equity holders of the
    Company (RMB) |  |                | 0.40    |   |               |  | 0.00  |                 |  |  | 0.00         |   |  |  | 0.40    |  
|Results of operations of 2004:                                                                                    |  |                |         |   |               |  |       |                 |  |  |              |   |  |  |         |  
|Revenue                                                                                                           |  |                | 388,633 |   |               |  | 4,583 |                 |  |  | 11,643       |   |  |  | 397,354 |  
|Net income/(loss) for the year                                                                                    |  |                | 104,578 |   |               |  | (137  | )               |  |  | 3,205        |   |  |  | 107,646 |  
|Basic and diluted net income per
    share for income attributable to the equity holders of the
    Company (RMB) |  |                | 0.59    |   |               |  | 0.00  |                 |  |  | 0.00         |   |  |  | 0.59    |  
|Equity items:                                                                                                     |  |                |         |   |               |  |       |                 |  |  |              |   |  |  |         |  
|Currency translation differences                                                                                  |  |                |        |   |               |  |      |                 |  |  | 1,007        |   |  |  | 1,007   |  
|Dividends to minority interests                                                                                   |  |                | (277    | ) |               |  |      |                 |  |  | (379         | ) |  |  | (656    | )
|Financial position:                                                                                               |  |                |         |   |               |  |       |                 |  |  |              |   |  |  |         |  
|Total Assets                                                                                                      |  |                | 609,928 |   |               |  | 2,106 |                 |  |  | 27,100       |   |  |  | 638,447 |  
|Total Liabilities                                                                                                 |  |                | 175,325 |   |               |  | 2,318 |                 |  |  | 18,519       |   |  |  | 195,475 |  
|Net Assets/(liabilities)                                                                                          |  |                | 434,603 |   |               |  | (212  | )               |  |  | 8,581        |   |  |  | 442,972 |  



3     SUMMARY OF PRINCIPAL
ACCOUNTING POLICIES




| |                           
| | --------------------------
| | (a) Basis of consolidation





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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

measured as the fair value of the assets given up, shares issued
or liabilities undertaken at the date of acquisition plus costs
directly attributable to the acquisition. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values
at the acquisition date, irrespective of the extent of any
minority interest. The excess of the cost of acquisition over
the fair value of the Groups share of the identifiable net
assets of the subsidiary acquired is recorded as goodwill. If
the cost of acquisition is less than the fair value of the net
assets of subsidiary acquired, the difference is recognized
directly in the statement of income. Intercompany transactions,
balances and unrealised gains on transactions between group
companies are eliminated; unrealised 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 38.



(b) Investments in equity affiliatesInvestments in equity affiliates are accounted for by the equity
method in the consolidated financial statements of the Company.
Under this method the Groups share of the post-acquisition
income or losses of equity affiliates is recognized in the
statement of income 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
has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting
rights. Significant influence is the main factor for equity
affiliates. Unrealised gains on transactions between the Group
and its equity affiliates are eliminated to the extent of the
Groups interest in the equity affiliates; unrealised
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 any accumulated impairment loss) on acquisition. When
the Groups share of losses in an equity affiliate equals
or exceeds its interest in the equity affiliate, including any
other unsecured receivables, the Group does not recognize
further losses, unless the Group has incurred obligations or
made payments on behalf of the equity affiliate.

A listing of the Groups principal equity affiliates is
shown in Note 18.



(c) Transactions with minority interestsThe Group applies a policy of treating transactions with
minority interests as transactions with equity participants of
the Group. Gains and losses resulted from the disposals to
minority interests are recorded in equity. The differences
between any consideration paid and the relevant share of the
carrying value of net assets of the subsidiary acquired,
resulted from the purchase from minority interests, are recorded
in equity.



(d) Foreign currenciesItems included in the financial statements of each entity in the
Group are measured using the currency of the primary economic
environment in which the entity operates (the functional
currency). Most assets and operations of the Group are
located in the PRC, and the functional currency is RMB. For the
majority of the overseas oil and gas exploration and production
operations, United States Dollar has been used as the functional
currency. The consolidated financial statements are presented in
RMB, which is the functional and presentation currency of the
Company and most of the consolidated subsidiaries.

F-12



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Foreign currency transactions of the Group are accounted for at
the exchange rates prevailing at the date of the transactions;
monetary assets and liabilities denominated in foreign
currencies are translated at balance sheet date exchange rates;
gains and losses resulting from the settlement of such
transactions and from the translation of monetary assets and
liabilities are recognized in the consolidated statements of
income. Statements of income and cash flows of the Group
entities that have a functional currency different from the
Groups presentation currency are translated into the
Groups presentation 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 material hedge contracts during any
of the years presented. No foreign currency exchange gains or
losses were capitalized for any years presented.



(e) Financial instrumentsFinancial instruments carried at the balance sheet date include
cash and bank balances, investments, receivables, payables,
leases and debts. Where necessary the particular recognition
methods adopted are disclosed in the individual policy
statements associated with each item.

Derivatives are recognized at fair value with changes in the
fair value recognized in the statement of income. The Group did
not hold any derivative financial instruments for hedging or
risk management purpose in any of the years presented.



(f) InvestmentsThe Group classifies its investments into the following
categories: at fair value through income or loss,
held-to-maturity, loans and receivables 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 investments at fair value through income or loss
and included in current assets. The Group did not hold any
investment in this category during the years presented.
Investments with fixed maturity that the management has the
intent and ability to hold to maturity are classified as
held-to-maturity and are included in current assets if their
respective maturity dates are twelve months or less from balance
sheet date, or in non-current assets if their respective
maturity dates are more than twelve months from balance sheet
date; the Group did not hold any investment in this category
during the year presented. Loans and receivables are
non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They are
included in current assets, except for maturities greater than
12 months after the balance sheet date. These are
classified as non-current assets. Loans and receivables are
classified as investment in collateralized loans, which are
initially recorded at fair value and subsequently amortized
cost. 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 expressed the intention of holding the investment for less
than twelve months from the balance sheet date or unless they
will need to be sold to raise operating capital, in which case
they are included in current assets. Management determines the
appropriate classification of its investments at the time of the
purchase and re-evaluates such designation on a regular basis.

Regular purchases and sales of available-for-sale investments
are recognized on settlement date, the date that the asset is
delivered to or by the Group (the effective acquisition or sale
date). Available-for-sale investments are initially recognized
at fair value plus transaction cost. Available-for-sale
investments are derecognized when the rights to receive cash
flows from the investments have expired or have been transferred
and the Group has transferred substantially all risks and
rewards of

F-13



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

ownership. Available-for-sale investments are measured at fair
value except there are no quoted market prices in active markets
and whose fair values cannot be reliably measured using
valuation techniques. Available-for-sale investments carried at
cost are subject to review for impairment.



(g) Property, plant and equipmentProperty, plant and equipment, including oil and gas properties
(Note 3(h)), 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.

In the intervening years between independent revaluations, the
directors review the carrying values of the property, plant and
equipment and adjustment is made where the carrying value
differs from fair value. As at September 30, 2003, an
exercise was undertaken by independent qualified valuers,
resulting in minor adjustments to the carrying values, as
described in Note 17. Increases in the carrying amount
arising on revaluation are credited to the revaluation reserve.
Decreases in valuation of property, plant and equipment are
first offset against increases from earlier valuations in
respect of the same asset and are thereafter charged to the
statement of income. All other decreases in valuation are
charged to the statement of income. Any subsequent increases are
credited to the statement of income up to the amount previously
charged.

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

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

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

|                             |  |  |              | 
|---------------------------- |  |  | ------------ | 
|Buildings                    |  |  | 25-40  years | 
|Plant and machinery          |  |  | 10-15  years | 
|Equipment and motor vehicles |  |  | 3-16 years   | 









F-14



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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



(h) Oil and gas propertiesThe 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. Geological and
geophysical costs are expensed when incurred. Costs of
exploratory wells are capitalized pending a determination of
whether sufficient quantities of potentially economic oil and
gas reserves have been discovered. Exploratory wells in areas
not requiring major capital expenditures are evaluated for
economic viability within one year of completion of drilling.
The related well costs are expensed as dry holes if it is
determined that such economic viability is not attained.
Otherwise, the related well costs are reclassified to oil and
gas properties and subject to impairment review(Note 3(g)).
For wells that found economically viable reserves in areas where
a major capital expenditure would be required before production
can begin, the related well costs remain capitalized only if
additional drilling is under way or firmly planned. Otherwise
the well costs are expensed as dry holes. The Group has no costs
of unproved properties 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 which management believes can be reasonably
produced within the current terms of these production licenses.

F-15



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



(i) Intangible assetsExpenditure on acquired patents, trademarks, technical know-how
and licenses is capitalized and amortized using the
straight-line method over their useful lives, generally over
10 years. Intangible assets are not revalued. The Group
does not have capitalized internally generated intangible
assets. The carrying amount of each intangible asset is reviewed
annually and adjusted for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognized whenever the
carrying amount of an asset exceeds its recoverable amount. The
impairment loss is recognized in the consolidated statement of
income. The recoverable amount is measured as the higher of fair
value less costs to sell 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.



(j) LeasesLeases 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 lease at the lower of the fair value of the
leased property and the estimated present value of the
underlying lease payments. Each lease payment is allocated
between the liability and finance charges so as to achieve a
constant rate on the finance balance outstanding. Property,
plant and equipment acquired under capital leases 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 a significant portion of the risks
and benefits of ownership are effectively retained by the lessor
are classified as operating leases. Payments made under
operating leases are expensed on a straight-line basis over the
lease term. Payments made to the PRCs land authorities to
secure land use rights are treated as operating leases. Land use
rights are generally obtained through advance lump-sum payments
and the terms for use range up to 50 years.



(k) Related partiesRelated parties include CNPC and its subsidiaries, other
state-controlled enterprises and their subsidiaries directly or
indirectly controlled by the PRC government, corporations in
which the Company is able to control or exercise significant
influence, key management personnel of the Company and CNPC and
their close family members.

Transactions with related parties do not include those done in
the ordinary course of business with terms consistently applied
to all public and private entities and where there is no choice
of supplier such as electricity, telecommunications, postal
service and local government retirement funds.



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

F-16



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



(m) Trade receivablesTrade receivables are recognized initially at fair value and
subsequently measured at amortized cost using the effective
interest method, less provision made for impairment of these
receivables. Such provision for impairment of trade receivables
is established if there is objective evidence that the Group
will not be able to collect all amounts due according to the
original terms of the receivables. The amount of the provision
is the difference between the carrying amount and the
recoverable amount, being the present value of expected cash
flows, discounted at the market rate of interest for similar
borrowers.



(n) Cash and cash equivalentsCash and cash equivalents comprise cash in hand, deposits held
at all with banks and highly liquid investments with original
maturities of three months or less from the time of purchase.



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

Debts are classified as current liabilities unless the Group has
an unconditional right to defer settlement of the liability for
at least 12 months after the balance sheet date.



(p) TaxationThe Company has obtained approval from the State Administration
for Taxation to report taxable income on a consolidated basis.

Deferred income tax is provided in full, using the liability
method, for temporary differences arising between the tax bases
of assets and liabilities and their carrying values for
financial reporting purposes. However, the deferred income tax
is not accounted for if it arises from initial recognition of an
asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither
accounting nor taxable income or loss. 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 provision for
impairment of receivables, inventories, investments and
property, plant and equipment. Deferred tax assets relating to
the carryforward of unused tax losses are recognized to the
extent that it is probable that future taxable income will be
available against which the unused tax losses can be utilized.

The Group also incurs various other taxes and levies that 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.



(q) Revenue recognitionSales 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 in the ordinary course of the
Groups activities, and when the amount of revenue and the
costs incurred or

F-17



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

to be incurred in respect of the transaction can be measured
reliably and collectability of the related receivables is
reasonably assured.

The Group markets a portion of its natural gas production under
take-or-pay contracts. Customers under the take-or-pay contracts
are required to take or pay for the minimum natural gas
deliveries specified in the contract clauses. Revenue
recognition for natural gas sales and transmission tariff under
the take-or-pay contracts follows the accounting policies
described in this note. Payments received from customers for
natural gas not yet taken are recorded as deferred revenues
until actual deliveries.

The Group entered into buy/sell contracts with Sinopec for crude
oil. Title of the commodity passes to the buyer on delivery,
purchases and sales may not necessarily take place at the same
time and amounts are separately invoiced and settled; there is
no legal right of offset.

In September 2005, the Emerging Issues Task Force reached
consensus on
Issue No. 04-13,
Accounting for Purchases and Sales of Inventory with the
Same Counterparty which requires two or more inventory
purchase and sales transactions with the same counterparty that
are entered into in contemplation of one another should be
combined for purposes of applying Opinion 29, Accounting
for Nonmonetary Transactions. The Task Force also agreed
that an entity should disclose the amount of revenue and costs
(or gains and losses) associated with inventory exchanges
recognized at fair value. This Issue should be applied to new
arrangements entered into, and modifications or renewals of
existing arrangements, beginning in the first interim or annual
reporting period beginning after March 15, 2006 and early
application is permitted in periods for which financial
statements have not been issued. However the Group did not early
adopt EITF 04-13
in 2005.

For the year ended December 31, 2005, the Group reported
the revenue gross in the Consolidated Statements of Income after
consideration of the following guidance EITF
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent, EITF
No. 02-3,
Issues Involved in Accounting for Derivative Contracts
Held for Trading Purposes and Contracts Involved in Energy
Trading and Risk Management Activities and EITF
No. 03-11,
Reporting Realized Gains and Losses on Derivative
Instruments That Are Subject to FASB Statement No. 133 and
Not Held for Trading Purposes as Defined in Issue
No. 02-3.
Additionally, as a result of a communication to the oil and gas
industry issued by the US Securities and Exchange Commission in
February 2005 requesting additional disclosures regarding
buy/sell contracts, the Group reviewed such contracts and
estimated that, if buy/sell contracts were reported net, both
Sales and other operating revenues and
Purchase, services and other for 2005 would be
reduced by RMB 1,384 million (2004: RMB 2,217;
2003: RMB 1,747) with no impact on net income.



(r) ProvisionsProvisions 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.

Provision for decommissioning and restoration is recognized in
full on the installation of oil and gas properties. The amount
recognized is the present value of the estimated future
expenditure determined in accordance with local conditions and
requirements. A corresponding addition to the related oil and
gas properties of an amount equivalent to the provision is also
created. This is subsequently depreciated as part of the capital
costs of the oil and gas properties. Any change in

F-18



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

the present value of the estimated expenditure other than the
one due to passage of time which is regarded as interest cost,
is reflected as an adjustment to the provision and oil and gas
properties.



(s) Research and development expensesResearch expenditure incurred is recognized as an expense. Cost
incurred on development projects are recognized as intangible
assets to the extent that such expenditure is expected to
generate future economic benefits. Research and development
expenses were RMB 2,442, RMB 2,977 and RMB 3,195
for the years ended December 31, 2003, 2004 and 2005,
respectively.



(t) Retirement benefit plansThe Group contributes to various employee retirement benefit
plans organised by Chinese 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 Chinese municipal and provincial
governments undertake to assume the retirement benefit
obligations of existing and future retired Chinese employees of
the Group. Contributions to these plans are charged to expense
as incurred. The Group currently has no additional material
obligations outstanding for the payment of retirement and other
post-retirement benefits of employees in China or overseas other
than the monthly contributions described above.



(u) Share appreciation rightsCompensation under the share appreciation rights is measured
based on the fair value of the liability incurred and is
expensed over the vesting period. The liability is remeasured at
each balance sheet date to its fair value until settlement with
all changes included in employee compensation cost in the
statements of income; the related liability is included in the
salaries and welfare payable.



(v) New accounting developmentsIFRS 7, Financial Instruments: Disclosures, and a
complementary amendment to IAS 1, Presentation of Financial
Statements-Capital Disclosures (effective from
January 1,2007). IFRS 7 introduces new disclosures to
improve the information about financial instruments. It replaces
IAS 30, Disclosures in the Financial Statements of Banks
and Similar Financial Institutions, and disclosure requirements
in IAS 32, Financial Instruments: Disclosure and
Presentation. The amendment to IAS 1 introduces disclosures
about the level of an entitys capital and how it manages
capital. The Group assessed the impact of IFRS 7 and the
amendment to IAS 1 and concluded that the main additional
disclosures will be the sensitivity analysis to market risk and
the capital disclosures required by the amendment of IAS 1.
The Group will apply IFRS 7 and the amendment to IAS 1
from annual periods beginning January 1, 2007.

IFRIC 4, Determining whether an Arrangement contains a Lease
(effective from January 1, 2006). IFRIC 4 requires the
determination of whether an arrangement is or contains a lease
to be based on the substance of the arrangement. It requires an
assessment of whether: (a) fulfilment of the arrangement is
dependent on the use of a specific asset or assets (the asset);
and (b) the arrangement conveys a right to use the asset.
Management is currently assessing the impact of IFRIC 4 on the
Groups operations.

IFRIC 8, Scope of IFRS 2 (effective from May 1, 2006).
IFRIC 8 clarifies that the accounting standards IFRS 2
Share-based Payment applies to arrangements where an entity
makes share-

F-19



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

based payments for apparently nil or inadequate consideration.
Management is currently assessing the impact of IFRIC 8 on
the Groups operations.

IAS 39 and IFRS 4 (Amendments), Financial Guarantee Contracts
(effective from January 1, 2006). These amendments require
that issuers of financial guarantee contracts to include the
resulting liabilities in their balance sheet. Management is
currently assessing the impact of these amendments.

The following new interpretations and amendment to existing
standards are not relevant to the Groups operations.




    IFRIC 5, Rights to Interests arising from Decommissioning,
    Restoration and Environmental Rehabilitation Fund (effective
    from January 1,2006).
    IFRIC 6, Liabilities arising from Participating in a Specific
    Market  Waste Electrical and Electronic Equipment
    (effective from December 1, 2005).
    IFRIC 7, Applying the Restatement Approach under IAS 29
    Financial Reporting in Hyperinflationary Economies (effective
    from March 1, 2006).
    IFRIC 9, Reassessment of Embedded Derivatives (effective from
    June 1, 2006).
    IAS 19 (Amendment), Employee Benefits: Actuarial Gains and
    Losses, Group Plans and Disclosures (effective from
    January 1, 2006).
    IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast
    Intragroup Transaction and The Fair Value Option (effective from
    January 1, 2006).
    IAS 21 (Amendment), Net Investment in a Foreign Operation
    (effective from January 1, 2006).

4
    CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTSEstimates and judgements are continually evaluated and are based
on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances.

The matters described below are considered to be the most
critical in understanding the judgements that are involved in
preparing the Groups financial statements.



(a) Estimation of oil and natural gas reservesOil and gas reserves are key elements in the Groups
investment decision-making process. They are also an important
element in testing for impairment. Changes in proved oil and
natural gas reserves, particularly proved developed reserves,
will affect unit-of-production depreciation charges to income.
Proved reserve estimates are subject to revision, either upward
or downward, based on new information, such as from the
development drilling and production activities or from changes
in economic factors, including product prices, contract terms or
development plans. In general, changes in the technical maturity
of oil and gas reserves resulting from new information becoming
available from development and production activities have tended
to be the most significant cause of annual revisions. Changes to
the Groups estimates of proved reserves, particularly
proved developed reserves, affect the amount of depreciation,
depletion and amortization recorded in the Groups
financial statements for property, plant and equipment related
to oil and gas production activities. A reduction in proved
developed reserves will increase depreciation, depletion and
amortization charges (assuming constant production) and reduce
net income.

F-20



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



(b) Estimated impairment of property, plant and
    equipmentProperty, plant and equipment, including oil and gas properties,
are reviewed for possible impairment when events or changes in
circumstances indicate that the carrying amount may not be
recoverable. Determination as to whether and how much an asset
is impaired involves management estimates on highly uncertain
matters, such as future prices of crude oil, refined products
and chemical products, production profile. However, the
impairment reviews and calculations are based on assumptions
that are consistent with the Groups business plan. These
assumptions also include those relative to the pricing
regulations by the regulatory agencies in China that the polices
will not restrict the profit margins of refined products to
levels that will be insufficient to recover the carrying cost of
the related production assets. Favourable changes to some
assumptions might have avoided the need to impair any assets in
these periods, whereas unfavourable changes might have caused an
additional unknown number of other assets to become impaired.



(c) Estimation of asset retirement obligationsThe Environmental Protection Regulation for Oil and Gas
Exploration and Production Activities in Heilongjiang
Province and the Environmental Protection Regulation for
Oil and Gas Exploration and Production Activities in Gansu
Province were issued in mid and late 2005. Based on its
reading of the new provincial regulations and in consultation
with the environmental administrative authorities in
Heilongjiang and Gansu Provinces, the Company believes that such
regulations only apply to the oil and gas properties retired
after these regulations were issued in 2005. Accordingly, the
Company established standard abandonment procedures, requesting
that all of its branch and subsidiary companies recognize asset
retirement provisions for their currently used oil and gas
properties in accordance with the newly established internal
policy. The new internal policy applies only to oil and gas
properties retired after the establishment of the new policy.

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

5     EMPLOYEE COMPENSATION COSTS

|                             |  |                         |        |  |      |  |        |      |  |  |        | 
|---------------------------- |  | ----------------------- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                             |  | Year Ended December 31, |       
|                             |  |                         |       
|                             |  | 2003                    |        |  | 2004 |  |        | 2005 | 
|                             |  |                         |        |  |      |  |        |      | 
|                             |  | RMB                     |        |  | RMB  |  |        | RMB  | 
|Wages and salaries           |  |                         | 13,303 |  |      |  | 15,449 |      |  |  | 19,351 | 
|Social security
    costs(i) |  |                         | 6,741  |  |      |  | 7,485  |      |  |  | 10,324 | 
|                             |  |                         |        |  |      |  |        |      | 
|                             |  |                         | 20,044 |  |      |  | 22,934 |      |  |  | 29,675 | 
|                             |  |                         |        |  |      |  |        |      | 






|    |                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Social security costs mainly represent contributions to funds
    for staff welfare organized by the municipal and provincial
    governments including contribution to the retirement benefit
    plans (Note 28).

F-21



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

6     SHUT DOWN OF MANUFACTURING
ASSETS

During the years ended December 31, 2003, 2004 and 2005,
the Group provided RMB 2,355, RMB 220 and RMB Nil respectively
for the shut down of certain less efficient operating facilities
in the refining and chemical manufacturing plants. The charges
represented the net book value of the facilities.

|                    |  |              |       |  |      |  |     |      |  |  |   | 
|------------------- |  | ------------ | ----- |  | ---- |  | --- | ---- |  |  | - | 
|                    |  | Year Ended   |      
|                    |  | December 31, |      
|                    |  |              |      
|                    |  | 2003         |       |  | 2004 |  |     | 2005 | 
|                    |  |              |       |  |      |  |     |      | 
|                    |  | RMB          |       |  | RMB  |  |     | RMB  | 
|Refining facilities |  |              | 1,596 |  |      |  | 192 |      |  |  |  | 
|Chemical facilities |  |              | 759   |  |      |  | 28  |      |  |  |  | 
|                    |  |              |       |  |      |  |     |      | 
|                    |  |              | 2,355 |  |      |  | 220 |      |  |  |  | 
|                    |  |              |       |  |      |  |     |      | 



7     INTEREST EXPENSE


|                          |                  |                         |        |       |      |  |        |       |  |  |        |       | 
|------------------------- | ---------------- | ----------------------- | ------ | ----- | ---- |  | ------ | ----- |  |  | ------ | ----- | 
|                          |                  | Year Ended December 31, |       
|                          |                  |                         |       
|                          |                  | 2003                    |        |       | 2004 |  |        | 2005  | 
|                          |                  |                         |        |       |      |  |        |       | 
|                          |                  | RMB                     |        |       | RMB  |  |        | RMB   | 
|Interest on               |                  |                         |        |       |      |  |        |       |  |  |        |      
|                          |  loans          |                         |        | 4,205 |      |  |        | 3,900 |  |  |        | 3,826 | 
|                          |  capital leases |                         |        | 4     |      |  |        | 2     |  |  |        | 1     | 
|Less: amounts capitalized |                  |                         | (1,320 | )     |      |  | (1,006 | )     |  |  | (1,065 | )    
|                          |                  |                         |        |       |      |  |        |       | 
|                          |                  |                         | 2,889  |       |      |  | 2,896  |       |  |  | 2,762  |      
|                          |                  |                         |        |       |      |  |        |       | 



8     INCOME TAXES


|                                |  |                         |        |  |      |  |        |      |  |  |        | 
|------------------------------- |  | ----------------------- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                                |  | Year Ended December 31, |       
|                                |  |                         |       
|                                |  | 2003                    |        |  | 2004 |  |        | 2005 | 
|                                |  |                         |        |  |      |  |        |      | 
|                                |  | RMB                     |        |  | RMB  |  |        | RMB  | 
|Current taxes                   |  |                         | 26,733 |  |      |  | 40,331 |      |  |  | 50,221 | 
|Deferred income taxes (Note 25) |  |                         | 2,063  |  |      |  | 3,267  |      |  |  | 3,959  | 
|                                |  |                         |        |  |      |  |        |      | 
|                                |  |                         | 28,796 |  |      |  | 43,598 |      |  |  | 54,180 | 
|                                |  |                         |        |  |      |  |        |      | 



F-22



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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, |        
|                                                                    |  |                         |        
|                                                                    |  | 2003                    |         |   | 2004 |  |         | 2005 | 
|                                                                    |  |                         |         |   |      |  |         |      | 
|                                                                    |  | RMB                     |         |   | RMB  |  |         | RMB  | 
|Income before income taxes                                          |  |                         | 100,693 |   |      |  | 151,244 |      |  |  | 193,822 |  
|                                                                    |  |                         |         |   |      |  |         |      | 
|Tax calculated at a tax rate of 33%                                 |  |                         | 33,229  |   |      |  | 49,911  |      |  |  | 63,961  |  
|Prior year tax return adjustment                                    |  |                         | 419     |   |      |  | 27      |      |  |  | 364     |  
|Effect of preferential tax rate                                     |  |                         | (5,190  | ) |      |  | (6,886  | )    |  |  | (10,744 | )
|Utilization of previously
    unrecognized tax loss of subsidiaries |  |                         | (117    | ) |      |  | (969    | )    |  |  |        |  
|Income not subject to tax                                           |  |                         | (597    | ) |      |  | (913    | )    |  |  | (427    | )
|Expenses not deductible for tax
    purposes                        |  |                         | 1,052   |   |      |  | 2,428   |      |  |  | 1,026   |  
|                                                                    |  |                         |         |   |      |  |         |      | 
|Tax charge                                                          |  |                         | 28,796  |   |      |  | 43,598  |      |  |  | 54,180  |  
|                                                                    |  |                         |         |   |      |  |         |      | 

9     BASIC AND DILUTED NET INCOME
PER SHARE










|   |                                                        
|-- | -------------------------------------------------------
|10 | DIVIDENDS ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

|                                                                                        |  |                         |        |  |      |  |        |      |  |  |        | 
|--------------------------------------------------------------------------------------- |  | ----------------------- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                                                                                        |  | Year Ended December 31, |       
|                                                                                        |  |                         |       
|                                                                                        |  | 2003                    |        |  | 2004 |  |        | 2005 | 
|                                                                                        |  |                         |        |  |      |  |        |      | 
|                                                                                        |  | RMB                     |        |  | RMB  |  |        | RMB  | 
|Final dividend attributable to
    equity holders of the Company for 2002 (Note (i))    |  |                         | 12,299 |  |      |  |       |      |  |  |       | 
|Interim dividend attributable to
    equity holders of the Company for 2003 (Note (ii)) |  |                         | 17,379 |  |      |  |       |      |  |  |       | 
|Final dividend attributable to
    equity holders of the Company for 2003 (Note (iii))  |  |                         |       |  |      |  | 13,947 |      |  |  |       | 
|Interim dividend attributable to
    equity holders of the Company for 2004 (Note (iv)) |  |                         |       |  |      |  | 20,381 |      |  |  |       | 
|Final dividend attributable to
    equity holders of the Company for 2004 (Note (v))    |  |                         |       |  |      |  |       |      |  |  | 25,936 | 
|Interim dividend attributable to
    equity holders of the Company for 2005 (Note (vi)) |  |                         |       |  |      |  |       |      |  |  | 27,731 | 
|                                                                                        |  |                         |        |  |      |  |        |      | 
|                                                                                        |  |                         | 29,678 |  |      |  | 34,328 |      |  |  | 53,667 | 
|                                                                                        |  |                         |        |  |      |  |        |      | 

F-23



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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





(i)
    A final dividend attributable to equity holders of the Company
    in respect of 2002 of RMB 0.069951 per share amounting to a
    total of RMB 12,299 was paid on June 12, 2003, and was
    accounted for in equity as an appropriation of retained earnings
    in the year ended December 31, 2003.(ii)
    An interim dividend attributable to equity holders of the
    Company in respect of 2003 of RMB 0.098841 per share
    amounting to a total of RMB 17,379 was paid on
    October 8, 2003, and was accounted for in equity as an
    appropriation of retained earnings in the year ended
    December 31, 2003.(iii)
    A final dividend attributable to equity holders of the Company
    in respect of 2003 of RMB 0.079324 per share amounting to a
    total of RMB 13,947 was paid on June 2, 2004, and was
    accounted for in equity as an appropriation of retained earnings
    in the year ended December 31, 2004.(iv)
    An interim dividend attributable to equity holders of the
    Company in respect of 2004 of RMB 0.115919 per share
    amounting to a total of RMB 20,381 was paid on
    October 8, 2004, and was accounted for in equity as an
    appropriation of retained earnings in the year ended
    December 31, 2004.(v)
    A final dividend attributable to equity holders of the Company
    in respect of 2004 of RMB 0.147511 per share amounting to a
    total of RMB 25,936 was paid on June 10, 2005, and was
    accounted for in equity as an appropriation of retained earnings
    in the year ended December 31, 2005.(vi)
    As authorized by shareholders in the Annual General Meeting on
    May 26, 2005, the Board of Directors, in a meeting held on
    August 24, 2005, resolved to distribute an interim dividend
    attributable to equity holders of the Company in respect of 2005
    of RMB 0.157719 per share amounting to a total of
    RMB 27,731. The interim dividend was paid on
    September 30, 2005, and was accounted for in equity as an
    appropriation of retained earnings in the year ended
    December 31, 2005.(vii)
    At the meeting on March 20, 2006, the Board of Directors
    proposed a final dividend attributable to equity holders of the
    Company in respect of 2005 of RMB 0.180325 per share
    amounting to a total of RMB 32,282. These financial
    statements do not reflect this dividend payable, which will be
    accounted for in equity as an appropriation of retained earnings
    in the year ended December 31, 2006.

11
    CASH AND CASH EQUIVALENTS

|                         |  |                 |        |  |      |  |        | 
|------------------------ |  | --------------- | ------ |  | ---- |  | ------ | 
|                         |  | At December 31, |       
|                         |  |                 |       
|                         |  | 2004            |        |  | 2005 | 
|                         |  |                 |        |  |      | 
|                         |  | RMB             |        |  | RMB  | 
|Cash at bank and in hand |  |                 | 11,688 |  |      |  | 80,905 | 
|                         |  |                 |        |  |      | 





|   |                                    
|-- | -----------------------------------
|12 | INVESTMENTS IN COLLATERALIZED LOANS



F-24



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

the Company can receive upon the maturity of these securities is
treated as interest income and accrued over the life of these
securities using the effective yield method. Investments in
collateralized loans are accounted for as collateralized
financing transactions and are recorded at their contractual
amounts plus interest accrued.

The weighted average effective interest rates on investments in
collateralized loans were 2.36% and 2.23% for the year ended
December 31, 2004 and 2005, respectively.



13
    NOTES RECEIVABLENotes receivable represent mainly the bills of acceptance issued
by banks for sale of goods and products. All notes receivable
are due within one year.



14
    ACCOUNTS RECEIVABLE

|                                                 |  |                 |        |   |      |  |        |  
|------------------------------------------------ |  | --------------- | ------ | - | ---- |  | ------ | -
|                                                 |  | At December 31, |       
|                                                 |  |                 |       
|                                                 |  | 2004            |        |   | 2005 | 
|                                                 |  |                 |        |   |      | 
|                                                 |  | RMB             |        |   | RMB  | 
|Accounts receivable due from third
    parties   |  |                 | 4,605  |   |      |  | 6,483  |  
|Accounts receivable due from
    related parties |  |                 | 4,085  |   |      |  | 2,145  |  
|Less: Impairment provision                       |  |                 | (4,848 | ) |      |  | (3,998 | )
|                                                 |  |                 |        |   |      | 
|                                                 |  |                 | 3,842  |   |      |  | 4,630  |  
|                                                 |  |                 |        |   |      | 



|                                     |  |                         |       |   |      |  |       |      |  |  |       |  
|------------------------------------ |  | ----------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                     |  | Year Ended December 31, |      
|                                     |  |                         |      
|                                     |  | 2003                    |       |   | 2004 |  |       | 2005 | 
|                                     |  |                         |       |   |      |  |       |      | 
|                                     |  | RMB                     |       |   | RMB  |  |       | RMB  | 
|Balance at beginning of year         |  |                         | 6,438 |   |      |  | 5,952 |      |  |  | 4,848 |  
|Provision/(Write back)               |  |                         | 224   |   |      |  | (408  | )    |  |  | (333  | )
|Amount written off against provision |  |                         | (710  | ) |      |  | (696  | )    |  |  | (517  | )
|                                     |  |                         |       |   |      |  |       |      | 
|Balance at end of year               |  |                         | 5,952 |   |      |  | 4,848 |      |  |  | 3,998 |  
|                                     |  |                         |       |   |      |  |       |      | 





|   |            
|-- | -----------
|15 | INVENTORIES

|                                  |  |                 |        |   |      |  |        |  
|--------------------------------- |  | --------------- | ------ | - | ---- |  | ------ | -
|                                  |  | At December 31, |       
|                                  |  |                 |       
|                                  |  | 2004            |        |   | 2005 | 
|                                  |  |                 |        |   |      | 
|                                  |  | RMB             |        |   | RMB  | 
|Crude oil and other raw materials |  |                 | 14,903 |   |      |  | 22,396 |  
|Work in progress                  |  |                 | 5,417  |   |      |  | 5,933  |  
|Finished goods                    |  |                 | 27,913 |   |      |  | 35,131 |  
|Spare parts and consumables       |  |                 | 70     |   |      |  | 43     |  
|                                  |  |                 |        |   |      | 
|                                  |  |                 | 48,303 |   |      |  | 63,503 |  
|Less: Write down in inventories   |  |                 | (926   | ) |      |  | (770   | )
|                                  |  |                 |        |   |      | 
|                                  |  |                 | 47,377 |   |      |  | 62,733 |  
|                                  |  |                 |        |   |      | 

F-25



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

|                                     |  |              |     |   |      |  |     |      |  |  |      |  
|------------------------------------ |  | ------------ | --- | - | ---- |  | --- | ---- |  |  | ---- | -
|                                     |  | Year Ended   |    
|                                     |  | December 31, |    
|                                     |  |              |    
|                                     |  | 2003         |     |   | 2004 |  |     | 2005 | 
|                                     |  |              |     |   |      |  |     |      | 
|                                     |  | RMB          |     |   | RMB  |  |     | RMB  | 
|Balance at beginning of year         |  |              | 665 |   |      |  | 803 |      |  |  | 926  |  
|Provision /(Write back)              |  |              | 161 |   |      |  | 147 |      |  |  | (139 | )
|Amount written off against provision |  |              | (23 | ) |      |  | (24 | )    |  |  | (17  | )
|                                     |  |              |     |   |      |  |     |      | 
|Balance at end of year               |  |              | 803 |   |      |  | 926 |      |  |  | 770  |  
|                                     |  |              |     |   |      |  |     |      | 







|   |                                          
|-- | -----------------------------------------
|16 | PREPAID EXPENSES AND OTHER CURRENT ASSETS

|                                 |  |                 |        |   |      |  |        |  
|-------------------------------- |  | --------------- | ------ | - | ---- |  | ------ | -
|                                 |  | At December 31, |       
|                                 |  |                 |       
|                                 |  | 2004            |        |   | 2005 | 
|                                 |  |                 |        |   |      | 
|                                 |  | RMB             |        |   | RMB  | 
|Other receivables                |  |                 | 9,777  |   |      |  | 9,404  |  
|Amounts due from related parties |  |                 | 11,461 |   |      |  | 13,524 |  
|Less: Impairment provision       |  |                 | (7,255 | ) |      |  | (6,814 | )
|                                 |  |                 |        |   |      | 
|                                 |  |                 | 13,983 |   |      |  | 16,114 |  
|Advances to suppliers            |  |                 | 5,448  |   |      |  | 5,819  |  
|Prepaid expenses                 |  |                 | 248    |   |      |  | 279    |  
|Other current assets             |  |                 | 187    |   |      |  | 461    |  
|                                 |  |                 |        |   |      | 
|                                 |  |                 | 19,866 |   |      |  | 22,673 |  
|                                 |  |                 |        |   |      | 







|                                     |  |                         |       |   |      |  |       |      |  |  |       |  
|------------------------------------ |  | ----------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                     |  | Year Ended December 31, |      
|                                     |  |                         |      
|                                     |  | 2003                    |       |   | 2004 |  |       | 2005 | 
|                                     |  |                         |       |   |      |  |       |      | 
|                                     |  | RMB                     |       |   | RMB  |  |       | RMB  | 
|Balance at beginning of year         |  |                         | 5,332 |   |      |  | 6,365 |      |  |  | 7,255 |  
|Provision/(Write back)               |  |                         | 1,289 |   |      |  | 1,084 |      |  |  | (122  | )
|Amount written off against provision |  |                         | (256  | ) |      |  | (194  | )    |  |  | (319  | )
|                                     |  |                         |       |   |      |  |       |      | 
|Balance at end of year               |  |                         | 6,365 |   |      |  | 7,255 |      |  |  | 6,814 |  
|                                     |  |                         |       |   |      |  |       |      | 

F-26



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



17
    PROPERTY, PLANT AND EQUIPMENT

|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       |  |  |         |   |  |  |          |  
|---------------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | ----------- | -------- |  | --------- | --------- |  | ----- | -------- | - |  | ----- | ------------ | - | ----------- |  | ------ | ----- |  |  | ------- | - |  |  | -------- | -
|Year Ended                                                                                                             |  |           |         | Oil and Gas |          |  | Plant and |           |  | Motor |          |   |  |       | Construction |   |             | 
|December 31, 2004                                                                                                      |  | Buildings |         |             | Property |  |           | Equipment |  |       | Vehicles |   |  | Other |              |   | in Progress |  |        | Total | 
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 
|                                                                                                                       |  | RMB       |         |             | RMB      |  |           | RMB       |  |       | RMB      |   |  | RMB   |              |   | RMB         |  |        | RMB   | 
|Cost or valuation                                                                                                      |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       |  |  |         |   |  |  |          |  
|At beginning of the year                                                                                               |  |           | 56,385  |             |          |  | 385,693   |           |  |       | 225,124  |   |  |       | 8,366        |   |             |  | 6,135  |       |  |  | 34,119  |   |  |  | 715,822  |  
|Additions                                                                                                              |  |           | 974     |             |          |  | 473       |           |  |       | 2,143    |   |  |       | 1,263        |   |             |  | 196    |       |  |  | 93,945  |   |  |  | 98,994   |  
|Transfers                                                                                                              |  |           | 9,586   |             |          |  | 50,039    |           |  |       | 29,021   |   |  |       |             |   |             |  | 376    |       |  |  | (89,022 | ) |  |  |         |  
|Disposals or write off                                                                                                 |  |           | (2,181  | )           |          |  | (9,045    | )         |  |       | (5,565   | ) |  |       | (280         | ) |             |  | (85    | )     |  |  |        |   |  |  | (17,156  | )
|Exchange difference                                                                                                    |  |           | 60      |             |          |  | 1,417     |           |  |       | 117      |   |  |       | 48           |   |             |  | 83     |       |  |  | 95      |   |  |  | 1,820    |  
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 
|At end of the year                                                                                                     |  |           | 64,824  |             |          |  | 428,577   |           |  |       | 250,840  |   |  |       | 9,397        |   |             |  | 6,705  |       |  |  | 39,137  |   |  |  | 799,480  |  
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 
|Accumulated depreciation and
    impairment                                                                            |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       |  |  |         |   |  |  |          |  
|At beginning of the year                                                                                               |  |           | (11,625 | )           |          |  | (157,267  | )         |  |       | (98,139  | ) |  |       | (4,164       | ) |             |  | (2,316 | )     |  |  |        |   |  |  | (273,511 | )
|Charge for the year                                                                                                    |  |           | (2,121  | )           |          |  | (26,287   | )         |  |       | (16,793  | ) |  |       | (867         | ) |             |  | (741   | )     |  |  | (202    | ) |  |  | (47,011  | )
|Disposals or write off                                                                                                 |  |           | 856     |             |          |  | 3,214     |           |  |       | 2,971    |   |  |       | 235          |   |             |  | 53     |       |  |  |        |   |  |  | 7,329    |  
|Exchange difference                                                                                                    |  |           | (15     | )           |          |  | (586      | )         |  |       | (39      | ) |  |       | (14          | ) |             |  | (21    | )     |  |  |        |   |  |  | (675     | )
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 
|At end of the year                                                                                                     |  |           | (12,905 | )           |          |  | (180,926  | )         |  |       | (112,000 | ) |  |       | (4,810       | ) |             |  | (3,025 | )     |  |  | (202    | ) |  |  | (313,868 | )
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 
|Net book value                                                                                                         |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       |  |  |         |   |  |  |          |  
|At end of the year                                                                                                     |  |           | 51,919  |             |          |  | 247,651   |           |  |       | 138,840  |   |  |       | 4,587        |   |             |  | 3,680  |       |  |  | 38,935  |   |  |  | 485,612  |  
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 
|Carrying value of the property,
    plant and equipment had they been stated at cost less
    accumulated depreciation |  |           | 47,422  |             |          |  | 238,364   |           |  |       | 120,119  |   |  |       | 4,069        |   |             |  | 3,108  |       |  |  | 38,935  |   |  |  | 452,017  |  
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 

F-27



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       |  |  |          |   |  |  |          |  
|---------------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | ----------- | -------- |  | --------- | --------- |  | ----- | -------- | - |  | ----- | ------------ | - | ----------- |  | ------ | ----- |  |  | -------- | - |  |  | -------- | -
|Year Ended                                                                                                             |  |           |         | Oil and Gas |          |  | Plant and |           |  | Motor |          |   |  |       | Construction |   |             | 
|December 31, 2005                                                                                                      |  | Buildings |         |             | Property |  |           | Equipment |  |       | Vehicles |   |  | Other |              |   | in Progress |  |        | Total | 
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 
|                                                                                                                       |  | RMB       |         |             | RMB      |  |           | RMB       |  |       | RMB      |   |  | RMB   |              |   | RMB         |  |        | RMB   | 
|Cost or valuation                                                                                                      |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       |  |  |          |   |  |  |          |  
|At beginning of the year                                                                                               |  |           | 64,824  |             |          |  | 428,577   |           |  |       | 250,840  |   |  |       | 9,397        |   |             |  | 6,705  |       |  |  | 39,137   |   |  |  | 799,480  |  
|Additions                                                                                                              |  |           | 1,394   |             |          |  | 14,308    |           |  |       | 1,292    |   |  |       | 1,744        |   |             |  | 122    |       |  |  | 119,199  |   |  |  | 138,059  |  
|Transfers                                                                                                              |  |           | 7,661   |             |          |  | 67,223    |           |  |       | 27,451   |   |  |       |             |   |             |  | 362    |       |  |  | (102,697 | ) |  |  |         |  
|Disposals or write off                                                                                                 |  |           | (714    | )           |          |  | (11,817   | )         |  |       | (2,152   | ) |  |       | (286         | ) |             |  | (95    | )     |  |  |         |   |  |  | (15,064  | )
|Exchange difference                                                                                                    |  |           | (32     | )           |          |  | (659      | )         |  |       | (67      | ) |  |       | (26          | ) |             |  | (43    | )     |  |  | (42      | ) |  |  | (869     | )
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 
|At end of the year                                                                                                     |  |           | 73,133  |             |          |  | 497,632   |           |  |       | 277,364  |   |  |       | 10,829       |   |             |  | 7,051  |       |  |  | 55,597   |   |  |  | 921,606  |  
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 
|Accumulated depreciation and
    impairment                                                                            |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       |  |  |          |   |  |  |          |  
|At beginning of the year                                                                                               |  |           | (12,905 | )           |          |  | (180,926  | )         |  |       | (112,000 | ) |  |       | (4,810       | ) |             |  | (3,025 | )     |  |  | (202     | ) |  |  | (313,868 | )
|Charge for the year                                                                                                    |  |           | (3,454  | )           |          |  | (25,819   | )         |  |       | (18,234  | ) |  |       | (955         | ) |             |  | (749   | )     |  |  |         |   |  |  | (49,211  | )
|Disposals or write off                                                                                                 |  |           | 329     |             |          |  | 3,054     |           |  |       | 1,279    |   |  |       | 200          |   |             |  | 76     |       |  |  | 104      |   |  |  | 5,042    |  
|Exchange difference                                                                                                    |  |           | 1       |             |          |  | 275       |           |  |       | 23       |   |  |       | 10           |   |             |  | 12     |       |  |  |         |   |  |  | 321      |  
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 
|At end of the year                                                                                                     |  |           | (16,029 | )           |          |  | (203,416  | )         |  |       | (128,932 | ) |  |       | (5,555       | ) |             |  | (3,686 | )     |  |  | (98      | ) |  |  | (357,716 | )
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 
|Net book value                                                                                                         |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       |  |  |          |   |  |  |          |  
|At end of the year                                                                                                     |  |           | 57,104  |             |          |  | 294,216   |           |  |       | 148,432  |   |  |       | 5,274        |   |             |  | 3,365  |       |  |  | 55,499   |   |  |  | 563,890  |  
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 
|Carrying value of the property,
    plant and equipment had they been stated at cost less
    accumulated depreciation |  |           | 52,779  |             |          |  | 289,820   |           |  |       | 131,411  |   |  |       | 4,787        |   |             |  | 2,810  |       |  |  | 55,499   |   |  |  | 537,106  |  
|                                                                                                                       |  |           |         |             |          |  |           |           |  |       |          |   |  |       |              |   |             |  |        |       | 





F-28



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

The following table indicates the changes to the Groups
exploratory well costs, which are included in construction in
progress, for the years ended December 31, 2003, 2004 and
2005.

|                                                                                                     |  |                         |        |   |      |  |        |      |  |  |        |  
|---------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | -
|                                                                                                     |  | Year Ended December 31, |       
|                                                                                                     |  |                         |       
|                                                                                                     |  | 2003                    |        |   | 2004 |  |        | 2005 | 
|                                                                                                     |  |                         |        |   |      |  |        |      | 
|                                                                                                     |  | RMB                     |        |   | RMB  |  |        | RMB  | 
|Beginning balance at January 1                                                                       |  |                         | 3,816  |   |      |  | 4,335  |      |  |  | 5,751  |  
|Additions to capitalized
    exploratory well costs pending the determination of proved
    reserves |  |                         | 9,260  |   |      |  | 10,913 |      |  |  | 16,181 |  
|Reclassified to wells, facilities,
    and equipment based on the determination of proved reserves   |  |                         | (4,050 | ) |      |  | (4,756 | )    |  |  | (7,089 | )
|Capitalized exploratory well costs
    charged to expense                                            |  |                         | (4,691 | ) |      |  | (4,741 | )    |  |  | (6,547 | )
|                                                                                                     |  |                         |        |   |      |  |        |      | 
|Ending balance at December 31                                                                        |  |                         | 4,335  |   |      |  | 5,751  |      |  |  | 8,296  |  
|                                                                                                     |  |                         |        |   |      |  |        |      | 
|Number of wells at year end                                                                          |  |                         | 637    |   |      |  | 783    |      |  |  | 993    |  
|                                                                                                     |  |                         |        |   |      |  |        |      | 



|                       |  |              |       |  |      |  |       | 
|---------------------- |  | ------------ | ----- |  | ---- |  | ----- | 
|                       |  | At           |      
|                       |  | December 31, |      
|                       |  |              |      
|                       |  | 2004         |       |  | 2005 | 
|                       |  |              |       |  |      | 
|                       |  | RMB          |       |  | RMB  | 
|One year or less       |  |              | 5,283 |  |      |  | 8,023 | 
|Over one year          |  |              | 468   |  |      |  | 273   | 
|                       |  |              |       |  |      | 
|Balance at December 31 |  |              | 5,751 |  |      |  | 8,296 | 
|                       |  |              |       |  |      | 







|                                          |  |              |        |  |      |  |        | 
|----------------------------------------- |  | ------------ | ------ |  | ---- |  | ------ | 
|                                          |  | At           |       
|                                          |  | December 31, |       
|                                          |  |              |       
|                                          |  | 2004         |        |  | 2005 | 
|                                          |  |              |        |  |      | 
|                                          |  | RMB          |        |  | RMB  | 
|Short-term lease (less than
    10 years) |  |              | 335    |  |      |  | 336    | 
|Medium-term lease (10 to
    50 years)    |  |              | 51,584 |  |      |  | 56,768 | 
|                                          |  |              |        |  |      | 
|                                          |  |              | 51,919 |  |      |  | 57,104 | 
|                                          |  |              |        |  |      | 



F-29



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

|                           |  |              |     |   |      |  |     |  
|-------------------------- |  | ------------ | --- | - | ---- |  | --- | -
|                           |  | At           |    
|                           |  | December 31, |    
|                           |  |              |    
|                           |  | 2004         |     |   | 2005 | 
|                           |  |              |     |   |      | 
|                           |  | RMB          |     |   | RMB  | 
|Exploration and Production |  |              | 45  |   |      |  | 45  |  
|Refining and Marketing     |  |              | 94  |   |      |  |    |  
|Chemicals and Marketing    |  |              | 110 |   |      |  |    |  
|Accumulated depreciation   |  |              | (74 | ) |      |  | (12 | )
|                           |  |              |     |   |      | 
|                           |  |              | 175 |   |      |  | 33  |  
|                           |  |              |     |   |      | 





|                           |  |                         |        |  |      |  |        |      |  |  |        | 
|-------------------------- |  | ----------------------- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                           |  | Year Ended December 31, |       
|                           |  |                         |       
|                           |  | 2003                    |        |  | 2004 |  |        | 2005 | 
|                           |  |                         |        |  |      |  |        |      | 
|                           |  | RMB                     |        |  | RMB  |  |        | RMB  | 
|Owned assets               |  |                         | 40,587 |  |      |  | 46,988 |      |  |  | 49,198 | 
|Assets under capital lease |  |                         | 21     |  |      |  | 23     |      |  |  | 13     | 
|                           |  |                         |        |  |      |  |        |      | 
|                           |  |                         | 40,608 |  |      |  | 47,011 |      |  |  | 49,211 | 
|                           |  |                         |        |  |      |  |        |      | 













F-30



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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



18
    INVESTMENTS IN EQUITY AFFILIATESThe Groups interests in its principal equity affiliates,
all of which are unlisted, were as follows:

|                                                |  |               |     |  |        |  |        |             |  |  |          |  |          |        |         |         |        |  |       |       |  |  |           |  |  |  |          | 
|----------------------------------------------- |  | ------------- | --- |  | ------ |  | ------ | ----------- |  |  | -------- |  | -------- | ------ | ------- | ------- | ------ |  | ----- | ----- |  |  | --------- |  |  |  | -------- | 
|                                                |  | Country of    |     |  |        |  |        |             |  |  |          |  | Interest |        |         | Type of |       
|Name                                            |  | Incorporation |     |  | Assets |  |        | Liabilities |  |  | Revenues |  |          | Income |         |         | Held % |  |       | Share | 
|                                                |  |               |     |  |        |  |        |             |  |  |          |  |          |        |         |         |        |  |       |       | 
|2004                                            |  |               |     |  |        |  |        |             |  |  |          |  |          |        |         |         |        |  |       |       |  |  |           |  |  |  |          | 
|Dalian West Pacific Petrochemical
    Co., Ltd. |  |               | PRC |  |        |  | 10,182 |             |  |  | 6,704    |  |          |        | 21,115  |         |        |  | 1,314 |       |  |  | 28.4      |  |  |  | ordinary | 
|China Marine Bunker (PetroChina)
    Co., Ltd.  |  |               | PRC |  |        |  | 4,095  |             |  |  | 2,146    |  |          |        | 18,356  |         |        |  | 132   |       |  |  | 50.0      |  |  |  | ordinary | 
|Other                                           |  |               |     |  |        |  | 22,626 |             |  |  | 15,898   |  |          |        | 74,872  |         |        |  | 2,397 |       |  |  | 20.0-50.0 |  |  |  | ordinary | 
|                                                |  |               |     |  |        |  |        |             |  |  |          |  |          |        |         |         |        |  |       |       | 
|                                                |  |               |     |  |        |  | 36,903 |             |  |  | 24,748   |  |          |        | 114,343 |         |        |  | 3,843 |       |  |  |           |  |  |  |          | 
|                                                |  |               |     |  |        |  |        |             |  |  |          |  |          |        |         |         |        |  |       |       | 
|2005                                            |  |               |     |  |        |  |        |             |  |  |          |  |          |        |         |         |        |  |       |       |  |  |           |  |  |  |          | 
|DaLian West Pacific Petrochemical
    Co., Ltd. |  |               | PRC |  |        |  | 10,964 |             |  |  | 7,861    |  |          |        | 30,153  |         |        |  | 477   |       |  |  | 28.4      |  |  |  | ordinary | 
|China Marine Bunker (PetroChina)
    Co., Ltd.  |  |               | PRC |  |        |  | 6,419  |             |  |  | 4,196    |  |          |        | 28,042  |         |        |  | 254   |       |  |  | 50.0      |  |  |  | ordinary | 
|Other                                           |  |               |     |  |        |  | 41,528 |             |  |  | 27,757   |  |          |        | 62,559  |         |        |  | 4,465 |       |  |  | 20.0-50.0 |  |  |  | ordinary | 
|                                                |  |               |     |  |        |  |        |             |  |  |          |  |          |        |         |         |        |  |       |       | 
|                                                |  |               |     |  |        |  | 58,911 |             |  |  | 39,814   |  |          |        | 120,754 |         |        |  | 5,196 |       |  |  |           |  |  |  |          | 
|                                                |  |               |     |  |        |  |        |             |  |  |          |  |          |        |         |         |        |  |       |       | 









|   |                               
|-- | ------------------------------
|19 | AVAILABLE-FOR-SALE INVESTMENTS

|                                            |  |              |       |   |      |  |       |  
|------------------------------------------- |  | ------------ | ----- | - | ---- |  | ----- | -
|                                            |  | At           |      
|                                            |  | December 31, |      
|                                            |  |              |      
|                                            |  | 2004         |       |   | 2005 | 
|                                            |  |              |       |   |      | 
|                                            |  | RMB          |       |   | RMB  | 
|Unlisted available-for-sale
    investments |  |              | 2,361 |   |      |  | 1,907 |  
|Less: Impairment provision                  |  |              | (755  | ) |      |  | (677  | )
|                                            |  |              |       |   |      | 
|                                            |  |              | 1,606 |   |      |  | 1,230 |  
|                                            |  |              |       |   |      | 



F-31



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Dividend income from available-for-sale investments was
RMB 69, RMB 113 and RMB 109 for the years ended
December 31, 2003, 2004 and 2005, respectively.

Available-for-sale investments of RMB 89 and RMB 1,003
were disposed of with a loss of RMB 6 and RMB 27
incurred for the years ended December 31, 2004 and 2005,
respectively.

Movements in provision for impairment of available-for-sale
investments are as follows:

|                                     |  |                         |     |   |      |  |     |      |  |  |     |  
|------------------------------------ |  | ----------------------- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                     |  | Year Ended December 31, |    
|                                     |  |                         |    
|                                     |  | 2003                    |     |   | 2004 |  |     | 2005 | 
|                                     |  |                         |     |   |      |  |     |      | 
|                                     |  | RMB                     |     |   | RMB  |  |     | RMB  | 
|Balance at beginning of year         |  |                         | 660 |   |      |  | 813 |      |  |  | 755 |  
|Provision/(Write back)               |  |                         | 158 |   |      |  | 26  |      |  |  | (23 | )
|Amount written off against provision |  |                         | (5  | ) |      |  | (84 | )    |  |  | (55 | )
|                                     |  |                         |     |   |      |  |     |      | 
|Balance at end of year               |  |                         | 813 |   |      |  | 755 |      |  |  | 677 |  
|                                     |  |                         |     |   |      |  |     |      | 



|   |                                 
|-- | --------------------------------
|20 | ADVANCE OPERATING LEASE PAYMENTS

|                       |  |              |        |  |      |  |        | 
|---------------------- |  | ------------ | ------ |  | ---- |  | ------ | 
|                       |  | At           |       
|                       |  | December 31, |       
|                       |  |              |       
|                       |  | 2004         |        |  | 2005 | 
|                       |  |              |        |  |      | 
|                       |  | RMB          |        |  | RMB  | 
|Land use rights        |  |              | 8,011  |  |      |  | 9,786  | 
|Advance lease payments |  |              | 4,296  |  |      |  | 6,449  | 
|                       |  |              |        |  |      | 
|                       |  |              | 12,307 |  |      |  | 16,235 | 
|                       |  |              |        |  |      | 

sub-leased straight-line




|   |                            
|-- | ---------------------------
|21 | INTANGIBLE AND OTHER ASSETS



|                   |  |                 |       |             |              |  |        |     |  |  |             |  |  |              |       |  |     |  |        |   |  |  |       | 
|------------------ |  | --------------- | ----- | ----------- | ------------ |  | ------ | --- |  |  | ----------- |  |  | ------------ | ----- |  | --- |  | ------ | - |  |  | ----- | 
|                   |  | At December 31, |      
|                   |  |                 |      
|                   |  | 2004            |       |             | 2005         | 
|                   |  |                 |       |             |              | 
|                   |  |                 |       | Accumulated |              |  |        |     |  |  | Accumulated |  |  |             
|                   |  | Cost            |       |             | Amortization |  |        | Net |  |  | Cost        |  |  | Amortization |       |  | Net | 
|                   |  |                 |       |             |              |  |        |     |  |  |             |  |  |              |       |  |     | 
|                   |  | RMB             |       |             | RMB          |  |        | RMB |  |  | RMB         |  |  | RMB          |       |  | RMB | 
|Patents            |  |                 | 1,873 |             |              |  | (958   | )   |  |  | 915         |  |  |              | 2,166 |  |     |  | (1,140 | ) |  |  | 1,026 | 
|Technical know-how |  |                 | 248   |             |              |  | (181   | )   |  |  | 67          |  |  |              | 325   |  |     |  | (209   | ) |  |  | 116   | 
|Other              |  |                 | 1,454 |             |              |  | (396   | )   |  |  | 1,058       |  |  |              | 2,664 |  |     |  | (684   | ) |  |  | 1,980 | 
|                   |  |                 |       |             |              |  |        |     |  |  |             |  |  |              |       |  |     | 
|Intangible assets  |  |                 | 3,575 |             |              |  | (1,535 | )   |  |  | 2,040       |  |  |              | 5,155 |  |     |  | (2,033 | ) |  |  | 3,122 | 
|                   |  |                 |       |             |              |  |        |     |  |  |             |  |  |              |       |  |     | 
|Other assets       |  |                 |       |             |              |  |        |     |  |  | 980         |  |  |              |       |  |     |  |        |   |  |  | 1,889 | 
|                   |  |                 |       |             |              |  |        |     |  |  |             |  |  |              |       |  |     | 
|                   |  |                 |       |             |              |  |        |     |  |  | 3,020       |  |  |              |       |  |     |  |        |   |  |  | 5,011 | 
|                   |  |                 |       |             |              |  |        |     |  |  |             |  |  |              |       |  |     | 



F-32



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Patents principally represent expenditure incurred in acquiring
processes and techniques that are generally protected by
relevant government authorities. Technical
know-how amounts are
attributable to operational technology acquired in connection
with purchase of equipment. The technical
know-how costs are
included as part of the purchase price by contracts and are
distinguishable.



22
    ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

|                                                               |  |              |        |  |      |  |        | 
|-------------------------------------------------------------- |  | ------------ | ------ |  | ---- |  | ------ | 
|                                                               |  | At           |       
|                                                               |  | December 31, |       
|                                                               |  |              |       
|                                                               |  | 2004         |        |  | 2005 | 
|                                                               |  |              |        |  |      | 
|                                                               |  | RMB          |        |  | RMB  | 
|Trade payables                                                 |  |              | 7,953  |  |      |  | 13,749 | 
|Advances from customers                                        |  |              | 6,002  |  |      |  | 7,698  | 
|Salaries and welfare payable                                   |  |              | 5,926  |  |      |  | 7,353  | 
|Accrued expenses                                               |  |              | 7      |  |      |  | 4      | 
|Dividends payable by subsidiaries
    to minority shareholders |  |              | 11     |  |      |  | 93     | 
|Interest payable                                               |  |              | 6      |  |      |  | 27     | 
|Construction fee and equipment cost
    payables               |  |              | 9,366  |  |      |  | 16,420 | 
|One-time employee housing remedial
    payment payable         |  |              | 1,740  |  |      |  | 1,174  | 
|Other payables                                                 |  |              | 8,170  |  |      |  | 12,158 | 
|Amounts due to related parties                                 |  |              | 33,891 |  |      |  | 41,082 | 
|                                                               |  |              |        |  |      | 
|                                                               |  |              | 73,072 |  |      |  | 99,758 | 
|                                                               |  |              |        |  |      | 







|   |      
|-- | -----
|23 | DEBTS



| |                         
| | ------------------------
| | (a) Short-term
    debts

|                                   |             |              |        |        |      |  |        |        | 
|---------------------------------- | ----------- | ------------ | ------ | ------ | ---- |  | ------ | ------ | 
|                                   |             | At           |       
|                                   |             | December 31, |       
|                                   |             |              |       
|                                   |             | 2004         |        |        | 2005 | 
|                                   |             |              |        |        |      | 
|                                   |             | RMB          |        |        | RMB  | 
|Bank loans                         |             |              |        |        |      |  |        |       
|                                   |  secured   |              |        | 495    |      |  |        | 34     | 
|                                   |  unsecured |              |        | 11,100 |      |  |        | 12,753 | 
|Loans from fellow CNPC subsidiary  |             |              | 4,351  |        |      |  | 520    |       
|Other                              |             |              | 8      |        |      |  | 57     |       
|                                   |             |              |        |        |      | 
|                                   |             |              | 15,954 |        |      |  | 13,364 |       
|Current portion of long-term debts |             |              | 18,983 |        |      |  | 15,325 |       
|                                   |             |              |        |        |      | 
|                                   |             |              | 34,937 |        |      |  | 28,689 |       
|                                   |             |              |        |        |      | 

F-33



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



(b) Long-term debts

|                                                                                                                |  |                                                                                                                                                    |  |                 |  |       
|--------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- |  | ------
|                                                                                                                |  |                                                                                                                                                    |  | At December 31,
|                                                                                                                |  |                                                                                                                                                    |  |                
|                                                                                                                |  | Interest Rate and Final Maturity                                                                                                                   |  | 2004            |  | 2005  
|                                                                                                                |  |                                                                                                                                                    |  |                 |  |       
|                                                                                                                |  |                                                                                                                                                    |  | RMB             |  | RMB   
|Renminbi  denominated
    debts:                                                                               |  |                                                                                                                                                    |  |                
|Bank loans for the development of
    oil fields and construction of refining plants                            |  | Majority variable interest rates
    ranging from 5.18% to 6.12% per annum as of December 31,
    2005, with maturities through 2010               |  | 16,195          |  | 9,778 
|Bank loans for working capital                                                                                  |  | Majority variable interest rates
    ranging from 5.18% to 5.27% per annum as of December 31,
    2005, with maturities through 2008               |  | 6,044           |  | 6,030 
|Loans from fellow CNPC subsidiary
    for the development of oil fields and construction of refining
    plants |  | Floating interest rates ranging
    from 4.46% to 5.18% per annum as of December 31, 2005, with
    maturities through 2032                        |  | 15,610          |  | 16,462
|Working capital loans from fellow
    CNPC subsidiary                                                           |  | Majority variable interest rates
    ranging from 4.61% to 4.67% per annum as of December 31,
    2005, with maturities through 2007               |  | 5,043           |  | 4,335 
|Working capital loans                                                                                           |  | Fixed interest rates at 6.32% per
    annum with no fixed repayment term                                                                           |  | 9               |  | 5     
|Corporate debenture for the
    development of oil fields and construction of refining plants                   |  | Fixed interest rate at 4.50% per
    annum with maturities through 2007                                                                            |  | 1,350           |  | 1,350 
|Corporate debenture for the
    development of oil and gas properties                                           |  | Fixed interest rate at 4.11% per
    annum with maturities through 2013                                                                            |  | 1,500           |  | 1,500 
|US Dollar 
    denominated debts:                                                                              |  |                                                                                                                                                    |  |                
|Bank loans for the development of
    oil fields and construction of refining plants                            |  | Fixed interest rates ranging from
    free to 9.00% per annum with maturities through 2038                                                         |  | 1,883           |  | 1,404 
|Bank loans for the development of
    oil fields and construction of refining plants                            |  | Floating interest rates ranging
    from 2.69% to 9.70% per annum as of December 31, 2005, with
    maturities through 2014                        |  | 7,320           |  | 6,751 
|Bank loans for working capital                                                                                  |  | Floating interest rates ranging
    from LIBOR plus 0.40% to LIBOR plus 3.00% per annum as of
    December 31, 2005 with maturities through 2006   |  | 492             |  | 1,362 
|Bank loans for acquisition of
    overseas oil and gas properties                                               |  | Floating interest rate at LIBOR
    plus 0.55% per annum as of December 31, 2005, with
    maturities through 2009                                 |  | 1,490           |  | 1,614 
|Loans from fellow CNPC subsidiary
    for the development of oil fields and construction of refining
    plants |  | Floating interest rates ranging
    from LIBOR minus 0.25% to LIBOR plus 0.50% per annum as of
    December 31, 2005, with maturities through 2020 |  | 1,633           |  | 2,852 
|Loans from fellow CNPC subsidiary
    for acquisition of overseas oil and gas properties                        |  | Floating interest rate at LIBOR
    plus 0.40% per annum as of December 31, 2005, with
    maturities through 2006                                 |  | 608             |  | 593   

F-34



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                                              |  |                                                                                                                                                   |  |                 |  |         
|--------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- |  | --------
|                                                                                              |  |                                                                                                                                                   |  | At December 31,
|                                                                                              |  |                                                                                                                                                   |  |                
|                                                                                              |  | Interest Rate and Final Maturity                                                                                                                  |  | 2004            |  | 2005    
|                                                                                              |  |                                                                                                                                                   |  |                 |  |         
|                                                                                              |  |                                                                                                                                                   |  | RMB             |  | RMB     
|Loans from fellow CNPC subsidiary
    for working capital                                     |  | Floating interest rates ranging
    from LIBOR plus 0.40% to LIBOR plus 1.00% per annum as of
    December 31, 2005, with maturities through 2008 |  | 2,687           |  | 2,557   
|Loans for the development of oil
    fields and construction of refining plants               |  | Fixed interest rate at 1.55% per
    annum with maturities through 2022                                                                           |  | 554             |  | 509     
|Loans for working capital                                                                     |  | Floating interest rate at LIBOR
    plus 0.35% per annum as of December 31, 2005, with
    maturities through 2008                                |  | 64              |  | 668     
|Corporate debenture for the
    development of oil fields and construction of refining plants |  | Fixed interest rate at 3.00% per
    annum with maturities through 2019                                                                           |  |                |  | 347     
|Corporate debenture for the
    development of oil and gas properties                         |  | Fixed interest rate at 9.50% per
    annum with maturities through 2011                                                                           |  |                |  | 844     
|Corporate debenture for the
    development of oil and gas properties                         |  | Fixed interest rate at 15.00% per
    annum with maturities through 2008                                                                          |  |                |  | 292     
|Japanese Yen 
    denominated debts:                                                         |  |                                                                                                                                                   |  |                
|Bank loans for the development of
    oil fields and construction of refining plants          |  | Fixed interest rates ranging from
    4.10% to 5.30% per annum with maturities through 2010                                                       |  | 430             |  | 226     
|Euro  denominated
    debts:                                                                 |  |                                                                                                                                                   |  |                
|Bank loans for the development of
    oil fields and construction of refining plants          |  | Fixed interest rates ranging from
    2.00% to 2.30% per annum with maturities through 2023                                                       |  | 360             |  | 256     
|British Pound 
    denominated debts:                                                        |  |                                                                                                                                                   |  |                
|Bank loans for the development of
    oil fields and construction of refining plants          |  | Fixed interest rate at 2.85% per
    annum with maturities through 2007                                                                           |  | 338             |  | 160     
|                                                                                              |  |                                                                                                                                                   |  |                 |  |         
|                                                                                              |  |                                                                                                                                                   |  | 63,610          |  | 59,895  
|Finance lease obligations                                                                     |  |                                                                                                                                                   |  | 21              |  |        
|                                                                                              |  |                                                                                                                                                   |  |                 |  |         
|Total long-term borrowings                                                                    |  |                                                                                                                                                   |  | 63,631          |  | 59,895  
|Less: Current portion of long-term
    borrowings                                             |  |                                                                                                                                                   |  | (18,983)        |  | (15,325)
|                                                                                              |  |                                                                                                                                                   |  |                 |  |         
|                                                                                              |  |                                                                                                                                                   |  | 44,648          |  | 44,570  
|                                                                                              |  |                                                                                                                                                   |  |                 |  |         



F-35



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

annually as stipulated in the respective agreements. Other loans
represent loans from independent third parties other than banks.
Interest free loans amounted to RMB 88 and RMB 110 at
December 31, 2004 and 2005, respectively.

Debts of RMB 756 and RMB 674 were guaranteed by CNPC
and its subsidiaries at December 31, 2004 and 2005,
respectively.

The Groups debts include secured liabilities (lease and
bank debts) totalling RMB 2,269 and RMB 1,108 at
December 31, 2004 and 2005, respectively. Bank debts are
secured mostly over certain of the Groups property and
time deposits with maturities over one year.

|                                               |                                         |                 |        |        |      |  |        |        |  
|---------------------------------------------- | --------------------------------------- | --------------- | ------ | ------ | ---- |  | ------ | ------ | -
|                                               |                                         | At December 31, |       
|                                               |                                         |                 |       
|                                               |                                         | 2004            |        |        | 2005 | 
|                                               |                                         |                 |        |        |      | 
|                                               |                                         | RMB             |        |        | RMB  | 
|Total debt:                                    |                                         |                 |        |        |      |  |        |       
|                                               |  at fixed rates                        |                 |        | 19,885 |      |  |        | 19,750 |  
|                                               |  at variable rates                     |                 |        | 59,700 |      |  |        | 53,509 |  
|                                               |                                         |                 |        |        |      | 
|                                               |                                         |                 | 79,585 |        |      |  | 73,259 |       
|                                               |                                         |                 |        |        |      | 
|Weighted average effective interest
    rates: |                                         |                 |        |        |      |  |        |       
|                                               |  bank loans                            |                 |        | 4.69   | %    |  |        | 5.26   | %
|                                               |  loans from fellow CNPC
    subsidiary |                 |        | 4.47   | %    |  |        | 4.90   | %
|                                               |  other loans                           |                 |        | 2.01   | %    |  |        | 3.38   | %
|                                               |  corporate debentures                  |                 |        | 4.30   | %    |  |        | 5.86   | %
|                                               |  capital lease
    obligations         |                 |        | 4.78   | %    |  |        |       |  



|                                  |  |                  |        |  |      |  |        | 
|--------------------------------- |  | ---------------- | ------ |  | ---- |  | ------ | 
|                                  |  | Carrying Amounts |       
|                                  |  | At December 31,  |       
|                                  |  |                  |       
|                                  |  | 2004             |        |  | 2005 | 
|                                  |  |                  |        |  |      | 
|                                  |  | RMB              |        |  | RMB  | 
|Bank loans                        |  |                  | 34,552 |  |      |  | 27,581 | 
|Loans from fellow CNPC subsidiary |  |                  | 25,581 |  |      |  | 26,799 | 
|Corporate debentures              |  |                  | 2,850  |  |      |  | 4,333  | 
|Other                             |  |                  | 627    |  |      |  | 1,182  | 
|                                  |  |                  |        |  |      | 
|                                  |  |                  | 63,610 |  |      |  | 59,895 | 
|                                  |  |                  |        |  |      | 

|                                  |  |                 |        |  |      |  |        | 
|--------------------------------- |  | --------------- | ------ |  | ---- |  | ------ | 
|                                  |  | Fair Values     |       
|                                  |  | At December 31, |       
|                                  |  |                 |       
|                                  |  | 2004            |        |  | 2005 | 
|                                  |  |                 |        |  |      | 
|                                  |  | RMB             |        |  | RMB  | 
|Bank loans                        |  |                 | 34,394 |  |      |  | 27,397 | 
|Loans from fellow CNPC subsidiary |  |                 | 25,581 |  |      |  | 26,795 | 
|Corporate debentures              |  |                 | 2,632  |  |      |  | 4,173  | 
|Other                             |  |                 | 469    |  |      |  | 1,049  | 
|                                  |  |                 |        |  |      | 
|                                  |  |                 | 63,076 |  |      |  | 59,414 | 
|                                  |  |                 |        |  |      | 

F-36



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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 0.13% to
7.45% per annum as of December 31, 2005 depending on the
type of the debts. The carrying amounts of short-term debts and
capital lease obligations approximate their fair value.

Maturities of long-term debts (excluding capital lease
obligations) at the dates indicated below are as follows:

|            |  |                 |        |  |      |  |        | 
|----------- |  | --------------- | ------ |  | ---- |  | ------ | 
|            |  | At December 31, |       
|            |  |                 |       
|            |  | 2004            |        |  | 2005 | 
|            |  |                 |        |  |      | 
|            |  | RMB             |        |  | RMB  | 
|First year  |  |                 | 18,962 |  |      |  | 15,325 | 
|Second year |  |                 | 10,145 |  |      |  | 18,373 | 
|Third year  |  |                 | 18,307 |  |      |  | 11,393 | 
|Fourth year |  |                 | 5,810  |  |      |  | 2,492  | 
|Fifth year  |  |                 | 2,955  |  |      |  | 1,057  | 
|Thereafter  |  |                 | 7,431  |  |      |  | 11,255 | 
|            |  |                 |        |  |      | 
|            |  |                 | 63,610 |  |      |  | 59,895 | 
|            |  |                 |        |  |      | 



|                                                                               |  |                 |    |   |      |  |   | 
|------------------------------------------------------------------------------ |  | --------------- | -- | - | ---- |  | - | 
|                                                                               |  | At December 31, |   
|                                                                               |  |                 |   
|                                                                               |  | 2004            |    |   | 2005 | 
|                                                                               |  |                 |    |   |      | 
|                                                                               |  | RMB             |    |   | RMB  | 
|First year                                                                     |  |                 | 22 |   |      |  |  | 
|Second year                                                                    |  |                 |   |   |      |  |  | 
|                                                                               |  |                 |    |   |      | 
|                                                                               |  |                 | 22 |   |      |  |  | 
|Future finance charges on capital
    lease obligations                        |  |                 | (1 | ) |      |  |  | 
|                                                                               |  |                 |    |   |      | 
|Present value of capital lease
    obligations                                 |  |                 | 21 |   |      |  |  | 
|                                                                               |  |                 |    |   |      | 
|The present value of capital lease
    obligations can be analyzed as follows: |  |                 |    |   |      |  |   | 
|First year                                                                     |  |                 | 21 |   |      |  |  | 
|Second year                                                                    |  |                 |   |   |      |  |  | 
|                                                                               |  |                 |    |   |      | 
|                                                                               |  |                 | 21 |   |      |  |  | 
|                                                                               |  |                 |    |   |      | 

F-37



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



24
    ASSET RETIREMENT OBLIGATIONS

|                                 |  |                         |     |  |      |  |     |      |  |  |        |  
|-------------------------------- |  | ----------------------- | --- |  | ---- |  | --- | ---- |  |  | ------ | -
|                                 |  | Year Ended December 31, |    
|                                 |  |                         |    
|                                 |  | 2003                    |     |  | 2004 |  |     | 2005 | 
|                                 |  |                         |     |  |      |  |     |      | 
|                                 |  | RMB                     |     |  | RMB  |  |     | RMB  | 
|At beginning of year             |  |                         | 585 |  |      |  | 735 |      |  |  | 919    |  
|Acquisition                      |  |                         | 12  |  |      |  |    |      |  |  |       |  
|Liabilities incurred             |  |                         | 46  |  |      |  | 48  |      |  |  | 13,258 |  
|Liabilities settled              |  |                         |    |  |      |  |    |      |  |  | (1     | )
|Accretion expense                |  |                         | 42  |  |      |  | 54  |      |  |  | 60     |  
|Currency translation differences |  |                         | 50  |  |      |  | 82  |      |  |  | (49    | )
|                                 |  |                         |     |  |      |  |     |      | 
|At end of year                   |  |                         | 735 |  |      |  | 919 |      |  |  | 14,187 |  
|                                 |  |                         |     |  |      |  |     |      | 











|   |                      
|-- | ---------------------
|25 | DEFERRED INCOME TAXES



F-38



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

The movements in the deferred income tax account are as follows:

|                                     |                                       |                         |        |     |      |  |        |      |  |  |        |      |  
|------------------------------------ | ------------------------------------- | ----------------------- | ------ | --- | ---- |  | ------ | ---- |  |  | ------ | ---- | -
|                                     |                                       | Year Ended December 31, |       
|                                     |                                       |                         |       
|                                     |                                       | 2003                    |        |     | 2004 |  |        | 2005 | 
|                                     |                                       |                         |        |     |      |  |        |      | 
|                                     |                                       | RMB                     |        |     | RMB  |  |        | RMB  | 
|At beginning of year                 |                                       |                         | 10,832 |     |      |  | 13,436 |      |  |  | 16,902 |     
|Income statement charge
    (Note 8) |                                       |                         | 2,063  |     |      |  | 3,267  |      |  |  | 3,959  |     
|Acquisition                          |                                       |                         | 195    |     |      |  |       |      |  |  |       |     
|Charged to equity                    |                                       |                         |        |     |      |  |        |      |  |  |        |     
|                                     |  net surplus on
    revaluation      |                         |        | 5   |      |  |        |     |  |  |        |     |  
|                                     |  currency translation
    difference |                         |        | 341 |      |  |        | 199  |  |  |        | (102 | )
|                                     |                                       |                         |        |     |      |  |        |      | 
|At end of year                       |                                       |                         | 13,436 |     |      |  | 16,902 |      |  |  | 20,759 |     
|                                     |                                       |                         |        |     |      |  |        |      | 



|                               |             |                                                                          |        |  |        |  |        |  |        | 
|------------------------------ | ----------- | ------------------------------------------------------------------------ | ------ |  | ------ |  | ------ |  | ------ | 
|                               |             | At December 31,                                                          |       
|                               |             |                                                                          |       
|                               |             | 2004                                                                     |        |  | 2005   | 
|                               |             |                                                                          |        |  |        | 
|                               |             | RMB                                                                      |        |  | RMB    | 
|Deferred tax assets            |             |                                                                          |        |  |        |  |        | 
|                               | Current     |                                                                          |        |  |        |  |        |  |       
|                               |             | Provisions, primarily for
    receivables and inventories                |        |  | 4,558  |  |        |  | 4,767  | 
|                               |             | Tax losses of subsidiaries                                               |        |  | 9      |  |        |  | 1,014  | 
|                               | Non current |                                                                          |        |  |        |  |        |  |       
|                               |             | Shut down of manufacturing assets
    and impairment of long-term assets |        |  | 2,454  |  |        |  | 4,022  | 
|                               |             | Other                                                                    |        |  | 802    |  |        |  | 796    | 
|                               |             |                                                                          |        |  |        | 
|Total deferred tax assets      |             |                                                                          | 7,823  |  |        |  | 10,599 | 
|                               |             |                                                                          |        |  |        | 
|Deferred tax liabilities       |             |                                                                          |        |  |        |  |        | 
|                               | Current     |                                                                          |        |  |        |  |        |  |       
|                               |             | Sales (Note (i))                                                         |        |  | 4,401  |  |        |  | 4,401  | 
|                               | Non current |                                                                          |        |  |        |  |        |  |       
|                               |             | Accelerated tax depreciation                                             |        |  | 20,070 |  |        |  | 26,615 | 
|                               |             | Other                                                                    |        |  | 254    |  |        |  | 342    | 
|                               |             |                                                                          |        |  |        | 
|Total deferred tax liabilities |             |                                                                          | 24,725 |  |        |  | 31,358 | 
|                               |             |                                                                          |        |  |        | 
|Net deferred tax liabilities   |             |                                                                          | 16,902 |  |        |  | 20,759 | 
|                               |             |                                                                          |        |  |        | 




|    |                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Prior to the formation of the Company in November 1999, certain
    crude oil sales were exempted from income tax. Upon formation of
    the Company, such exemption ceased to be available. A portion of
    the previously exempted items may become taxable at a later date
    in certain circumstances at the discretion of the tax
    authorities.



|     |                                                                         
|---- | ------------------------------------------------------------------------
|(ii) | There were no material unrecognized tax losses at
    December 31, 2005.

F-39



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



26
    SHARE CAPITAL

|                                   |                    |                 |         |         |      |  |         |         | 
|---------------------------------- | ------------------ | --------------- | ------- | ------- | ---- |  | ------- | ------- | 
|                                   |                    | At December 31, |        
|                                   |                    |                 |        
|                                   |                    | 2004            |         |         | 2005 | 
|                                   |                    |                 |         |         |      | 
|                                   |                    | RMB             |         |         | RMB  | 
|Registered, issued and fully paid: |                    |                 |         |         |      |  |         |        
|                                   | State-owned shares |                 |         | 158,242 |      |  |         | 157,922 | 
|                                   | H shares           |                 |         | 17,582  |      |  |         | 21,099  | 
|                                   |                    |                 |         |         |      | 
|                                   |                    |                 | 175,824 |         |      |  | 179,021 |        
|                                   |                    |                 |         |         |      | 

|                                          |  |                         |         |  |      |  |         |      |  |  |         | 
|----------------------------------------- |  | ----------------------- | ------- |  | ---- |  | ------- | ---- |  |  | ------- | 
|                                          |  | Year Ended December 31, |        
|                                          |  |                         |        
|Number of Shares of the Company (million) |  | 2003                    |         |  | 2004 |  |         | 2005 | 
|                                          |  |                         |         |  |      |  |         |      | 
|                                          |  | RMB                     |         |  | RMB  |  |         | RMB  | 
|Beginning balance                         |  |                         | 175,824 |  |      |  | 175,824 |      |  |  | 175,824 | 
|Issue of Share                            |  |                         |        |  |      |  |        |      |  |  | 3,197   | 
|                                          |  |                         |         |  |      |  |         |      | 
|Ending balance                            |  |                         | 175,824 |  |      |  | 175,824 |      |  |  | 179,021 | 
|                                          |  |                         |         |  |      |  |         |      | 









F-40



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



27
    RESERVES

|                                                                                   |  |              |         |   |      |  |         |  
|---------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- |  | ------- | -
|                                                                                   |  | Year Ended   |        
|                                                                                   |  | December 31, |        
|                                                                                   |  |              |        
|                                                                                   |  | 2004         |         |   | 2005 | 
|                                                                                   |  |              |         |   |      | 
|                                                                                   |  | RMB          |         |   | RMB  | 
|Revaluation Reserve                                                                |  |              |         |   |      |  |         |  
|Beginning balance                                                                  |  |              | 79,946  |   |      |  | 79,946  |  
|                                                                                   |  |              |         |   |      | 
|Ending balance                                                                     |  |              | 79,946  |   |      |  | 79,946  |  
|Capital Reserve                                                                    |  |              |         |   |      |  |         |  
|Beginning balance                                                                  |  |              | (25,376 | ) |      |  | (25,376 | )
|Issue of shares (Note 26)                                                          |  |              |        |   |      |  | 16,495  |  
|                                                                                   |  |              |         |   |      | 
|Ending balance                                                                     |  |              | (25,376 | ) |      |  | (8,881  | )
|Statutory Common Reserve Fund(Note a)                                              |  |              |         |   |      |  |         |  
|Beginning balance                                                                  |  |              | 26,370  |   |      |  | 36,071  |  
|Transfer from retained earnings                                                    |  |              | 9,701   |   |      |  | 12,665  |  
|                                                                                   |  |              |         |   |      | 
|Ending balance                                                                     |  |              | 36,071  |   |      |  | 48,736  |  
|Statutory Common Welfare Fund(Note b)                                              |  |              |         |   |      |  |         |  
|Beginning balance                                                                  |  |              | 16,653  |   |      |  | 21,504  |  
|Transfer from retained earnings                                                    |  |              | 4,851   |   |      |  | 6,333   |  
|                                                                                   |  |              |         |   |      | 
|Ending balance                                                                     |  |              | 21,504  |   |      |  | 27,837  |  
|Currency translation
    differences                                               |  |              |         |   |      |  |         |  
|Beginning balance                                                                  |  |              | (441    | ) |      |  | (111    | )
|Currency translation adjustments                                                   |  |              | 330     |   |      |  | (268    | )
|                                                                                   |  |              |         |   |      | 
|Ending balance                                                                     |  |              | (111    | ) |      |  | (379    | )
|Other Reserves                                                                     |  |              |         |   |      |  |         |  
|Beginning balance                                                                  |  |              | (3,200  | ) |      |  | (3,200  | )
|Payment to CNPC for the acquisition
    of the refinery and petrochemical business |  |              |        |   |      |  | (9      | )
|Purchase from minority interests of
    listed subsidiaries (Note 38)              |  |              |        |   |      |  | (1,438  | )
|Paid-in capital to Zhong You Kan
    Tan Kai Fa Company Limited                    |  |              |        |   |      |  | (10,056 | )
|                                                                                   |  |              |         |   |      | 
|Ending balance                                                                     |  |              | (3,200  | ) |      |  | (14,703 | )
|                                                                                   |  |              |         |   |      | 
|                                                                                   |  |              | 108,834 |   |      |  | 132,556 |  
|                                                                                   |  |              |         |   |      | 




|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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                     

F-41



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



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 common facilities, of which the Group
    retains the titles, and other collective benefits to the
    Companys employees. This fund is non-distributable other
    than in liquidation. The directors have proposed to transfer 5%
    and 5% of the net income, as determined under the PRC accounting
    regulations, to the statutory common welfare fund for the year
    ended December 31, 2004 and 2005, respectively.(c)
    
    The Companys distributable reserve is the retained
    earnings computed under the PRC accounting regulations, which
    amounted to RMB 95,248 and RMB 142,883 as of
    December 31, 2004 and 2005, respectively. The distributable
    reserve computed under the PRC accounting regulations at
    December 31, 2005 has been arrived at after the accrual for
    the proposed final dividend in respect of year 2005 of
    RMB 32,282 (Note 10 (vii)).(d)
    
    As of December 31, 2005, revaluation surplus relating to
    depreciation and disposals amounted to approximately
    RMB 46,757 and RMB 53,717 as of December 31, 2004
    and 2005, respectively.

28
    PENSIONSThe Group participates in various retirement benefit plans
organized by Chinese 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 material obligations for the payment of retirement
and other post-retirement benefits of employees in China or
overseas other than the monthly contributions described above.
Expenses incurred by the Group in connection with the retirement
benefit plans were RMB 2,193, RMB 2,476 and
RMB 3,104, for the years ended December 31, 2003, 2004
and 2005, respectively.



29
    FINANCIAL INSTRUMENTSThe 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 are 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 riskThe 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.
Majority of cash is placed with state-owned banks and financial
institutions.

F-42



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



(b) Interest rate riskThe Group is exposed to the risk arising from changing interest
rates. A detailed analysis of the Groups debts, together
with their respective interest rates and maturity dates, are
included in Note 23.



(c) Foreign exchange rate riskFrom July 21, 2005, the PRC government has reformed the
Renminbi exchange rate regime and implemented a regulated
floating exchange rate regime based on market supply and demand
with reference to a basket of currencies. However, Renminbi is
still regulated in capital projects. The exchange rates of
Renminbi are affected by domestic and international economic
developments and political changes, and supply and demand for
Renminbi. Future exchange rates of Renminbi against other
currencies could vary significantly from the current exchange
rates. As Renminbi is the base currency of the Company and most
of its consolidated entities, the fluctuation of the exchange
rate of Renminbi may have positive or negative impacts on the
results of operations of the Group. An appreciation of Renminbi
against United States Dollar may decrease the Groups
turnover, but the cost of acquiring imported materials and
equipment may be reduced. A devaluation of Renminbi against
United States Dollar may not have a negative impact on the
Groups turnover but may increase the cost for acquiring
imported materials and equipment as well as the debt obligations
denominated in foreign currencies of the Group. The results of
operations and financial position of the Group may also be
affected by fluctuations in exchange rates of a number of other
foreign currencies against Renminbi.



(d) Commodity price riskThe 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
prices of onshore crude oil are determined with reference to
international benchmark crude oil 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 2004 and 2005, the Group was exposed to the general price
fluctuations of broadly traded oil and gas commodities.



(e) Fair valuesThe carrying amounts of the following financial assets and
financial liabilities approximate their fair value as all of
them are in short-term nature: cash, short-term investments,
trade receivables and payables, other receivables and payables,
lease obligations, short-term debts and floating rate long-term
debts. The fair value of the fixed rate long-term debts is
likely to be different from their carrying amounts. As the
majority of the debts are at variable rates, the difference
between fair value and carrying amounts is likely to be
immaterial. Analysis of the fair value and carrying amounts of
long-term debts are presented in Note 23.

F-43



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



30
    CONTINGENT LIABILITIES

(a) Bank and other guaranteesAt December 31, 2005, the Group had contingent liabilities
in respect of guarantees made to China Petroleum Finance Company
Limited (CP Finance), a subsidiary of CNPC, from
which it is anticipated that no material liabilities will arise.

|                                            |  |                 |     |  |      |  |     | 
|------------------------------------------- |  | --------------- | --- |  | ---- |  | --- | 
|                                            |  | At December 31, |    
|                                            |  |                 |    
|                                            |  | 2004            |     |  | 2005 | 
|                                            |  |                 |     |  |      | 
|                                            |  | RMB             |     |  | RMB  | 
|Guarantee of debts of equity
    affiliates |  |                 | 203 |  |      |  | 187 | 
|                                            |  |                 |     |  |      | 



| |                              
| | -----------------------------
| | (b) Environmental liabilities







| |                        
| | -----------------------
| | (c) Legal contingencies





| |                                         
| | ----------------------------------------
| | (d) Leasing of roads, land and buildings





| |   |                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                                                   

F-44



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

As at December 31, 2005, CNPC has obtained formal land use
right certificates in relation to 27,400 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 insuranceExcept for limited insurance coverage for vehicles and certain
assets subject to significant operating risks, the Group does
not carry any other insurance for property, facilities or
equipment with respect to its business operations. In addition,
the Group does not carry any third-party liability insurance
against claims relating to personal injury, property and
environmental damages or business interruption insurance since
such insurance coverage is not customary in China. While the
effect of under-insurance on future incidents cannot be
reasonably assessed at present, management believes that it may
have a material impact on the operating results but will not
have a material adverse effect on the financial position of the
Group.



31
    COMMITMENTS

(a) Operating lease commitmentsOperating 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, 2004 and 2005
under non-cancelable operating leases are as follows:

|            |  |                 |        |  |      |  |        | 
|----------- |  | --------------- | ------ |  | ---- |  | ------ | 
|            |  | At December 31, |       
|            |  |                 |       
|            |  | 2004            |        |  | 2005 | 
|            |  |                 |        |  |      | 
|            |  | RMB             |        |  | RMB  | 
|First year  |  |                 | 2,701  |  |      |  | 3,208  | 
|Second year |  |                 | 2,473  |  |      |  | 2,595  | 
|Third year  |  |                 | 2,452  |  |      |  | 2,558  | 
|Fourth year |  |                 | 2,434  |  |      |  | 2,437  | 
|Fifth year  |  |                 | 2,356  |  |      |  | 2,926  | 
|Thereafter  |  |                 | 83,035 |  |      |  | 81,266 | 
|            |  |                 |        |  |      | 
|            |  |                 | 95,451 |  |      |  | 94,990 | 
|            |  |                 |        |  |      | 



F-45



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

(b) Capital
commitments

|                                |                        |                 |       |       |      |  |        |        | 
|------------------------------- | ---------------------- | --------------- | ----- | ----- | ---- |  | ------ | ------ | 
|                                |                        | At December 31, |      
|                                |                        |                 |      
|                                |                        | 2004            |       |       | 2005 | 
|                                |                        |                 |       |       |      | 
|                                |                        | RMB             |       |       | RMB  | 
|Contracted but not provided for |                        |                 |       |       |      |  |        |       
|                                | Oil and gas properties |                 |       | 728   |      |  |        | 847    | 
|                                | Plant and equipment    |                 |       | 4,650 |      |  |        | 12,496 | 
|                                | Other                  |                 |       | 169   |      |  |        | 22     | 
|                                |                        |                 |       |       |      | 
|                                |                        |                 | 5,547 |       |      |  | 13,365 |       
|                                |                        |                 |       |       |      | 

(c) Long-term natural
gas supply commitments






|                    |  |                         |       | 
|------------------- |  | ----------------------- | ----- | 
|                    |  | Quantities              |      
|                    |  |                         |      
|                    |  | (billion of cubic feet) |      
|2006                |  |                         | 451   | 
|2007                |  |                         | 583   | 
|2008                |  |                         | 639   | 
|2009                |  |                         | 704   | 
|2010                |  |                         | 583   | 
|2011 and thereafter |  |                         | 5,528 | 
|                    |  |                         |      
|                    |  |                         | 8,488 | 
|                    |  |                         |      



| |                                        
| | ---------------------------------------
| | (d) Exploration and production licenses





|     |  |     |     | 
|---- |  | --- | --- | 
|     |  | RMB |    
|     |  |     |    
|2006 |  |     | 681 | 
|2007 |  |     | 712 | 
|2008 |  |     | 712 | 
|2009 |  |     | 712 | 
|2010 |  |     | 850 | 

F-46



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



32
    ACQUISITIONOn 30 June 2003 the Group acquired 100% of equity interest
in CNPC International (Buzachi) Ltd. (formerly Texaco North
Buzachi Inc.) (Buzachi) with a cash consideration of
RMB 952. Buzachi is engaged in the exploration and
production of crude oil in Kazakhstan. The acquired business
contributed turnover of RMB 244 and operating loss of
RMB 30 to the Group for the year ended 31 December
2003, and its assets and liabilities at 31 December 2003
were RMB 1,187 and RMB 265 respectively.

In addition, the Group acquired 100% of the working interest in
the Hydrocarbon Exploration and Crude Oil Exploration
Participation Contract in Block 11 of the Ecuadorian Amazon
Region from Lumbaqui Oil Ltd. (Amazon) with a cash
consideration of RMB 141 on October 6, 2003. The
acquired business contributed turnover of nil and operating loss
of RMB 134 to the Group for the year ended 31 December
2003, and its assets and liabilities at 31 December 2003
were RMB 46 and RMB 39 respectively.

Details of net assets acquired are as follows:

|                                  |  |         |     |  |        |  |     |       |  |  |       | 
|--------------------------------- |  | ------- | --- |  | ------ |  | --- | ----- |  |  | ----- | 
|                                  |  | Buzachi |     |  | Amazon |  |     | Total | 
|                                  |  |         |     |  |        |  |     |       | 
|                                  |  | RMB     |     |  | RMB    |  |     | RMB   | 
|Purchase consideration            |  |         | 952 |  |        |  | 141 |       |  |  | 1,093 | 
|                                  |  |         |     |  |        |  |     |       | 
|Fair value of net assets acquired |  |         | 952 |  |        |  | 141 |       |  |  | 1,093 | 
|                                  |  |         |     |  |        |  |     |       | 



|                                             |  |         |       |   |        |  |     |       |  |  |       |  
|-------------------------------------------- |  | ------- | ----- | - | ------ |  | --- | ----- |  |  | ----- | -
|                                             |  | Buzachi |       |   | Amazon |  |     | Total | 
|                                             |  |         |       |   |        |  |     |       | 
|                                             |  | RMB     |       |   | RMB    |  |     | RMB   | 
|Cash and cash equivalents                    |  |         | 18    |   |        |  |    |       |  |  | 18    |  
|Property, plant and equipment                |  |         | 1,008 |   |        |  | 126 |       |  |  | 1,134 |  
|Receivables and prepayments                  |  |         | 99    |   |        |  | 16  |       |  |  | 115   |  
|Inventories                                  |  |         | 129   |   |        |  |    |       |  |  | 129   |  
|Accounts payable and accrued
    liabilities |  |         | (95   | ) |        |  | (1  | )     |  |  | (96   | )
|Asset retirement obligations
    (Note 24)   |  |         | (12   | ) |        |  |    |       |  |  | (12   | )
|Deferred income taxes (Note 25)              |  |         | (195  | ) |        |  |    |       |  |  | (195  | )
|                                             |  |         |       |   |        |  |     |       | 
|Fair value of net assets acquired            |  |         | 952   |   |        |  | 141 |       |  |  | 1,093 |  
|Less: Cash and cash equivalents
    acquired |  |         | (18   | ) |        |  |    |       |  |  | (18   | )
|                                             |  |         |       |   |        |  |     |       | 
|Cash outflow on acquisition                  |  |         | 934   |   |        |  | 141 |       |  |  | 1,075 |  
|                                             |  |         |       |   |        |  |     |       | 

F-47



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



33
    MAJOR CUSTOMERSThe Groups major customers are as follows:

|        |  |                         |        |       |         |  |    |         |       |  |         |  |  |         |    |  |         |  |        |  |  |  |    | 
|------- |  | ----------------------- | ------ | ----- | ------- |  | -- | ------- | ----- |  | ------- |  |  | ------- | -- |  | ------- |  | ------ |  |  |  | -- | 
|        |  | Year Ended December 31, |       
|        |  |                         |       
|        |  | 2003                    |        |       | 2004    |  |    | 2005    |      
|        |  |                         |        |       |         |  |    |         |      
|        |  |                         |        | % to  |         |  |    |         | % to  |  |         |  |  | % to    |   
|        |  |                         |        | Total |         |  |    |         | Total |  |         |  |  | Total   |   
|        |  | Revenue                 |        |       | Revenue |  |    | Revenue |       |  | Revenue |  |  | Revenue |    |  | Revenue | 
|        |  |                         |        |       |         |  |    |         |       |  |         |  |  |         |    |  |         | 
|        |  | RMB                     |        |       | %       |  |    | RMB     |       |  | %       |  |  | RMB     |    |  | %       | 
|Sinopec |  |                         | 35,932 |       |         |  | 12 |         |       |  | 36,977  |  |  |         | 9  |  |         |  | 35,848 |  |  |  | 6  | 
|CNPC    |  |                         | 6,866  |       |         |  | 2  |         |       |  | 10,720  |  |  |         | 3  |  |         |  | 19,823 |  |  |  | 4  | 
|        |  |                         |        |       |         |  |    |         |       |  |         |  |  |         |    |  |         | 
|        |  |                         | 42,798 |       |         |  | 14 |         |       |  | 47,697  |  |  |         | 12 |  |         |  | 55,671 |  |  |  | 10 | 
|        |  |                         |        |       |         |  |    |         |       |  |         |  |  |         |    |  |         | 



|   |                           
|-- | --------------------------
|34 | RELATED PARTY TRANSACTIONS













F-48



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

RMB 39 for a term of 20 years. The Company also
entered into a Supplemental Buildings Leasing Agreement with
CNPC in September 2002 to lease an additional 404 buildings
covering approximately 442,730 square meters at an annual
rental of RMB 157. The Supplemental Buildings Leasing
Agreement will expire at the same time as the Buildings Leasing
Agreement.

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 its related
parties during the years and balances arising from related party
transactions at the end of the years indicated below:



(a) Bank deposits

|                                                            |  |      |     |              |      |  |        |      |  |  |        | 
|----------------------------------------------------------- |  | ---- | --- | ------------ | ---- |  | ------ | ---- |  |  | ------ | 
|                                                            |  |      |     | At           |     
|                                                            |  |      |     | December 31, |     
|                                                            |  |      |     |              |     
|                                                            |  | Note |     |              | 2004 |  |        | 2005 | 
|                                                            |  |      |     |              |      |  |        |      | 
|                                                            |  |      |     | RMB          |      |  | RMB    |     
|Bank deposits balance at the end of
    the year            |  |      |     |              |      |  |        |      |  |  |        | 
|CP Finance                                                  |  |      | (i) |              |      |  | 1,827  |      |  |  | 24,356 | 
|State-controlled banks and other
    financial institutions |  |      |     |              |      |  | 10,614 |      |  |  | 55,139 | 
|                                                            |  |      |     |              |      |  |        |      | 
|                                                            |  |      |     |              |      |  | 12,441 |      |  |  | 79,495 | 
|                                                            |  |      |     |              |      |  |        |      | 

|                                                            |  |      |     |              |      |  |     |      |  |     |      |  |  |  |       | 
|----------------------------------------------------------- |  | ---- | --- | ------------ | ---- |  | --- | ---- |  | --- | ---- |  |  |  | ----- | 
|                                                            |  |      |     | Year Ended   |     
|                                                            |  |      |     | December 31, |     
|                                                            |  |      |     |              |     
|                                                            |  | Note |     |              | 2003 |  |     | 2004 |  |     | 2005 | 
|                                                            |  |      |     |              |      |  |     |      |  |     |      | 
|                                                            |  |      |     | RMB          |      |  | RMB |      |  | RMB |     
|Interest income from bank deposits                          |  |      |     |              |      |  |     |      |  |     |      |  |  |  |       | 
|CP Finance                                                  |  |      | (i) |              |      |  | 35  |      |  |     | 29   |  |  |  | 33    | 
|State-controlled banks and other
    financial institutions |  |      |     |              |      |  | 215 |      |  |     | 132  |  |  |  | 1,582 | 
|                                                            |  |      |     |              |      |  |     |      |  |     |      | 
|                                                            |  |      |     |              |      |  | 250 |      |  |     | 161  |  |  |  | 1,615 | 
|                                                            |  |      |     |              |      |  |     |      |  |     |      | 






| |     |                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) | CP Finance is a subsidiary of CNPC and a non-bank financial
    institution approved by the Peoples Bank of China. The
    deposits yield interest at prevailing saving deposit rates.

F-49



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



(b) Sales of goods and services

|                                   |                     |                         |         |        |      |  |         |        |  |  |         |        | 
|---------------------------------- | ------------------- | ----------------------- | ------- | ------ | ---- |  | ------- | ------ |  |  | ------- | ------ | 
|                                   |                     | Year Ended December 31, |        
|                                   |                     |                         |        
|                                   |                     | 2003                    |         |        | 2004 |  |         | 2005   | 
|                                   |                     |                         |         |        |      |  |         |        | 
|                                   |                     | RMB                     |         |        | RMB  |  |         | RMB    | 
|Sales of goods                     |                     |                         |         |        |      |  |         |        |  |  |         |       
|Equity affiliates                  |                     |                         |         |        |      |  |         |        |  |  |         |       
|                                   |  Crude Oil         |                         |         | 2,247  |      |  |         | 2,597  |  |  |         | 883    | 
|                                   |  Refined Products  |                         |         | 3,266  |      |  |         | 6,397  |  |  |         | 9,766  | 
|                                   |  Chemical Products |                         |         | 82     |      |  |         | 153    |  |  |         | 308    | 
|Fellow subsidiaries (CNPC Group)   |                     |                         |         |        |      |  |         |        |  |  |         |       
|                                   |  Crude Oil         |                         |         | 111    |      |  |         | 100    |  |  |         | 155    | 
|                                   |  Refined Products  |                         |         | 3,407  |      |  |         | 5,720  |  |  |         | 12,364 | 
|                                   |  Chemical Products |                         |         | 1,709  |      |  |         | 2,927  |  |  |         | 4,805  | 
|                                   |  Natural Gas       |                         |         | 643    |      |  |         | 737    |  |  |         | 820    | 
|                                   |  Other             |                         |         | 295    |      |  |         | 320    |  |  |         | 650    | 
|Other state-controlled enterprises |                     |                         |         |        |      |  |         |        |  |  |         |       
|                                   |  Crude Oil         |                         |         | 34,139 |      |  |         | 34,212 |  |  |         | 37,168 | 
|                                   |  Refined Products  |                         |         | 42,978 |      |  |         | 61,138 |  |  |         | 86,505 | 
|                                   |  Chemical Products |                         |         | 9,247  |      |  |         | 14,155 |  |  |         | 18,275 | 
|                                   |  Natural Gas       |                         |         | 4,385  |      |  |         | 5,093  |  |  |         | 8,127  | 
|                                   |                     |                         |         |        |      |  |         |        | 
|                                   |                     |                         | 102,509 |        |      |  | 133,549 |        |  |  | 179,826 |       
|                                   |                     |                         |         |        |      |  |         |        | 



|                                   |  |              |       |  |      |  |       |      |  |  |       | 
|---------------------------------- |  | ------------ | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|                                   |  | Year Ended   |      
|                                   |  | December 31, |      
|                                   |  |              |      
|                                   |  | 2003         |       |  | 2004 |  |       | 2005 | 
|                                   |  |              |       |  |      |  |       |      | 
|                                   |  | RMB          |       |  | RMB  |  |       | RMB  | 
|Sales of services                  |  |              |       |  |      |  |       |      |  |  |       | 
|Fellow subsidiaries (CNPC Group)   |  |              | 785   |  |      |  | 916   |      |  |  | 1,029 | 
|Other state-controlled enterprises |  |              | 846   |  |      |  | 3,047 |      |  |  | 3,592 | 
|                                   |  |              |       |  |      |  |       |      | 
|                                   |  |              | 1,631 |  |      |  | 3,963 |      |  |  | 4,621 | 
|                                   |  |              |       |  |      |  |       |      | 



F-50



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



(c) Purchases of goods and services

|                                   |                                                         |                                                 |     |                         |       |  |        |        |        |     |         |        |        |  |         |        |        | 
|---------------------------------- | ------------------------------------------------------- | ----------------------------------------------- | --- | ----------------------- | ----- |  | ------ | ------ | ------ | --- | ------- | ------ | ------ |  | ------- | ------ | ------ | 
|                                   |                                                         |                                                 |     | Year Ended December 31, |      
|                                   |                                                         |                                                 |     |                         |      
|                                   |                                                         | Notes                                           |     |                         | 2003  |  |        | 2004   |        |     | 2005    |       
|                                   |                                                         |                                                 |     |                         |       |  |        |        |        |     |         |       
|                                   |                                                         |                                                 |     | RMB                     |       |  | RMB    |        |        | RMB |        
|Purchases of goods                 |                                                         |                                                 | (i) |                         |       |  |        |        |        |     |         |        |        |  |         |       
|Equity affiliates                  |                                                         |                                                 |     |                         |       |  | 1,847  |        |        |     | 2,185   |        |        |  | 4,220   |       
|Other state-controlled enterprises |                                                         |                                                 |     |                         |       |  | 29,377 |        |        |     | 36,048  |        |        |  | 59,719  |       
|Purchases of services              |                                                         |                                                 |     |                         |       |  |        |        |        |     |         |        |        |  |         |       
|Equity affiliates                  |                                                         |                                                 |     |                         |       |  | 16     |        |        |     | 29      |        |        |  | 43      |       
|Fellow subsidiaries (CNPC Group)   |                                                         |                                                 |     |                         |       |  |        |        |        |     |         |        |        |  |         |       
|                                   |  Fees paid for
    construction and technical services |                                                 |     | (ii)                    |       |  |        |        |        |     |         |        |        |  |         |        |       
|                                   |                                                         |  exploration and
    development services      |     |                         | (iii) |  |        |        | 25,957 |     |         |        | 30,058 |  |         |        | 39,653 | 
|                                   |                                                         |  other construction and
    technical services |     |                         | (iv)  |  |        |        | 15,841 |     |         |        | 18,673 |  |         |        | 25,010 | 
|                                   |  Fees for production
    services                      |                                                 |     | (v)                     |       |  |        | 16,042 |        |     |         | 16,313 |        |  |         | 23,344 |       
|                                   |  Social services charges                               |                                                 |     | (vi)                    |       |  |        | 1,326  |        |     |         | 1,289  |        |  |         | 2,153  |       
|                                   |  Ancillary services
    charges                        |                                                 |     | (vii)                   |       |  |        | 1,683  |        |     |         | 1,717  |        |  |         | 2,345  |       
|                                   |  Commission expense and
    other charges              |                                                 |     | (viii)                  |       |  |        | 971    |        |     |         | 884    |        |  |         | 1,612  |       
|                                   | Other state-controlled enterprises                      |                                                 |     | (ix)                    |       |  |        | 2,658  |        |     |         | 4,752  |        |  |         | 6,390  |       
|                                   |                                                         |                                                 |     |                         |       |  |        |        |        |     |         |       
|                                   |                                                         |                                                 |     |                         |       |  | 95,718 |        |        |     | 111,948 |        |        |  | 164,489 |       
|                                   |                                                         |                                                 |     |                         |       |  |        |        |        |     |         |       






| |       |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | Purchases of goods principally represent the purchases of raw
    materials, spare parts and low cost consumables at market prices.                                                                                                                                                                                                                                                                              
|
| | (ii)  | 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 margin of no more than 15%, including exploration and
    development services and oilfield construction services.                                                                            
|
| | (iii) | Direct costs for exploration and development services comprise
    geophysical survey, drilling, well cementing, logging and well
    testing.                                                                                                                                                                                                                                                                   
|
| | (iv)  | 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.                                                                                        
|
| | (v)   | The fees paid for production services comprise fees for the
    repair of machinery, supply of water, electricity and gas at the
    state-prescribed prices, provision of services such as
    communications, transportation, fire fighting, asset leasing,
    environmental protection and sanitation, maintenance of roads,
    manufacture of replacement parts and machinery at cost or market
    prices.
|
| | (vi)  | These represent expenditures for social welfare and support
    services which are charged at cost.                                                                                                                                                                                                                                                                                                              
|
| | (vii) | Ancillary services charges represent mainly fees for property
    management, the provision of training centers, guesthouses,
    canteens, public shower rooms, etc. at market prices.                                                                                                                                                                                                                          

F-51



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



(viii)
    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.(ix)
    Purchases of services from other state-controlled enterprises
    principally represent the purchases of the construction and
    technical services at market prices.

(d) Purchases of assets

|                                   |  |                         |       |  |      |  |       |      |  |  |        | 
|---------------------------------- |  | ----------------------- | ----- |  | ---- |  | ----- | ---- |  |  | ------ | 
|                                   |  | Year Ended December 31, |      
|                                   |  |                         |      
|                                   |  | 2003                    |       |  | 2004 |  |       | 2005 | 
|                                   |  |                         |       |  |      |  |       |      | 
|                                   |  | RMB                     |       |  | RMB  |  |       | RMB  | 
|Purchases of assets                |  |                         |       |  |      |  |       |      |  |  |        | 
|Equity affiliates                  |  |                         |      |  |      |  | 9     |      |  |  | 11     | 
|Fellow subsidiaries (CNPC Group)   |  |                         | 2,249 |  |      |  | 4,018 |      |  |  | 5,870  | 
|Other state-controlled enterprises |  |                         | 3,068 |  |      |  | 3,480 |      |  |  | 6,813  | 
|                                   |  |                         |       |  |      |  |       |      | 
|                                   |  |                         | 5,317 |  |      |  | 7,507 |      |  |  | 12,694 | 
|                                   |  |                         |       |  |      |  |       |      | 





| |                                                                                  
| | ---------------------------------------------------------------------------------
| | (e) Year-end balances arising from sales/ purchases
    of goods/ services/assets

|                                                                    |                                    |              |        |        |      |  |        |      |  
|------------------------------------------------------------------- | ---------------------------------- | ------------ | ------ | ------ | ---- |  | ------ | ---- | -
|                                                                    |                                    | At           |       
|                                                                    |                                    | December 31, |       
|                                                                    |                                    |              |       
|                                                                    |                                    | 2004         |        |        | 2005 | 
|                                                                    |                                    |              |        |        |      | 
|                                                                    |                                    | RMB          |        |        | RMB  | 
|Accounts receivable from related
    parties at the end of the year |                                    |              |        |        |      |  |        |     
|Equity affiliates                                                   |                                    |              | 138    |        |      |  | 12     |     
|Fellow subsidiaries (CNPC Group)                                    |                                    |              | 477    |        |      |  | 337    |     
|Other state-controlled enterprises                                  |                                    |              | 3,470  |        |      |  | 1,796  |     
|                                                                    |                                    |              |        |        |      | 
|                                                                    |                                    |              | 4,085  |        |      |  | 2,145  |     
|Less: Impairment provision                                          |                                    |              |        |        |      |  |        |     
|                                                                    | Equity affiliates                  |              |        |       |      |  |        |     |  
|                                                                    | Fellow subsidiaries (CNPC Group)   |              |        | (399   | )    |  |        | (246 | )
|                                                                    | Other state-controlled enterprises |              |        | (1,451 | )    |  |        | (924 | )
|                                                                    |                                    |              |        |        |      | 
|                                                                    |                                    |              | (1,850 | )      |      |  | (1,170 | )   
|                                                                    |                                    |              |        |        |      | 
|                                                                    |                                    |              | 2,235  |        |      |  | 975    |     
|                                                                    |                                    |              |        |        |      | 

F-52



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                                       |                                    |              |        |      |      |  |        |      |  
|-------------------------------------------------------------------------------------- | ---------------------------------- | ------------ | ------ | ---- | ---- |  | ------ | ---- | -
|                                                                                       |                                    | At           |       
|                                                                                       |                                    | December 31, |       
|                                                                                       |                                    |              |       
|                                                                                       |                                    | 2004         |        |      | 2005 | 
|                                                                                       |                                    |              |        |      |      | 
|                                                                                       |                                    | RMB          |        |      | RMB  | 
|Prepayment and other receivables
    from related parties at the end of the year       |                                    |              |        |      |      |  |        |     
|Equity affiliates                                                                      |                                    |              | 1,332  |      |      |  | 3,634  |     
|Parent (CNPC)                                                                          |                                    |              | 3,385  |      |      |  | 103    |     
|Fellow subsidiaries (CNPC Group)                                                       |                                    |              | 3,573  |      |      |  | 7,430  |     
|Other state-controlled enterprises                                                     |                                    |              | 3,171  |      |      |  | 2,357  |     
|                                                                                       |                                    |              |        |      |      | 
|                                                                                       |                                    |              | 11,461 |      |      |  | 13,524 |     
|Less: Impairment provision                                                             |                                    |              |        |      |      |  |        |     
|                                                                                       | Equity affiliates                  |              |        | (295 | )    |  |        | (240 | )
|                                                                                       | Fellow subsidiaries (CNPC Group)   |              |        | (20  | )    |  |        | (70  | )
|                                                                                       | Other state-controlled enterprises |              |        | (365 | )    |  |        | (330 | )
|                                                                                       |                                    |              |        |      |      | 
|                                                                                       |                                    |              | (680   | )    |      |  | (640   | )   
|                                                                                       |                                    |              |        |      |      | 
|                                                                                       |                                    |              | 10,781 |      |      |  | 12,884 |     
|                                                                                       |                                    |              |        |      |      | 
|Accounts payable and accrued
    liabilities to related parties at the end of the year |                                    |              |        |      |      |  |        |     
|Equity affiliates                                                                      |                                    |              | 572    |      |      |  | 3,118  |     
|Parent (CNPC)                                                                          |                                    |              | 2,681  |      |      |  | 2,516  |     
|Fellow subsidiaries (CNPC Group)                                                       |                                    |              | 13,083 |      |      |  | 20,285 |     
|Other state-controlled enterprises                                                     |                                    |              | 17,555 |      |      |  | 15,163 |     
|                                                                                       |                                    |              |        |      |      | 
|                                                                                       |                                    |              | 33,891 |      |      |  | 41,082 |     
|                                                                                       |                                    |              |        |      |      | 

|                                                                                                                          |  |              |     |  |      |  |     |      |  |  |     |  
|------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --- |  | ---- |  | --- | ---- |  |  | --- | -
|                                                                                                                          |  | Year Ended   |    
|                                                                                                                          |  | December 31, |    
|                                                                                                                          |  |              |    
|                                                                                                                          |  | 2003         |     |  | 2004 |  |     | 2005 | 
|                                                                                                                          |  |              |     |  |      |  |     |      | 
|                                                                                                                          |  | RMB          |     |  | RMB  |  |     | RMB  | 
|Impairment provision of accounts
    receivable from related parties charged to the statements of
    income              |  |              |     |  |      |  |     |      |  |  |     |  
|Equity affiliates                                                                                                         |  |              | 2   |  |      |  |    |      |  |  |    |  
|Fellow subsidiaries (CNPC Group)                                                                                          |  |              | 22  |  |      |  | 42  |      |  |  | 24  |  
|Other state-controlled enterprises                                                                                        |  |              | 22  |  |      |  | (36 | )    |  |  | (62 | )
|                                                                                                                          |  |              |     |  |      |  |     |      | 
|                                                                                                                          |  |              | 46  |  |      |  | 6   |      |  |  | (38 | )
|                                                                                                                          |  |              |     |  |      |  |     |      | 
|Impairment provision of prepayment
    and other receivables from related parties charged to the
    statements of income |  |              |     |  |      |  |     |      |  |  |     |  
|Equity affiliates                                                                                                         |  |              | 113 |  |      |  | 49  |      |  |  | (55 | )
|Fellow subsidiaries (CNPC Group)                                                                                          |  |              | 78  |  |      |  | 47  |      |  |  | 55  |  
|Other state-controlled enterprises                                                                                        |  |              | 584 |  |      |  | 82  |      |  |  | (35 | )
|                                                                                                                          |  |              |     |  |      |  |     |      | 
|                                                                                                                          |  |              | 775 |  |      |  | 178 |      |  |  | (35 | )
|                                                                                                                          |  |              |     |  |      |  |     |      | 

F-53



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



(f) Leases

|                                                             |  |       |     |              |      |  |       |      |  |     |       |  |  |  |       | 
|------------------------------------------------------------ |  | ----- | --- | ------------ | ---- |  | ----- | ---- |  | --- | ----- |  |  |  | ----- | 
|                                                             |  |       |     | Year Ended   |     
|                                                             |  |       |     | December 31, |     
|                                                             |  |       |     |              |     
|                                                             |  | Notes |     |              | 2003 |  |       | 2004 |  |     | 2005  | 
|                                                             |  |       |     |              |      |  |       |      |  |     |       | 
|                                                             |  |       |     | RMB          |      |  | RMB   |      |  | RMB |      
|Advance operating lease payments
    paid to related parties |  |       | (i  | )            |      |  |       |      |  |     |       |  |  |  |       | 
|Parent (CNPC)                                                |  |       |     |              |      |  |      |      |  |     | 186   |  |  |  | 232   | 
|Other state-controlled enterprises                           |  |       |     |              |      |  | 218   |      |  |     | 15    |  |  |  | 33    | 
|                                                             |  |       |     |              |      |  |       |      |  |     |       | 
|                                                             |  |       |     |              |      |  | 218   |      |  |     | 201   |  |  |  | 265   | 
|                                                             |  |       |     |              |      |  |       |      |  |     |       | 
|Other operating lease payments paid
    to related parties   |  |       |     |              |      |  |       |      |  |     |       |  |  |  |       | 
|Parent (CNPC)                                                |  |       | (ii | )            |      |  | 1,972 |      |  |     | 2,106 |  |  |  | 2,192 | 
|Other state-controlled enterprises                           |  |       |     |              |      |  | 2     |      |  |     | 5     |  |  |  | 5     | 
|                                                             |  |       |     |              |      |  |       |      |  |     |       | 
|                                                             |  |       |     |              |      |  | 1,974 |      |  |     | 2,111 |  |  |  | 2,197 | 
|                                                             |  |       |     |              |      |  |       |      |  |     |       | 






| |     |                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) | Advance operating lease payments principally represent the
    advance payment paid for the long-term operating lease of land
    and gas stations at prices prescribed by local governments or
    market prices.



| |      |                                                                                                                                                                                                                                                                                                   
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) | Other operating lease payments to CNPC principally represent the
    rental paid for the operating lease of land and buildings at the
    prices prescribed in the Land Use Rights Leasing Contract, the
    Building Leasing Contract and Supplemental Buildings Leasing
    Agreement with CNPC.

|                                               |                                    |              |    |    |      |  |   |   | 
|---------------------------------------------- | ---------------------------------- | ------------ | -- | -- | ---- |  | - | - | 
|                                               |                                    | At           |   
|                                               |                                    | December 31, |   
|                                               |                                    |              |   
|                                               |                                    | 2004         |    |    | 2005 | 
|                                               |                                    |              |    |    |      | 
|                                               |                                    | RMB          |    |    | RMB  | 
|Operating lease payable to related
    parties |                                    |              |    |    |      |  |   |  
|                                               | Parent (CNPC)                      |              |    | 52 |      |  |   | 2 | 
|                                               | Other state-controlled enterprises |              |    | 33 |      |  |   | 1 | 
|                                               |                                    |              |    |    |      | 
|                                               |                                    |              | 85 |    |      |  | 3 |  
|                                               |                                    |              |    |    |      | 



| |          
| | ---------
| | (g) Loans

|                            |                            |                         |  |       |      |  |  |        |   |  |  |       |  
|--------------------------- | -------------------------- | ----------------------- |  | ----- | ---- |  |  | ------ | - |  |  | ----- | -
|                            |                            | Year Ended December 31, | 
|                            |                            |                         | 
|Loans to related parties    |                            | 2003                    |  |       | 2004 |  |  | 2005   |  
|                            |                            |                         |  |       |      |  |  |        |  
|                            |                            | RMB                     |  |       | RMB  |  |  | RMB    |  
|Loans to equity affiliates: |                            |                         |  |       |      |  |  |        |   |  |  |      
|                            | Beginning of the year      |                         |  | 514   |      |  |  | 1,718  |   |  |  | 569   |  
|                            | Loans advanced during year |                         |  | 1,729 |      |  |  | 235    |   |  |  | 1,392 |  
|                            | Loans repayments received  |                         |  | (525  | )    |  |  | (1,384 | ) |  |  | (321  | )
|                            | Interest charged           |                         |  | 47    |      |  |  | 41     |   |  |  | 29    |  
|                            | Interest received          |                         |  | (47   | )    |  |  | (41    | ) |  |  | (29   | )
|                            |                            |                         |  |       |      |  |  |        |  
|                            | End of the year            |                         |  | 1,718 |      |  |  | 569    |   |  |  | 1,640 |  
|                            |                            |                         |  |       |      |  |  |        |  

F-54



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Loans to equity affiliates are included in prepaid expenses and
other current assets (see Note 16).

The loans to related parties are mainly with interest rates
ranging from 5.26% to 8.54% per annum as of December 31,
2005.

|                                                                        |                           |       |      |                         |      |  |     |         |   |     |      |         |   |  |  |         |  
|----------------------------------------------------------------------- | ------------------------- | ----- | ---- | ----------------------- | ---- |  | --- | ------- | - | --- | ---- | ------- | - |  |  | ------- | -
|                                                                        |                           |       |      | Year Ended December 31, |     
|                                                                        |                           |       |      |                         |     
|Loans to related parties                                                |                           | Notes |      |                         | 2003 |  |     | 2004    |   |     | 2005 |        
|                                                                        |                           |       |      |                         |      |  |     |         |   |     |      |        
|                                                                        |                           |       |      | RMB                     |      |  | RMB |         |   | RMB |     
|Loans from CP Finance:                                                  |                           |       | (i   | )                       |      |  |     |         |   |     |      |         |   |  |  |        
|                                                                        | Beginning of the year     |       |      |                         |      |  |     | 28,716  |   |     |      | 29,575  |   |  |  | 29,932  |  
|                                                                        | Loan received during year |       |      |                         |      |  |     | 4,651   |   |     |      | 12,003  |   |  |  | 10,187  |  
|                                                                        | Loan repayments paid      |       |      |                         |      |  |     | (3,792  | ) |     |      | (11,646 | ) |  |  | (12,803 | )
|                                                                        | Interest charged          |       |      |                         |      |  |     | 1,175   |   |     |      | 1,234   |   |  |  | 1,297   |  
|                                                                        | Interest paid             |       |      |                         |      |  |     | (1,175  | ) |     |      | (1,234  | ) |  |  | (1,294  | )
|                                                                        |                           |       |      |                         |      |  |     |         |   |     |      |        
|                                                                        | End of the year           |       |      |                         |      |  |     | 29,575  |   |     |      | 29,932  |   |  |  | 27,319  |  
|                                                                        |                           |       |      |                         |      |  |     |         |   |     |      |        
|Loans from state-controlled banks
    and other financial institutions: |                           |       | (ii  | )                       |      |  |     |         |   |     |      |         |   |  |  |        
|                                                                        | Beginning of the year     |       |      |                         |      |  |     | 49,543  |   |     |      | 38,341  |   |  |  | 36,562  |  
|                                                                        | Loan received during year |       |      |                         |      |  |     | 15,463  |   |     |      | 24,990  |   |  |  | 24,715  |  
|                                                                        | Loan repayments paid      |       |      |                         |      |  |     | (26,665 | ) |     |      | (26,739 | ) |  |  | (30,105 | )
|                                                                        | Interest charged          |       |      |                         |      |  |     | 2,171   |   |     |      | 1,847   |   |  |  | 1,670   |  
|                                                                        | Interest paid             |       |      |                         |      |  |     | (2,171  | ) |     |      | (1,877  | ) |  |  | (1,664  | )
|                                                                        |                           |       |      |                         |      |  |     |         |   |     |      |        
|                                                                        | End of the year           |       |      |                         |      |  |     | 38,341  |   |     |      | 36,562  |   |  |  | 31,178  |  
|                                                                        |                           |       |      |                         |      |  |     |         |   |     |      |        
|Loans from other related parties:                                       |                           |       | (iii | )                       |      |  |     |         |   |     |      |         |   |  |  |        
|                                                                        | Beginning of the year     |       |      |                         |      |  |     | 14      |   |     |      | 13      |   |  |  | 16      |  
|                                                                        | Loan received during year |       |      |                         |      |  |     |        |   |     |      | 5       |   |  |  | 51      |  
|                                                                        | Loan repayments paid      |       |      |                         |      |  |     | (1      | ) |     |      | (2      | ) |  |  | (5      | )
|                                                                        | Interest charged          |       |      |                         |      |  |     |        |   |     |      |        |   |  |  | 1       |  
|                                                                        | Interest paid             |       |      |                         |      |  |     |        |   |     |      |        |   |  |  | (1      | )
|                                                                        |                           |       |      |                         |      |  |     |         |   |     |      |        
|                                                                        | End of the year           |       |      |                         |      |  |     | 13      |   |     |      | 16      |   |  |  | 62      |  
|                                                                        |                           |       |      |                         |      |  |     |         |   |     |      |        






| |    |                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i) | The loans from CP Finance are mainly with interest rates ranging
    from 4.45% to 5.70% per annum as of December 31, 2005, with
    maturities through 2032;



| |      |                                                                                                                                                                                                              
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) | The loans from state-controlled banks and other financial
    institutions are mainly with interest rates ranging from free to
    8.66% per annum as of December 31, 2005, with maturities
    through 2038;



| |       |                                                                                                                                                                        
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) | The loans from other related parties are mainly with interest
    rates ranging from free to 6.32% per annum as of
    December 31, 2005, with no fixed repayment term.



F-55



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

The guaranteed loans amount RMB 756 and RMB 674 at
December 31, 2004 and 2005, respectively. All these
guaranteed loans are from non-related parties, long-term and
guaranteed by CNPC.



(h) Key management compensation

|                                 |                                              |                         |       |       |         |  |       |         |  |  |       |       | 
|-------------------------------- | -------------------------------------------- | ----------------------- | ----- | ----- | ------- |  | ----- | ------- |  |  | ----- | ----- | 
|                                 |                                              | Year Ended December 31, |      
|                                 |                                              |                         |      
|                                 |                                              | 2003                    |       |       | 2004    |  |       | 2005    | 
|                                 |                                              |                         |       |       |         |  |       |         | 
|                                 |                                              | RMB000                 |       |       | RMB000 |  |       | RMB000 | 
|Fee for key management personnel |                                              |                         |       |       |         |  |       |         |  |  |       |      
|                                 |  Directors and
    supervisors              |                         |       | 83    |         |  |       | 120     |  |  |       | 897   | 
|                                 | Salaries, allowances and other
    benefits  |                         |       |       |         |  |       |         |  |  |       |       | 
|                                 |  Directors and
    supervisors              |                         |       | 1,377 |         |  |       | 2,012   |  |  |       | 4,031 | 
|                                 |  Other key management                       |                         |       | 1,051 |         |  |       | 1,330   |  |  |       | 2,207 | 
|                                 | Pension costs-defined contribution
    plans |                         |       |       |         |  |       |         |  |  |       |       | 
|                                 |  Directors and
    supervisors              |                         |       | 34    |         |  |       | 43      |  |  |       | 57    | 
|                                 |  Other key management                       |                         |       | 38    |         |  |       | 31      |  |  |       | 37    | 
|                                 |                                              |                         |       |       |         |  |       |         | 
|                                 |                                              |                         | 2,583 |       |         |  | 3,536 |         |  |  | 7,229 |      
|                                 |                                              |                         |       |       |         |  |       |         | 





| |                           
| | --------------------------
| | (i) Contingent liabilities





| |                         
| | ------------------------
| | (j) Collateral for debts



F-56



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



35
    EMOLUMENTS OF DIRECTORS AND SUPERVISORSDetails of the emoluments of directors and supervisors for the
years ended December 31, 2005, 2004 and 2003 are as follows:

|                             |                          |               |     |                 |                |  |       |            |  |  |         |   |  |         |       |     |         |  |     |     |  |  |     |     | 
|---------------------------- | ------------------------ | ------------- | --- | --------------- | -------------- |  | ----- | ---------- |  |  | ------- | - |  | ------- | ----- | --- | ------- |  | --- | --- |  |  | --- | --- | 
|                             |                          | 2005          |     |                 | 2004           |  |       | 2003       | 
|                             |                          |               |     |                 |                |  |       |            | 
|                             |                          |               |     | Contribution to |                |  |       |            |  |  |        
|                             |                          | Fee for       |     |                 | Salaries,      |  |       | retirement |  |  |         |   |  |         |      
|                             |                          | directors and |     |                 | allowances and |  |       | benefit    |  |  |         |   |  |         |      
|Name                         |                          | supervisors   |     |                 | other benefits |  |       | scheme     |  |  | Total   |   |  | Total   |       |     | Total   | 
|                             |                          |               |     |                 |                |  |       |            |  |  |         |   |  |         |       |     |         | 
|                             |                          | RMB000       |     |                 | RMB000        |  |       | RMB000    |  |  | RMB000 |   |  | RMB000 |       |     | RMB000 | 
|Chairman:                    |                          |               |     |                 |                |  |       |            |  |  |         |   |  |         |       |     |         |  |     |     |  |  |     |    
|                             | Mr. Chen Geng            |               |     |                |                |  |       | 781        |  |  |         | 9 |  |         |       | 790 |         |  |     | 389 |  |  |     | 262 | 
|Vice Chairman:               |                          |               |     |                 |                |  |       |            |  |  |         |   |  |         |       |     |         |  |     |     |  |  |     |    
|                             | Mr. Jiang Jiemin         |               |     |                |                |  |       | 616        |  |  |         | 9 |  |         |       | 625 |         |  |     | 130 |  |  |     |    | 
|Executive directors:         |                          |               |     |                 |                |  |       |            |  |  |         |   |  |         |       |     |         |  |     |     |  |  |     |    
|                             | Mr. Su Shulin            |               |     |                |                |  |       | 677        |  |  |         | 9 |  |         |       | 686 |         |  |     | 352 |  |  |     | 261 | 
|                             | Mr. Duan Wende           |               |     |                |                |  |       | 677        |  |  |         | 9 |  |         |       | 686 |         |  |     | 222 |  |  |     |    | 
|                             | Mr. Wang
    Fucheng(ii) |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     | 300 |  |  |     | 223 | 
|                             |                          |               |     |                 |                |  |       |            |  |  |         |   |  |         |       |     |         | 
|                             |                          |               |    |                 |                |  | 1,354 |            |  |  | 18      |   |  |         | 1,372 |     |         |  | 874 |     |  |  | 484 |    
|                             |                          |               |     |                 |                |  |       |            |  |  |         |   |  |         |       |     |         | 
|Non-executive
    directors: |                          |               |     |                 |                |  |       |            |  |  |         |   |  |         |       |     |         |  |     |     |  |  |     |    
|                             | Mr. Zheng Hu             |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     |    |  |  |     |    | 
|                             | Mr. Zhou Jiping          |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     |    |  |  |     |    | 
|                             | Mr. Wang Yilin           |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     |    |  |  |     |    | 
|                             | Mr. Zeng Yukang          |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     |    |  |  |     |    | 
|                             | Mr. Gong Huazhang        |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     |    |  |  |     |    | 
|                             | Mr. Jiang Fan            |               |     |                |                |  |       | 32         |  |  |         | 1 |  |         |       | 33  |         |  |     |    |  |  |     |    | 
|                             | Mr. Chee-chen Tung       |               |     | 275             |                |  |       |           |  |  |         |  |  |         |       | 275 |         |  |     | 29  |  |  |     | 17  | 
|                             | Mr. Liu Hongru           |               |     | 274             |                |  |       |           |  |  |         |  |  |         |       | 274 |         |  |     | 33  |  |  |     | 21  | 
|                             | Mr. Franco Bernabè       |               |     | 279             |                |  |       |           |  |  |         |  |  |         |       | 279 |         |  |     | 33  |  |  |     | 25  | 
|                             | Mr. Ren
    Chuanjun(ii) |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     |    |  |  |     |    | 
|                             | Mr. Zou
    Haifeng(ii)  |               |     |                |                |  |       | 281        |  |  |         | 2 |  |         |       | 283 |         |  |     | 238 |  |  |     | 157 | 
|                             | Mr. Ma
    Fucai(i)      |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     |    |  |  |     | 150 | 
|                             | Mr. Wu
    Yaowen(i)     |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     |    |  |  |     |    | 
|                             |                          |               |     |                 |                |  |       |            |  |  |         |   |  |         |       |     |         | 
|                             |                          |               | 828 |                 |                |  | 313   |            |  |  | 3       |   |  |         | 1,144 |     |         |  | 333 |     |  |  | 370 |    
|                             |                          |               |     |                 |                |  |       |            |  |  |         |   |  |         |       |     |         | 
|Supervisors:                 |                          |               |     |                 |                |  |       |            |  |  |         |   |  |         |       |     |         |  |     |     |  |  |     |    
|                             | Mr. Wang Fucheng         |               |     |                |                |  |       | 522        |  |  |         | 8 |  |         |       | 530 |         |  |     |    |  |  |     |    | 
|                             | Mr. Wen Qingshan         |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     |    |  |  |     |    | 
|                             | Mr. Sun Xianfeng         |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     |    |  |  |     |    | 
|                             | Mr. Xu Fengli            |               |     |                |                |  |       | 365        |  |  |         | 9 |  |         |       | 374 |         |  |     | 153 |  |  |     |    | 
|                             | Mr. Qin Gang             |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     |    |  |  |     |    | 
|                             | Mr. Li Yongwu            |               |     | 12              |                |  |       |           |  |  |         |  |  |         |       | 12  |         |  |     |    |  |  |     |    | 
|                             | Mr. Wu Zhipan            |               |     | 57              |                |  |       |           |  |  |         |  |  |         |       | 57  |         |  |     | 12  |  |  |     | 17  | 
|                             | Mr. Li
    Kecheng(ii)   |               |     |                |                |  |       |           |  |  |         |  |  |         |       |    |         |  |     |    |  |  |     |    | 

F-57



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                         |  |               |     |                 |                |  |       |            |  |  |         |  |  |         |       |  |         |  |       |  |  |  |       | 
|------------------------ |  | ------------- | --- | --------------- | -------------- |  | ----- | ---------- |  |  | ------- |  |  | ------- | ----- |  | ------- |  | ----- |  |  |  | ----- | 
|                         |  | 2005          |     |                 | 2004           |  |       | 2003       | 
|                         |  |               |     |                 |                |  |       |            | 
|                         |  |               |     | Contribution to |                |  |       |            |  |  |        
|                         |  | Fee for       |     |                 | Salaries,      |  |       | retirement |  |  |         |  |  |         |      
|                         |  | directors and |     |                 | allowances and |  |       | benefit    |  |  |         |  |  |         |      
|Name                     |  | supervisors   |     |                 | other benefits |  |       | scheme     |  |  | Total   |  |  | Total   |       |  | Total   | 
|                         |  |               |     |                 |                |  |       |            |  |  |         |  |  |         |       |  |         | 
|                         |  | RMB000       |     |                 | RMB000        |  |       | RMB000    |  |  | RMB000 |  |  | RMB000 |       |  | RMB000 | 
|Mr. Sun
    Chongren(ii) |  |               |    |                 |                |  | 80    |            |  |  | 1       |  |  |         | 81    |  |         |  | 272   |  |  |  | 187   | 
|Mr. Zhang
    Youcai(ii) |  |               |    |                 |                |  |      |            |  |  |        |  |  |         |      |  |         |  | 12    |  |  |  | 4     | 
|Mr. Bai
    Xinhe(i)     |  |               |    |                 |                |  |      |            |  |  |        |  |  |         |      |  |         |  |      |  |  |  | 170   | 
|Mr. Chen
    Weizhong(i) |  |               |    |                 |                |  |      |            |  |  |        |  |  |         |      |  |         |  |      |  |  |  |      | 
|                         |  |               |     |                 |                |  |       |            |  |  |         |  |  |         |       |  |         | 
|                         |  |               | 69  |                 |                |  | 967   |            |  |  | 18      |  |  |         | 1,054 |  |         |  | 449   |  |  |  | 378   | 
|                         |  |               |     |                 |                |  |       |            |  |  |         |  |  |         |       |  |         | 
|                         |  |               | 897 |                 |                |  | 4,031 |            |  |  | 57      |  |  |         | 4,985 |  |         |  | 2,175 |  |  |  | 1,494 | 
|                         |  |               |     |                 |                |  |       |            |  |  |         |  |  |         |       |  |         | 






|    |                                                       
|--- | ------------------------------------------------------
|(i) | No longer a director or supervisor since May 18, 2004.



|     |                                                           
|---- | ----------------------------------------------------------
|(ii) | No longer a director or supervisor since November 8, 2005.



|            |  |        |    |  |        |  |    |        |  |  |    | 
|----------- |  | ------ | -- |  | ------ |  | -- | ------ |  |  | -- | 
|            |  | 2005   |    |  | 2004   |  |    | 2003   | 
|            |  |        |    |  |        |  |    |        | 
|            |  | Number |    |  | Number |  |    | Number | 
|Nil  RMB 1 |  |        | 25 |  |        |  | 24 |        |  |  | 19 | 
|            |  |        |    |  |        |  |    |        | 















F-58



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

balance sheet to its fair value and amounted to approximately
RMB 367 and RMB 630 at December 31, 2004 and 2005.



36
    SEGMENT INFORMATIONThe Group is engaged in a broad range of petroleum related
activities through its four major business segments: Exploration
and Production, Refining and Marketing, Chemicals and Marketing
and Natural Gas and Pipeline.

The Exploration and Production segment is engaged in the
exploration, development, production and sales of crude oil and
natural gas.

The Refining and Marketing segment is engaged in the refining,
transportation, storage and marketing of crude oil and petroleum
products.

The Chemicals and Marketing segment is engaged in the production
and sale of basic petrochemical products, derivative
petrochemical products, and other chemical products.

The Natural Gas and Pipeline segment is engaged in the
transmission of natural gas, crude oil and refined products and
the sale of natural gas.

In addition to these four major business segments, the Other
segment includes the assets, income and expenses relating to
cash management, financing activities, the corporate centre,
research and development, and other business services to the
operating business segments of the Group.

Most 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, the Group also has oversea operations
through subsidiaries engaging in the exploration and production
of crude oil and natural gas.

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, 2003, 2004 and 2005 is presented below:

Primary reporting format  business segments

|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |   |  |  |  |          |  
|-------------------------------------------------------------------- |  | ----------- | -------- | - | --------- |  | ------- | --------- |  |  | ----------- | - |  | ----- | ------ | - | ----- |  | - |  |  |  | -------- | -
|                                                                     |  | Exploration |          |   | Refining  |  |         | Chemicals |  |  | Natural Gas |   |  |       |        |  
|                                                                     |  | and         |          |   | and       |  |         | and       |  |  | and         |   |  |       |        |  
|Year Ended December 31, 2003                                         |  | Production  |          |   | Marketing |  |         | Marketing |  |  | Pipeline    |   |  | Other |        |   | Total | 
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|                                                                     |  | RMB         |          |   | RMB       |  |         | RMB       |  |  | RMB         |   |  | RMB   |        |   | RMB   | 
|Sales and other operating revenues
    (including intersegment)      |  |             | 185,782  |   |           |  | 224,177 |           |  |  | 39,211      |   |  |       | 15,067 |   |       |  |  |  |  |  | 464,237  |  
|Less: Intersegment sales                                             |  |             | (131,336 | ) |           |  | (16,867 | )         |  |  | (2,263      | ) |  |       | (3,340 | ) |       |  |  |  |  |  | (153,806 | )
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Total sales and other operating
    revenues from external customers |  |             | 54,446   |   |           |  | 207,310 |           |  |  | 36,948      |   |  |       | 11,727 |   |       |  |  |  |  |  | 310,431  |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 

F-59



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  |           |  
|------------------------------------------------------------------- |  | ----------- | ------- | - | --------- |  | ------- | --------- |  |  | ----------- | - |  | ----- | ------ | - | ----- |  | ------- | - |  |  | --------- | -
|                                                                    |  | Exploration |         |   | Refining  |  |         | Chemicals |  |  | Natural Gas |   |  |       |        |  
|                                                                    |  | and         |         |   | and       |  |         | and       |  |  | and         |   |  |       |        |  
|Year Ended December 31, 2003                                        |  | Production  |         |   | Marketing |  |         | Marketing |  |  | Pipeline    |   |  | Other |        |   | Total | 
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|                                                                    |  | RMB         |         |   | RMB       |  |         | RMB       |  |  | RMB         |   |  | RMB   |        |   | RMB   | 
|Depreciation, depletion and
    amortization                        |  |             | (26,780 | ) |           |  | (7,939  | )         |  |  | (5,795      | ) |  |       | (1,543 | ) |       |  | (106    | ) |  |  | (42,163   | )
|Segment result                                                      |  |             | 103,665 |   |           |  | 20,471  |           |  |  | 2,621       |   |  |       | 2,248  |   |       |  | (713    | ) |  |  | 128,292   |  
|Other costs                                                         |  |             | (8,435  | ) |           |  | (15,770 | )         |  |  | (1,580      | ) |  |       | (326   | ) |       |  | (469    | ) |  |  | (26,580   | )
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Income/(loss) from operations                                       |  |             | 95,230  |   |           |  | 4,701   |           |  |  | 1,041       |   |  |       | 1,922  |   |       |  | (1,182  | ) |  |  | 101,712   |  
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Finance costs                                                       |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (1,952    | )
|Equity in income of affiliates
    accounted for by equity method   |  |             | 49      |   |           |  | 97      |           |  |  | 42          |   |  |       | 12     |   |       |  | 733     |   |  |  | 933       |  
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Income before income taxes                                          |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 100,693   |  
|Income taxes                                                        |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (28,796   | )
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Income for the year                                                 |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 71,897    |  
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Interest income (including
    intersegment)                        |  |             | 2,515   |   |           |  | 555     |           |  |  | 446         |   |  |       | 117    |   |       |  | 4,403   |   |  |  | 8,036     |  
|Less: Intersegment interest income                                  |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (7,063    | )
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Interest income from external
    sources                           |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 973       |  
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Interest expense (including
    intersegment)                       |  |             | (3,022  | ) |           |  | (1,744  | )         |  |  | (843        | ) |  |       | (356   | ) |       |  | (3,987  | ) |  |  | (9,952    | )
|Less: Intersegment interest expense                                 |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 7,063     |  
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Interest expense to external sources                                |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (2,889    | )
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Segment assets                                                      |  |             | 332,149 |   |           |  | 119,448 |           |  |  | 55,595      |   |  |       | 46,450 |   |       |  | 451,949 |   |  |  | 1,005,591 |  
|Elimination of intersegment balances                                |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (455,972  | )
|Investments in equity affiliates                                    |  |             | 2,994   |   |           |  | 1,912   |           |  |  | 232         |   |  |       | 41     |   |       |  | 2,225   |   |  |  | 7,404     |  
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Total assets                                                        |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 557,023   |  
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Segment capital
    expenditure  for property, plant and equipment |  |             | 56,049  |   |           |  | 12,758  |           |  |  | 3,898       |   |  |       | 13,530 |   |       |  | 138     |   |  |  | 86,373    |  
|Segment liabilities                                                 |  |             | 104,728 |   |           |  | 60,023  |           |  |  | 17,634      |   |  |       | 33,535 |   |       |  | 104,326 |   |  |  | 320,246   |  
|Other liabilities                                                   |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 32,893    |  
|Elimination of intersegment balances                                |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (163,010  | )
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Total liabilities                                                   |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 190,129   |  
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 

F-60



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  |           |  
|-------------------------------------------------------------------- |  | ----------- | -------- | - | --------- |  | ------- | --------- |  |  | ----------- | - |  | ----- | ------ | - | ----- |  | ------- | - |  |  | --------- | -
|                                                                     |  | Exploration |          |   | Refining  |  |         | Chemicals |  |  | Natural Gas |   |  |       |        |  
|                                                                     |  | and         |          |   | and       |  |         | and       |  |  | and         |   |  |       |        |  
|Year Ended December 31, 2004                                         |  | Production  |          |   | Marketing |  |         | Marketing |  |  | Pipeline    |   |  | Other |        |   | Total | 
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|                                                                     |  | RMB         |          |   | RMB       |  |         | RMB       |  |  | RMB         |   |  | RMB   |        |   | RMB   | 
|Sales and other operating revenues
    (including intersegment)      |  |             | 233,948  |   |           |  | 296,427 |           |  |  | 57,179      |   |  |       | 18,255 |   |       |  |        |   |  |  | 605,809   |  
|Less: Intersegment sales                                             |  |             | (180,129 | ) |           |  | (21,862 | )         |  |  | (2,679      | ) |  |       | (3,785 | ) |       |  |        |   |  |  | (208,455  | )
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Total sales and other operating
    revenues from external customers |  |             | 53,819   |   |           |  | 274,565 |           |  |  | 54,500      |   |  |       | 14,470 |   |       |  |        |   |  |  | 397,354   |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Depreciation, depletion and
    amortization                         |  |             | (30,915  | ) |           |  | (8,957  | )         |  |  | (5,741      | ) |  |       | (2,645 | ) |       |  | (104    | ) |  |  | (48,362   | )
|Segment result                                                       |  |             | 138,129  |   |           |  | 28,445  |           |  |  | 11,025      |   |  |       | 2,475  |   |       |  | (518    | ) |  |  | 179,556   |  
|Other costs                                                          |  |             | (7,916   | ) |           |  | (16,554 | )         |  |  | (3,370      | ) |  |       | 60     |   |       |  | (638    | ) |  |  | (28,418   | )
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Income/(loss) from operations                                        |  |             | 130,213  |   |           |  | 11,891  |           |  |  | 7,655       |   |  |       | 2,535  |   |       |  | (1,156  | ) |  |  | 151,138   |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Finance costs                                                        |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (1,515    | )
|Equity in income of affiliates
    accounted for by equity method    |  |             | 225      |   |           |  | 75      |           |  |  | 211         |   |  |       | 16     |   |       |  | 1,094   |   |  |  | 1,621     |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Income before income taxes                                           |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 151,244   |  
|Income taxes                                                         |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (43,598   | )
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Income for the year                                                  |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 107,646   |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Interest income (including
    intersegment)                         |  |             | 2,598    |   |           |  | 895     |           |  |  | 205         |   |  |       | 27     |   |       |  | 4,723   |   |  |  | 8,448     |  
|Less: Intersegment interest income                                   |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (7,075    | )
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Interest income from external
    sources                            |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 1,373     |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Interest expense (including
    intersegment)                        |  |             | (3,096   | ) |           |  | (1,777  | )         |  |  | (502        | ) |  |       | (693   | ) |       |  | (3,903  | ) |  |  | (9,971    | )
|Less: Intersegment interest expense                                  |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 7,075     |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Interest expense to external sources                                 |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (2,896    | )
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Segment assets                                                       |  |             | 364,477  |   |           |  | 142,480 |           |  |  | 55,568      |   |  |       | 61,631 |   |       |  | 507,164 |   |  |  | 1,131,320 |  
|Elimination of intersegment balances                                 |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (502,771  | )
|Investments in equity affiliates                                     |  |             | 3,352    |   |           |  | 2,862   |           |  |  | 280         |   |  |       | 192    |   |       |  | 3,212   |   |  |  | 9,898     |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Total assets                                                         |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 638,447   |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 

F-61



---



##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                    |  |             |         |  |           |  |        |           |  |  |             |  |  |       |        |  |       |  |        |  |  |  |          |  
|------------------------------------------------------------------- |  | ----------- | ------- |  | --------- |  | ------ | --------- |  |  | ----------- |  |  | ----- | ------ |  | ----- |  | ------ |  |  |  | -------- | -
|                                                                    |  | Exploration |         |  | Refining  |  |        | Chemicals |  |  | Natural Gas |  |  |       |        | 
|                                                                    |  | and         |         |  | and       |  |        | and       |  |  | and         |  |  |       |        | 
|Year Ended December 31, 2004                                        |  | Production  |         |  | Marketing |  |        | Marketing |  |  | Pipeline    |  |  | Other |        |  | Total | 
|                                                                    |  |             |         |  |           |  |        |           |  |  |             |  |  |       |        |  |       | 
|                                                                    |  | RMB         |         |  | RMB       |  |        | RMB       |  |  | RMB         |  |  | RMB   |        |  | RMB   | 
|Segment capital
    expenditure  for property, plant and equipment |  |             | 62,868  |  |           |  | 17,684 |           |  |  | 4,319       |  |  |       | 13,901 |  |       |  | 174    |  |  |  | 98,946   |  
|Segment liabilities                                                 |  |             | 109,602 |  |           |  | 75,664 |           |  |  | 18,484      |  |  |       | 35,385 |  |       |  | 99,711 |  |  |  | 338,846  |  
|Other liabilities                                                   |  |             |         |  |           |  |        |           |  |  |             |  |  |       |        |  |       |  |        |  |  |  | 39,440   |  
|Elimination of intersegment balances                                |  |             |         |  |           |  |        |           |  |  |             |  |  |       |        |  |       |  |        |  |  |  | (182,811 | )
|                                                                    |  |             |         |  |           |  |        |           |  |  |             |  |  |       |        |  |       | 
|Total liabilities                                                   |  |             |         |  |           |  |        |           |  |  |             |  |  |       |        |  |       |  |        |  |  |  | 195,475  |  
|                                                                    |  |             |         |  |           |  |        |           |  |  |             |  |  |       |        |  |       | 

|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |        |   |  |  |          |  
|-------------------------------------------------------------------- |  | ----------- | -------- | - | --------- |  | ------- | --------- |  |  | ----------- | - |  | ----- | ------ | - | ----- |  | ------ | - |  |  | -------- | -
|                                                                     |  | Exploration |          |   | Refining  |  |         | Chemicals |  |  | Natural Gas |   |  |       |        |  
|                                                                     |  | and         |          |   | and       |  |         | and       |  |  | and         |   |  |       |        |  
|Year Ended December 31, 2005                                         |  | Production  |          |   | Marketing |  |         | Marketing |  |  | Pipeline    |   |  | Other |        |   | Total | 
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|                                                                     |  | RMB         |          |   | RMB       |  |         | RMB       |  |  | RMB         |   |  | RMB   |        |   | RMB   | 
|Sales and other operating revenues
    (including intersegment)      |  |             | 337,208  |   |           |  | 428,494 |           |  |  | 73,978      |   |  |       | 26,214 |   |       |  |       |   |  |  | 865,894  |  
|Less: Intersegment sales                                             |  |             | (270,943 | ) |           |  | (33,019 | )         |  |  | (4,754      | ) |  |       | (4,949 | ) |       |  |       |   |  |  | (313,665 | )
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Total sales and other operating
    revenues from external customers |  |             | 66,265   |   |           |  | 395,475 |           |  |  | 69,224      |   |  |       | 21,265 |   |       |  |       |   |  |  | 552,229  |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Depreciation, depletion and
    amortization                         |  |             | (30,896  | ) |           |  | (8,964  | )         |  |  | (6,869      | ) |  |       | (4,478 | ) |       |  | (98    | ) |  |  | (51,305  | )
|Segment result                                                       |  |             | 220,452  |   |           |  | 2,116   |           |  |  | 6,896       |   |  |       | 3,639  |   |       |  | (1,357 | ) |  |  | 231,746  |  
|Other costs                                                          |  |             | (12,372  | ) |           |  | (21,926 | )         |  |  | (3,620      | ) |  |       | (456   | ) |       |  | (1,201 | ) |  |  | (39,575  | )
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Income/(loss) from operations                                        |  |             | 208,080  |   |           |  | (19,810 | )         |  |  | 3,276       |   |  |       | 3,183  |   |       |  | (2,558 | ) |  |  | 192,171  |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Finance costs                                                        |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |        |   |  |  | (750     | )
|Equity in income of affiliates
    accounted for by equity method    |  |             | 1,851    |   |           |  | 165     |           |  |  | 15          |   |  |       |       |   |       |  | 370    |   |  |  | 2,401    |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Income before income taxes                                           |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |        |   |  |  | 193,822  |  
|Income taxes                                                         |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |        |   |  |  | (54,180  | )
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Income for the year                                                  |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |        |   |  |  | 139,642  |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Interest income (including
    intersegment)                         |  |             | 3,912    |   |           |  | 998     |           |  |  | 387         |   |  |       | 100    |   |       |  | 5,763  |   |  |  | 11,160   |  
|Less: Intersegment interest income                                   |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |        |   |  |  | (9,236   | )
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Interest income from external
    sources                            |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |        |   |  |  | 1,924    |  
|                                                                     |  |             |          |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 

F-62



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  |           |  
|------------------------------------------------------------------- |  | ----------- | ------- | - | --------- |  | ------- | --------- |  |  | ----------- | - |  | ----- | ------ | - | ----- |  | ------- | - |  |  | --------- | -
|                                                                    |  | Exploration |         |   | Refining  |  |         | Chemicals |  |  | Natural Gas |   |  |       |        |  
|                                                                    |  | and         |         |   | and       |  |         | and       |  |  | and         |   |  |       |        |  
|Year Ended December 31, 2005                                        |  | Production  |         |   | Marketing |  |         | Marketing |  |  | Pipeline    |   |  | Other |        |   | Total | 
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|                                                                    |  | RMB         |         |   | RMB       |  |         | RMB       |  |  | RMB         |   |  | RMB   |        |   | RMB   | 
|Interest expense (including
    intersegment)                       |  |             | (3,631  | ) |           |  | (2,659  | )         |  |  | (636        | ) |  |       | (1,105 | ) |       |  | (3,967  | ) |  |  | (11,998   | )
|Less: Intersegment interest expense                                 |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 9,236     |  
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Interest expense to external sources                                |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (2,762    | )
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Segment assets                                                      |  |             | 460,814 |   |           |  | 207,724 |           |  |  | 76,439      |   |  |       | 69,232 |   |       |  | 631,696 |   |  |  | 1,445,905 |  
|Elimination of intersegment balances                                |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (680,216  | )
|Investments in equity affiliates                                    |  |             | 5,470   |   |           |  | 4,531   |           |  |  | 250         |   |  |       |       |   |       |  | 2,127   |   |  |  | 12,378    |  
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Total assets                                                        |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 778,067   |  
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Segment capital
    expenditure  for property, plant and equipment |  |             | 83,214  |   |           |  | 16,454  |           |  |  | 13,569      |   |  |       | 11,137 |   |       |  | 427     |   |  |  | 124,801   |  
|Segment liabilities                                                 |  |             | 146,616 |   |           |  | 97,918  |           |  |  | 30,559      |   |  |       | 40,847 |   |       |  | 161,753 |   |  |  | 477,693   |  
|Other liabilities                                                   |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 47,731    |  
|Elimination of intersegment balances                                |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | (291,024  | )
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 
|Total liabilities                                                   |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       |  |         |   |  |  | 234,400   |  
|                                                                    |  |             |         |   |           |  |         |           |  |  |             |   |  |       |        |   |       | 




|           |                                                                                                                                                             
|---------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.



|           |                                                                                                                                                                                                           
|---------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note (c)  | Segment results for the years ended December 31, 2003, 2004
    and 2005 included impairment provision for property, plant and
    equipment (Note 17) and shut down of manufacturing assets
    (Note 6).



|           |                                                                                                                  
|---------- | -----------------------------------------------------------------------------------------------------------------
|Note (d)  | Other liabilities mainly include income tax payable, other taxes
    payable and deferred taxation.              
|          
|Note (e)  | Elimination of intersegment balances represents elimination of
    intersegment current accounts and investments.

Secondary reporting format  geographical
segments


|                                       |  |         |         |  |              |         |         |             |  |  |         |  |  |      |         |  |      |  |        |  |  |  |         | 
|-------------------------------------- |  | ------- | ------- |  | ------------ | ------- | ------- | ----------- |  |  | ------- |  |  | ---- | ------- |  | ---- |  | ------ |  |  |  | ------- | 
|                                       |  |         |         |  |              | Capital |        
|                                       |  | Revenue |         |  | Total assets |         |         | expenditure | 
|                                       |  |         |         |  |              |         |         |             | 
|Year Ended December 31,                |  | 2004    |         |  | 2005         |         |         | 2004        |  |  | 2005    |  |  | 2004 |         |  | 2005 | 
|                                       |  |         |         |  |              |         |         |             |  |  |         |  |  |      |         |  |      | 
|                                       |  | RMB     |         |  | RMB          |         |         | RMB         |  |  | RMB     |  |  | RMB  |         |  | RMB  | 
|PRC                                    |  |         | 384,717 |  |              |         | 531,520 |             |  |  | 607,566 |  |  |      | 717,934 |  |      |  | 94,452 |  |  |  | 119,505 | 
|Other (Exploration and
    Production) |  |         | 12,637  |  |              |         | 20,709  |             |  |  | 30,881  |  |  |      | 60,133  |  |      |  | 4,494  |  |  |  | 5,296   | 
|                                       |  |         |         |  |              |         |         |             |  |  |         |  |  |      |         |  |      | 
|                                       |  |         | 397,354 |  |              |         | 552,229 |             |  |  | 638,447 |  |  |      | 778,067 |  |      |  | 98,946 |  |  |  | 124,801 | 
|                                       |  |         |         |  |              |         |         |             |  |  |         |  |  |      |         |  |      | 

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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



37
    SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAPThe consolidated financial statements of the Group have been
prepared in accordance with IFRS, which differ in certain
material respects from the accounting principles generally
accepted in the United States of America (US GAAP). Such
differences involve methods for measuring the amounts shown in
the financial statements, as well as additional disclosures
required by US GAAP.

Effect on income of significant differences between IFRS and
US GAAP is as follows:

|                                                               |                                                                            |                         |        |        |      |  |         |        |   |  |         |        |   |  |        |      |  
|-------------------------------------------------------------- | -------------------------------------------------------------------------- | ----------------------- | ------ | ------ | ---- |  | ------- | ------ | - |  | ------- | ------ | - |  | ------ | ---- | -
|                                                               |                                                                            | Year Ended December 31, |       
|                                                               |                                                                            |                         |       
|                                                               |                                                                            | 2003                    |        |        | 2004 |  |         | 2005   |   |  | 2005    |       
|                                                               |                                                                            |                         |        |        |      |  |         |        |   |  |         |       
|                                                               |                                                                            | RMB                     |        |        | RMB  |  |         | RMB    |   |  | US$     |       
|Income for the year under IFRS                                 |                                                                            |                         | 71,897 |        |      |  | 107,646 |        |   |  | 139,642 |        |   |  | 17,303 |     
|US GAAP adjustments:                                           |                                                                            |                         |        |        |      |  |         |        |   |  |         |        |   |  |        |     
|                                                               | Reversal of revaluation loss of
    property, plant and equipment          |                         |        | 391    |      |  |         |       |   |  |         |       |   |  |        |     |  
|                                                               | Depreciation charges on property,
    plant and equipment revaluation gain |                         |        | 8,053  |      |  |         | 8,170  |   |  |         | 6,528  |   |  |        | 809  |  
|                                                               | Depreciation charges on property,
    plant and equipment revaluation loss |                         |        | (144   | )    |  |         | (830   | ) |  |         | (149   | ) |  |        | (18  | )
|                                                               | Loss on disposal of revalued
    property, plant and equipment             |                         |        | 451    |      |  |         | 523    |   |  |         | 432    |   |  |        | 54   |  
|                                                               | Income tax effect                                                          |                         |        | (2,886 | )    |  |         | (2,595 | ) |  |         | (2,248 | ) |  |        | (279 | )
|                                                               | Minority interests                                                         |                         |        | (2,122 | )    |  |         | (3,863 | ) |  |         | (6,340 | ) |  |        | (786 | )
|                                                               |                                                                            |                         |        |        |      |  |         |        |   |  |         |       
|Net income under US GAAP                                       |                                                                            |                         | 75,640 |        |      |  | 109,051 |        |   |  | 137,865 |        |   |  | 17,083 |     
|                                                               |                                                                            |                         |        |        |      |  |         |        |   |  |         |       
|Basic and diluted net income per
    share under US GAAP (RMB) |                                                                            |                         | 0.43   |        |      |  | 0.62    |        |   |  | 0.78    |        |   |  | 0.10   |     
|                                                               |                                                                            |                         |        |        |      |  |         |        |   |  |         |       

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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Effect on equity of significant differences between IFRS and
US GAAP is as follows:

|                                       |                                                                                                                                                                      |                 |         |         |      |  |         |         |   |  |        |        |  
|-------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | ------- | ------- | ---- |  | ------- | ------- | - |  | ------ | ------ | -
|                                       |                                                                                                                                                                      | At December 31, |        
|                                       |                                                                                                                                                                      |                 |        
|                                       |                                                                                                                                                                      | 2004            |         |         | 2005 |  |         | 2005    |  
|                                       |                                                                                                                                                                      |                 |         |         |      |  |         |         |  
|                                       |                                                                                                                                                                      | RMB             |         |         | RMB  |  |         | US$     |  
|Equity under IFRS                      |                                                                                                                                                                      |                 | 442,972 |         |      |  | 543,667 |         |   |  | 67,367 |       
|US GAAP adjustments:                   |                                                                                                                                                                      |                 |         |         |      |  |         |         |   |  |        |       
|                                       | Reversal of property, plant and
    equipment revaluation gain                                                                                                       |                 |         | (80,555 | )    |  |         | (80,555 | ) |  |        | (9,982 | )
|                                       | Depreciation charges on property,
    plant and equipment revaluation gain                                                                                           |                 |         | 45,443  |      |  |         | 51,971  |   |  |        | 6,440  |  
|                                       | Reversal of property, plant and
    equipment revaluation loss                                                                                                       |                 |         | 1,513   |      |  |         | 1,513   |   |  |        | 188    |  
|                                       | Depreciation charges on property,
    plant and equipment revaluation loss                                                                                           |                 |         | (1,310  | )    |  |         | (1,459  | ) |  |        | (181   | )
|                                       | Loss on disposal of revalued
    property, plant and equipment                                                                                                       |                 |         | 1,314   |      |  |         | 1,746   |   |  |        | 217    |  
|                                       | Deferred tax assets on revaluation                                                                                                                                   |                 |         | 11,091  |      |  |         | 8,843   |   |  |        | 1,096  |  
|                                       | Minority interests                                                                                                                                                   |                 |         | (14,895 | )    |  |         | (28,034 | ) |  |        | (3,474 | )
|                                       | Effect on the retained earnings
    from the one-time remedial payments for staff housing borne by
    the state shareholder of the Company                          |                 |         | (2,553  | )    |  |         | (2,553  | ) |  |        | (316   | )
|                                       | Effect on the other reserves of the
    shareholders equity from the one-time remedial payments
    for staff housing borne by the state shareholder of the Company |                 |         | 2,553   |      |  |         | 2,553   |   |  |        | 316    |  
|                                       | Purchase from minority interests of
    listed subsidiaries (Note 38 to the consolidated financial
    statements)                                                   |                 |         |        |      |  |         | 1,438   |   |  |        | 178    |  
|                                       |                                                                                                                                                                      |                 |         |         |      |  |         |         |  
|Shareholders equity under
    US GAAP |                                                                                                                                                                      |                 | 405,573 |         |      |  | 499,130 |         |   |  | 61,849 |       
|                                       |                                                                                                                                                                      |                 |         |         |      |  |         |         |  

F-65



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Changes in shareholders equity under US GAAP for each of
the years ended December 31, 2003, 2004 and 2005 are as
follows:

|                                                                                                                                  |  |                         |         |   |      |  |         |      |  |  |         |   |  |  |        |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- |  | ------- | ---- |  |  | ------- | - |  |  | ------ | -
|                                                                                                                                  |  | Year Ended December 31, |        
|                                                                                                                                  |  |                         |        
|                                                                                                                                  |  | 2003                    |         |   | 2004 |  |         | 2005 |  |  | 2005    |  
|                                                                                                                                  |  |                         |         |   |      |  |         |      |  |  |         |  
|                                                                                                                                  |  | RMB                     |         |   | RMB  |  |         | RMB  |  |  | US$     |  
|Balance at beginning of year                                                                                                      |  |                         | 284,426 |   |      |  | 330,520 |      |  |  | 405,573 |   |  |  | 50,256 |  
|Net income for the year                                                                                                           |  |                         | 75,640  |   |      |  | 109,051 |      |  |  | 137,865 |   |  |  | 17,083 |  
|Final dividend for year 2002                                                                                                      |  |                         | (12,299 | ) |      |  |        |      |  |  |        |   |  |  |       |  
|Interim dividend for year 2003                                                                                                    |  |                         | (17,379 | ) |      |  |        |      |  |  |        |   |  |  |       |  
|Final dividend for year 2003                                                                                                      |  |                         |        |   |      |  | (13,947 | )    |  |  |        |   |  |  |       |  
|Interim dividend for year 2004                                                                                                    |  |                         |        |   |      |  | (20,381 | )    |  |  |        |   |  |  |       |  
|Final dividend for year 2004                                                                                                      |  |                         |        |   |      |  |        |      |  |  | (25,936 | ) |  |  | (3,214 | )
|Interim dividend for year 2005                                                                                                    |  |                         |        |   |      |  |        |      |  |  | (27,731 | ) |  |  | (3,436 | )
|Payment to CNPC for acquisition of
    refinery and petrochemical businesses (Note 2 to the
    consolidated financial statement) |  |                         |        |   |      |  |        |      |  |  | (9      | ) |  |  | (1     | )
|Issue of shares (Note 26 and
    27 to the consolidated financial statements)                                                     |  |                         |        |   |      |  |        |      |  |  | 19,692  |   |  |  | 2,440  |  
|Capital contribution to Zhong You
    Kan Tan Kai Fa Company Limited (Note 2 to the consolidated
    financial statements)        |  |                         |        |   |      |  |        |      |  |  | (10,056 | ) |  |  | (1,246 | )
|Currency translation differences                                                                                                  |  |                         | 132     |   |      |  | 330     |      |  |  | (268    | ) |  |  | (33    | )
|                                                                                                                                  |  |                         |         |   |      |  |         |      |  |  |         |  
|Balance at end of year                                                                                                            |  |                         | 330,520 |   |      |  | 405,573 |      |  |  | 499,130 |   |  |  | 61,849 |  
|                                                                                                                                  |  |                         |         |   |      |  |         |      |  |  |         |  







| |                                                     
| | ----------------------------------------------------
| | (a) Revaluation of property, plant and
    equipment



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As described in Note 17 the property, plant and equipment,
    excluding oil and gas reserves, transferred to the Company by
    CNPC were appraised as of June 30, 1999, as required by the
    relevant PRC regulations, by a firm of independent valuers
    registered in the PRC, China Enterprise Appraisal. As at
    September 30, 2003, a revaluation of the Groups
    refining and chemical production equipment was undertaken by a
    firm of independent valuers registered in the PRC, China
    United Assets Appraiser Co., Ltd, on a depreciated
    replacement cost basis.
|
| | The June 1999 revaluation resulted in RMB 80,549 in excess
    of the prior carrying value and a revaluation loss of
    RMB 1,122 on certain property, plant and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                    

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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



The September 2003 revaluation resulted in RMB 872 in
    excess of the carrying value of certain property, plant and
    equipment immediately prior to the revaluation and a revaluation
    loss of RMB 1,257.The depreciation charge, which includes impairment charge, on
    the revaluation surplus from January 1, 2003 to
    December 31, 2003 was RMB 8,053, from January 1,
    2004 to December 31, 2004 was RMB 8,170, and from
    January 1, 2005 to December 31, 2005 was
    RMB 6,528.The depreciation charge, which includes impairment charge, on
    the revaluation loss from January 1, 2003 to
    December 31, 2003 was RMB 144, from January 1,
    2004 to December 31, 2004 was RMB 830, and from
    January 1, 2005 to December 31, 2005 was RMB 149.The loss on disposal of revalued property, plant and equipment,
    which includes shut down of manufacturing assets, from
    January 1, 2003 to December 31, 2003 was RMB 451,
    from January 1, 2004 to December 31, 2004 was
    RMB 523, and from January 1, 2005 to December 31,
    2005 was RMB 432.For purposes of reconciling to the US GAAP financial data, the
    effect of the revaluation, the related depreciation charges and
    loss on disposal is reversed. A deferred tax asset relating to
    the reversal of the effect of revaluation in 1999 is
    established, together with a corresponding increase in the
    shareholders equity. Under a special approval granted by
    the Ministry of Finance, the effect of the revaluation in 1999
    is available as additional depreciation base for purposes of
    determining taxable income.

(b) One-time
    remedial payments for staff housing

The Ministry of Finance of the PRC issued several public notices
    and regulations during the years ended December 31, 2000
    and 2001 with respect to the
    one-time remedial
    payments for staff housing payable to certain employees who
    joined the workforce prior to December 31, 1998 and have
    housing conditions below local standards as determined in
    accordance with government regulations and guidelines. These
    Ministry of Finance notices and regulations also provided that
    the portion of remedial payments attributable to the periods
    prior to a restructuring of the employer enterprise from a
    wholly state-owned
    status to a less than wholly
    state-owned status is
    to be borne by the state shareholder of the enterprise.The restructuring that resulted in the formation of the Group
    took place in November 1999. As such, the
    one-time remedial
    housing payments payable to the eligible employees of the Group
    are to be borne by the state shareholder of the Group.Under IFRS, such direct payments to employees or reimbursements
    will not be recorded through the consolidated statement of
    income 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 statement of
    income. In the last quarter of year 2002, the Group
    and CNPC completed the process of estimating the amount
    payable to qualified employees of the Group. This amount,
    RMB 2,553, was reflected in determining net income of the
    Group for the year ended December 31, 2002, under
    US GAAP. Since this amount is borne by CNPC, a
    corresponding amount has been included as an addition to the
    other reserves in the shareholders equity of the Group.
    There were no significant changes in this estimates during 2004
    and 2005.

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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



(c) Minority interest

In accordance with the revised IAS 1 and IAS 27,
    minority interest becomes part of the income for the year and
    total equity of the Group, whereas under US GAAP, it is
    respectively excluded from the net income and shareholders
    equity of the Group. In addition, the reconciling item also
    includes the impact of minority interests share of the
    revaluation gain and loss on the property, plant and equipment
    of non-wholly owned
    subsidiaries to net income and shareholders equity under
    US GAAP.

(d) Purchase from minority interests of listed
    subsidiaries

As described in note 38 the Company acquired certain
    outstanding A shares form the minority interests of Jinzhou
    Petrochemical Company Limited (JPCL) and Liaohe
    Jinma Oilfield Company Limited (LJOCL).
    Under IFRS, the Company applies a policy of treating
    transactions with minority interests as transactions with equity
    participants of the Group. Therefore, the assets and liabilities
    of JPCL and LJOCL additionally acquired by the company
    from minority interests were recorded by the Company at cost.
    The difference between the companys purchase cost and the
    book value of the interests in JPCL and LJOCL acquired
    by the Company from minority interests was recorded in equity.
    Under US GAAP, the acquisition of additional minority
    interest is accounted for under purchase method. Assets and
    liabilities additionally acquired were restated to fair value
    and the difference of purchase cost over fair value of the
    minority interests acquired and identified intangible assets was
    recorded as goodwill.

(e) Recent US accounting pronouncements

In December 2004, the FASB revised FAS No. 123
    (FAS 123 R). FAS 123 R, Share-Based
    Payment, requires all share-based payments to employees,
    including grants of employee stock options, to be recognized in
    the financial statements based on their fair values.
    Pro forma disclosure is no longer an alternative to
    financial statement recognition. FAS 123 R is
    effective for interim periods beginning after June 15,
    2005. The Group is evaluating the transition provisions allowed
    by FAS 123 R. The Group does not expect the adoption
    of FAS 123 R to have a material impact on the
    Groups financial position or operational results.On November 24, 2004, the FASB issued Statement
    No. 151, Inventory Costs, an amendment of
    ARB No. 43, Chapter 4 (FAS 151).
    FAS 151 requires that abnormal amounts of idle capacity and
    spoilage costs be excluded from the cost of inventory and
    expensed when incurred. The provisions of FAS 151 are
    applicable to inventory costs incurred during fiscal years
    beginning after June 15, 2005. The Group does not expect
    the adoption of FAS 151 to have a material impact on the
    Groups financial position or results of operation.On December 15, 2004, the FASB issued Statement
    No. 153, Exchanges of Nonmonetary Assets, an
    amendment of APB Opinion No. 29 (FAS 153).
    FAS 153 requires exchanges of productive assets to be
    accounted for at fair value, rather than at carryover basis,
    unless (1) neither the asset received nor the asset
    surrendered has a fair value that is determinable within
    reasonable limits or (2) the transactions lack commercial
    substance. FAS 153 is effective for nonmonetary asset
    exchanges occurring in fiscal periods beginning after
    June 15, 2005. The Group does not expect the adoption of
    FAS 153 to have a material impact on the Groups
    financial position or results of operation.

F-68



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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



In March 2005, the FASB issued Interpretation No. 47,
    Accounting for Conditional Asset Retirement
    (FIN 47), an Interpretation of FASB Statement No. 143.
    This Interpretation clarifies that the term conditional asset
    retirement obligation as used in FASB Statement No. 143,
    Accounting for Asset Retirement Obligations, refers
    to a legal obligation to perform an asset retirement activity in
    which the timing and (or) method of settlement are conditional
    on a future event that may or may not be within the control of
    the entity. The obligation to perform the asset retirement
    activity is unconditional even though uncertainty exists about
    the timing and (or) method of settlement. Accordingly, an entity
    is required to recognize a liability for the fair value of a
    conditional asset retirement obligation if the fair value of the
    liability can be reasonably estimated when incurred. This
    Interpretation also clarifies when an entity would have
    sufficient information to reasonably estimated the fair value of
    an asset retirement obligation. FIN 47 is effective no
    later than the end of fiscal years ending after
    December 15, 2005. The adoption of FIN 47 did not have
    a material impact on the Groups financial position or
    operational results.On March 29, 2005, the U.S. Securities and Exchange
    Commission (SEC) issued Staff Accounting
    Bulletin No. 107, Share-Based Payment
    (SAB 107). This bulletin provides guidance related to
    share-based payment transactions with nonemployees, the
    transition from nonpublic to public entity status, valuation
    methods (including assumptions such as expected volatility and
    expected term), the accounting for certain redeemable financial
    instruments issued under share-based payment arrangements, the
    classification of compensation expense,
    non-GAAP financial
    measures, first-time
    adoption of FAS 123R in an interim period, capitalization
    of compensation cost related to share-based payment
    arrangements, the accounting for income tax effects of
    share-based payment arrangements upon adoption of
    FAS 123 R, the modification of employee share options
    prior to adoption of FAS 123 R and disclosures in
    Managements Discussion and Analysis (MD&A)
    subsequent to adoption of FAS 123 R. SAB 107 will
    be effective when a registrant adopts FAS 123R. The Group
    does not expect the adoption of SAB 107 to have a material
    impact on the Groups financial position or operation
    results.In April 2005, the FASB issued Staff Position
    No. FAS 19-1,
    Accounting for Suspended Well Costs. The FASB staff
    believes that exploratory well costs should continue to be
    capitalized when the well has found a sufficient quantity of
    reserves to justify its completion as a producing well and the
    enterprise is making sufficient progress assessing the reserves
    and the economic and operating viability of the project. The
    Board replaces paragraphs 31 to 34 of
    Statement 19 and requires certain disclosures in the notes
    to the annual financial statements to provide information for
    users of financial statements about managements
    application of judgment in its evaluation of a projects
    capitalized exploratory well costs. The disclosure required by
    this FSP should be made in reporting periods beginning
    after April 4, 2005. The Group has made disclosures which
    meet the disclosure requirement of this FSP in its
    consolidated financial statements.In May 2005, the FASB issued Statement No. 154,
    Accounting changes and Error Corrections
    (FAS 154), which replaces APB Opinions No. 20
    Accounting Changes, and FASB Statement
    No. 3, Reporting Accounting changes in Interim
    Financial Statements, and changes the requirements for the
    accounting for and reporting of a change in accounting
    principle. This Statement establishes, unless impracticable,
    retrospective application as the required method for reporting a
    change in accounting principle in the absence of explicit
    transition requirements specific to the newly adopted accounting
    principle. The reporting of a correction of an error by
    restating previously issued financial statements is also
    addressed by this Statement. FAS 154 is effective for
    accounting changes and corrections of errors made in

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PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



fiscal years beginning after December 15, 2005. The Group
    does not expect the adoption of FAS 154 to have a material
    impact on the Groups financial position or operational
    results.In September 2005, the Emerging Issues Task Force reached
    consensus on Issue
    No. 04-13,
    Accounting for Purchases and Sales of Inventory with the
    Same Counterparty. The Task Force agreed that that two or
    more inventory purchase and sales transactions with the same
    counterparty that are entered into in contemplation of one
    another should be combined for purposes of applying
    Opinion 29. It is also stated that a nonmonetary exchange
    whereby an entity transfers finished goods inventory in exchange
    for the receipt of raw materials or WIP inventory within
    the same line of business is not an exchange transaction to
    facilitate sales to customers for the entity transferring the
    finished goods and, therefore, should be recognized by that
    entity at fair value if (a) fair value is determinable
    within reasonable limits and (b) the transaction has
    commercial substance. All other nonmonetary exchanges of
    inventory within the same line of business should be recognized
    at the carrying amount of the inventory transferred. The Task
    Force also agreed that an entity should disclose the amount of
    revenue and costs (or gains and losses) associated with
    inventory exchanges recognized at fair value. This Issue should
    be applied to new arrangements entered into, and modifications
    or renewals of existing arrangements, beginning in the first
    interim or annual reporting period beginning after
    March 15, 2006 and early application is permitted in
    periods for which financial statements have not been issued. The
    Group did not early adopt
    EITF 04-13 and
    does not expect the adoption in 2006 to have a material impact
    on the Groups financial position or operating results.

38
    PRINCIPAL SUBSIDIARIES

|                                                    |  |               |     |     |         |  |         |        |   |              |          |  |  |                      |        |  |  |                                                                                                                   
|--------------------------------------------------- |  | ------------- | --- | --- | ------- |  | ------- | ------ | - | ------------ | -------- |  |  | -------------------- | ------ |  |  | ------------------------------------------------------------------------------------------------------------------
|                                                    |  | Country       |     |     |         |  | Type of |        |   | Attributable |          |  | 
|                                                    |  | of            |     |     | Paid-up |  |         | Legal  |   |              | Equity   |  |  |                     
|Company Name                                        |  | Incorporation |     |     | Capital |  |         | Entity |   |              | Interest |  |  | Principal Activities
|                                                    |  |               |     |     |         |  |         |        |   |              |          |  |  |                     
|                                                    |  |               |     | RMB |         |  |         |        | % |              |          | 
|*Daqing Oilfield Company Limited                    |  |               | PRC |     |         |  | 47,500  |        |   |              | phi      |  |  |                      | 100.00 |  |  | Exploration, production and the
    sale of crude oil and natural gas; production and sale of
    refined products
|*Jinzhou Petrochemical Company
    Limited (i)      |  |               | PRC |     |         |  | 788     |        |   |              | psi      |  |  |                      | 95.87  |  |  | Production and sale of oil and
    chemical products                                                              
|                                                   
|*Jilin Chemical Industrial Company
    Limited (ii) |  |               | 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                                                       

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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                 |  |                        |         |     |         |  |          |        |     |              |          |  |        |                      |        |                                                                            |  |                                                                                  
|------------------------------------------------ |  | ---------------------- | ------- | --- | ------- |  | -------- | ------ | --- | ------------ | -------- |  | ------ | -------------------- | ------ | -------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------
|                                                 |  | Country                |         |     |         |  | Type of  |        |     | Attributable |          |  |       
|                                                 |  | of                     |         |     | Paid-up |  |          | Legal  |     |              | Equity   |  |        |                     
|Company Name                                     |  | Incorporation          |         |     | Capital |  |          | Entity |     |              | Interest |  |        | Principal Activities
|                                                 |  |                        |         |     |         |  |          |        |     |              |          |  |        |                     
|                                                 |  |                        |         | RMB |         |  |          |        | %   |              |          | 
|*Liaohe Jinma Oilfield Company
    Limited (iii) |  |                        | PRC     |     |         |  | 1,100    |        |     |              | psi      |  |        |                      | 97.48  |                                                                            |  | 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         
|                                                
|*Zhong You Kan Tan Kai Fa Company
    Limited    |  |                        | PRC     |     |         |  | 100      |        |     |              | phi      |  |        |                      | 50.00  |                                                                            |  | Exploration and production of crude
    oil and natural gas outside of PRC       




|      |                                            
|----- | -------------------------------------------
|phi  | Limited liability company.                 
|     
|psi  | Joint stock company with limited liability.



|    |                                                                      
|--- | ---------------------------------------------------------------------
|*  | Subsidiaries directly held by the Company as of
    December 31, 2005



|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | Pursuant to the resolution passed at the Board of
    Directors meeting held on October 26, 2005, the
    Company offered to acquire all of the 150,000,000 outstanding A
    shares of Jinzhou Petrochemical Company Limited
    (JPCL) from minority shareholders at RMB 4.25
    per share. As at December 31, 2005, the Company had paid
    total cash consideration of RMB 500 and acquired
    117,486,753 A shares, representing approximately 14.92% of the
    total issued shares of JPCL. After this acquisition, the Company
    owns 95.87% of the outstanding share of JPCL. The excess of the
    cost of purchase over the carrying value of the underlying
    assets and liabilities acquired was recorded in equity. As
    approved by China Securities Regulatory Commission, JPCL ceased
    to be a publicly traded company on January 4, 2006.
|     
|(ii)  | Pursuant to the resolution passed by the Board of
    Directors meeting held on October 26, 2005, the
    Company offered to acquire all the outstanding 200,000,000 A
    shares and 964,778,000 H shares (including ADS) of JiLin
    Chemical Industrial Company Limited (JCIC) from
    minority shareholders at RMB 5.25 per A share and HK$2.80
    per H share respectively. This offer period ended in February,
    2006 and the effect of this acquisition will be reflected in the
    consolidated financial statements of the Group for the year
    ending December 31, 2006.                                                                                                                                                                                                                                                                            
|     
|(iii) | Pursuant to the resolution passed by the Board of
    Directors meeting held on October 26, 2005, the
    Company offered to acquire all of the outstanding 200,000,000
    outstanding A shares of Liaohe Jinma Oilfield Company Limited
    (LJOCL) from minority shareholders at RMB 8.80
    per share. As at December 31, 2005, the Company had paid
    total cash consideration of RMB 1,519 and acquired
    172,315,428 A shares, representing approximately 15.67% of the
    total issued                                                                                                                                                                                                                                                                                                                                                                   

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##### Table of Contents

PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



share of LJOCL. After this acquisition, the Company owns 97.48%
    of the outstanding share of LJOCL. The excess of the cost of
    purchase over the carrying value of the underlying assets and
    liabilities acquired was recorded in equity. As approved by
    China Securities Regulatory Commission, LJOCL ceased to be a
    publicly traded company on January 4, 2006.

39
    EVENTS AFTER BALANCE SHEET DATEAs described in Note 38, the Company offered to acquire all
the outstanding A shares and H shares (including ADS)
of JCIC. Subsequent to the end of the respective offering
periods in February 2006, the Company paid total cash
consideration of RMB 3,372 and acquired from tendering
minority shareholders 908,113,053 H shares (including ADS)
and 157,700,200 A shares of JCIC, representing totally
29.93% of the total issued share capital. As approved by the
related authorities, JCIC ceased its listing on The Stock
Exchange of Hong Kong Limited, New York Stock Exchange and
Shenzhen Stock Exchange on January 23, 2006,
February 15, 2006 and February 20, 2006 respectively.



40
    APPROVAL OF FINANCIAL STATEMENTSThe financial statements were approved by the board of directors
on March 20, 2006 and will be submitted to the shareholders
for approval at the annual general meeting to be held on
May 26, 2006.

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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, |        
|                                                                                   |                        |                         |        
|                                                                                   |                        | 2003                    |         |         | 2004 |  |         | 2005    | 
|                                                                                   |                        |                         |         |         |      |  |         |         | 
|                                                                                   |                        | RMB                     |         |         | RMB  |  |         | RMB     | 
|Sales and other operating revenues                                                 |                        |                         |         |         |      |  |         |         |  |  |         |        
|                                                                                   | Sales to third parties |                         |         | 54,446  |      |  |         | 53,819  |  |  |         | 66,265  | 
|                                                                                   | Intersegment sales     |                         |         | 131,336 |      |  |         | 176,894 |  |  |         | 261,558 | 
|                                                                                   |                        |                         |         |         |      |  |         |         | 
|                                                                                   |                        |                         | 185,782 |         |      |  | 230,713 |         |  |  | 327,823 |        
|Production costs excluding taxes                                                   |                        |                         | (32,759 | )       |      |  | (34,821 | )       |  |  | (41,713 | )      
|Exploration expenses                                                               |                        |                         | (10,624 | )       |      |  | (12,090 | )       |  |  | (15,566 | )      
|Depreciation, depletion and
    amortization                                       |                        |                         | (22,078 | )       |      |  | (26,287 | )       |  |  | (25,819 | )      
|Taxes other than income taxes                                                      |                        |                         | (6,225  | )       |      |  | (7,712  | )       |  |  | (10,239 | )      
|Accretion expense                                                                  |                        |                         | (42     | )       |      |  | (54     | )       |  |  | (60     | )      
|                                                                                   |                        |                         |         |         |      |  |         |         | 
|Income before income taxes                                                         |                        |                         | 114,054 |         |      |  | 149,749 |         |  |  | 234,426 |        
|Income taxes                                                                       |                        |                         | (33,791 | )       |      |  | (42,089 | )       |  |  | (64,816 | )      
|                                                                                   |                        |                         |         |         |      |  |         |         | 
|Results of operations from
    producing activities                                |                        |                         | 80,263  |         |      |  | 107,660 |         |  |  | 169,610 |        
|                                                                                   |                        |                         |         |         |      |  |         |         | 
|Income from equity affiliates
    results of operations from producing activities |                        |                         | 634     |         |      |  | 767     |         |  |  | 1,878   |        
|                                                                                   |                        |                         |         |         |      |  |         |         | 

Capitalized Costs


|                                                         |  |                         |          |   |      |  |          |      |  |  |          |  
|-------------------------------------------------------- |  | ----------------------- | -------- | - | ---- |  | -------- | ---- |  |  | -------- | -
|                                                         |  | Year Ended December 31, |         
|                                                         |  |                         |         
|                                                         |  | 2003                    |          |   | 2004 |  |          | 2005 | 
|                                                         |  |                         |          |   |      |  |          |      | 
|                                                         |  | RMB                     |          |   | RMB  |  |          | RMB  | 
|Property costs                                           |  |                         |         |   |      |  |         |      |  |  |         |  
|Producing assets                                         |  |                         | 272,285  |   |      |  | 303,784  |      |  |  | 359,539  |  
|Support facilities                                       |  |                         | 113,408  |   |      |  | 124,793  |      |  |  | 138,093  |  
|Construction-in-progress                                 |  |                         | 11,294   |   |      |  | 15,856   |      |  |  | 19,394   |  
|                                                         |  |                         |          |   |      |  |          |      | 
|Total capitalized costs                                  |  |                         | 396,987  |   |      |  | 444,433  |      |  |  | 517,026  |  
|Accumulated depreciation, depletion
    and amortization |  |                         | (157,267 | ) |      |  | (180,926 | )    |  |  | (203,416 | )
|                                                         |  |                         |          |   |      |  |          |      | 
|Net capitalized costs                                    |  |                         | 239,720  |   |      |  | 263,507  |      |  |  | 313,610  |  
|                                                         |  |                         |          |   |      |  |          |      | 
|Share of equity affiliates
    net capitalized costs    |  |                         | 2,224    |   |      |  | 1,632    |      |  |  | 1,996    |  
|                                                         |  |                         |          |   |      |  |          |      | 

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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, |       
|                                                                                            |  |                         |       
|                                                                                            |  | 2003                    |        |  | 2004 |  |        | 2005 | 
|                                                                                            |  |                         |        |  |      |  |        |      | 
|                                                                                            |  | RMB                     |        |  | RMB  |  |        | RMB  | 
|Property acquisition costs                                                                  |  |                         |       |  |      |  |       |      |  |  |       | 
|Exploration costs                                                                           |  |                         | 15,426 |  |      |  | 18,338 |      |  |  | 25,335 | 
|Development costs                                                                           |  |                         | 43,060 |  |      |  | 47,508 |      |  |  | 72,551 | 
|                                                                                            |  |                         |        |  |      |  |        |      | 
|Total                                                                                       |  |                         | 58,486 |  |      |  | 65,846 |      |  |  | 97,886 | 
|                                                                                            |  |                         |        |  |      |  |        |      | 
|Share of equity affiliates
    costs of property acquisition, exploration, and development |  |                         | 945    |  |      |  | 1,143  |      |  |  | 2,394  | 
|                                                                                            |  |                         |        |  |      |  |        |      | 

Proved Reserve Estimates








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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, 2003, 2004 and
2005 were based on reports prepared by DeGolyer and MacNaughton,
and Gaffney, Cline & Associates, 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.

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, 2003   |                         |                                 | 11,403 |              |      |   | 39,356 | 
|                                 |                               | Changes resulting from: |                                 |        |              |      |   |        |  |       
|                                 |                               |                         | Revisions of previous estimates |        |              | 332  |   |        |  | 478    |  
|                                 |                               |                         | Improved recovery               |        |              | 81   |   |        |  |       |  
|                                 |                               |                         | Extensions and discoveries      |        |              | 486  |   |        |  | 2,866  |  
|                                 |                               |                         | Production                      |        |              | (807 | ) |        |  | (913   | )
|                                 |                               |                         |                                 |        |              |     
|                                 | Reserves at December 31, 2003 |                         |                                 | 11,495 |              |      |   | 41,787 | 
|                                 |                               |                         |                                 |        |              |     
|                                 |                               | Changes resulting from: |                                 |        |              |      |   |        |  |       
|                                 |                               |                         | Revisions of previous estimates |        |              | 141  |   |        |  | 83     |  
|                                 |                               |                         | Improved recovery               |        |              | 109  |   |        |  | 43     |  
|                                 |                               |                         | Extensions and discoveries      |        |              | 573  |   |        |  | 4,405  |  
|                                 |                               |                         | Production                      |        |              | (817 | ) |        |  | (1,069 | )
|                                 |                               |                         |                                 |        |              |     
|                                 | Reserves at December 31, 2004 |                         |                                 | 11,501 |              |      |   | 45,249 | 
|                                 |                               |                         |                                 |        |              |     
|                                 |                               | Changes resulting from: |                                 |        |              |      |   |        |  |       
|                                 |                               |                         | Revisions of previous estimates |        |              | 157  |   |        |  | 213    |  
|                                 |                               |                         | Improved recovery               |        |              | 101  |   |        |  |       |  
|                                 |                               |                         | Extensions and discoveries      |        |              | 606  |   |        |  | 4,005  |  
|                                 |                               |                         | Production                      |        |              | (829 | ) |        |  | (1,344 | )
|                                 |                               |                         |                                 |        |              |     
|                                 | Reserves at December 31, 2005 |                         |                                 | 11,536 |              |      |   | 48,123 | 
|                                 |                               |                         |                                 |        |              |     

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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)

|                                                                  |                   |               |  |       |              |  |  |        | 
|----------------------------------------------------------------- | ----------------- | ------------- |  | ----- | ------------ |  |  | ------ | 
|                                                                  |                   | Crude Oil and |  |       |             
|                                                                  |                   | Condensate    |  |       | Natural Gas  | 
|                                                                  |                   |               |  |       |              | 
|                                                                  |                   | (millions of  |  |       | (billions of | 
|                                                                  |                   | barrels)      |  |       | cubic feet)  | 
|Proved developed reserves at:                                     |                   |               |  |       |              |  |  |       
|                                                                  | December 31, 2003 |               |  | 9,188 |              |  |  | 13,879 | 
|                                                                  | December 31, 2004 |               |  | 9,068 |              |  |  | 17,255 | 
|                                                                  | December 31, 2005 |               |  | 9,195 |              |  |  | 19,858 | 
|Proportional interest in proved
    reserves of equity affiliates |                   |               |  |       |              |  |  |       
|                                                                  | December 31, 2003 |               |  | 447   |              |  |  | 78     | 
|                                                                  | December 31, 2004 |               |  | 439   |              |  |  | 100    | 
|                                                                  | December 31, 2005 |               |  | 426   |              |  |  | 102    | 



Standardized Measure






|                                                             |  |  |           |  
|------------------------------------------------------------ |  |  | --------- | -
|At December 31, 2003                                         |  |  |           |  
|Future cash inflows                                          |  |  | 3,116,760 |  
|Future production costs                                      |  |  | (807,448  | )
|Future development costs                                     |  |  | (109,471  | )
|Future income tax expense                                    |  |  | (654,258  | )
|                                                             |  |  |          
|Future net cash flows                                        |  |  | 1,545,583 |  
|Discount at 10% for estimated
    timing of cash flows       |  |  | (830,469  | )
|                                                             |  |  |          
|Standardized measure of discounted
    future net cash flows |  |  | 715,114   |  
|                                                             |  |  |          

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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)

|                                                                                         |                      |  |            |        | 
|---------------------------------------------------------------------------------------- | -------------------- |  | ---------- | ------ | 
|At December 31, 2004                                                                     |                      |  |            |       
|Future cash inflows                                                                      |                      |  | 4,046,151  |       
|Future production costs                                                                  |                      |  | (912,881   | )     
|Future development costs                                                                 |                      |  | (106,332   | )     
|Future income tax expense                                                                |                      |  | (934,068   | )     
|                                                                                         |                      |  |           
|Future net cash flows                                                                    |                      |  | 2,092,870  |       
|Discount at 10% for estimated
    timing of cash flows                                   |                      |  | (1,092,412 | )     
|                                                                                         |                      |  |           
|Standardized measure of discounted
    future net cash flows                             |                      |  | 1,000,458  |       
|                                                                                         |                      |  |           
|At December 31, 2005                                                                     |                      |  |            |       
|Future cash inflows                                                                      |                      |  | 5,337,329  |       
|Future production costs                                                                  |                      |  | (1,043,358 | )     
|Future development costs                                                                 |                      |  | (156,575   | )     
|Future income tax expense                                                                |                      |  | (1,279,133 | )     
|                                                                                         |                      |  |           
|Future net cash flows                                                                    |                      |  | 2,858,263  |       
|Discount at 10% for estimated
    timing of cash flows                                   |                      |  | (1,472,069 | )     
|                                                                                         |                      |  |           
|Standardized measure of discounted
    future net cash flows                             |                      |  | 1,386,194  |       
|                                                                                         |                      |  |           
|Share of equity affiliates
    standardized measure of discounted future net cash flows |                      |  |            |       
|                                                                                         | At December 31, 2003 |  |            | 8,164  | 
|                                                                                         | At December 31, 2004 |  |            | 10,851 | 
|                                                                                         | At December 31, 2005 |  |            | 15,288 | 



F-77



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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 ended
December 31, 2003, 2004 and 2005 are as follows:

|                                                                    |                                                                          |                         |  |          |      |  |  |           |   |  |  |           |  
|------------------------------------------------------------------- | ------------------------------------------------------------------------ | ----------------------- |  | -------- | ---- |  |  | --------- | - |  |  | --------- | -
|                                                                    |                                                                          | Year Ended December 31, | 
|                                                                    |                                                                          |                         | 
|                                                                    |                                                                          | 2003                    |  |          | 2004 |  |  | 2005      |  
|                                                                    |                                                                          |                         |  |          |      |  |  |           |  
|                                                                    |                                                                          | RMB                     |  |          | RMB  |  |  | RMB       |  
|CHANGES IN STANDARDISED MEASURE
    OF DISCOUNTED FUTURE CASH FLOWS |                                                                          |                         |  |          |      |  |  |           |   |  |  |          
|                                                                    | Beginning of year                                                        |                         |  | 629,336  |      |  |  | 715,114   |   |  |  | 1,000,458 |  
|                                                                    | Sales and transfers of oil and gas
    produced, net of production costs |                         |  | (152,103 | )    |  |  | (187,020  | ) |  |  | (274,921  | )
|                                                                    | Net changes in prices and
    production costs and other                 |                         |  | 89,978   |      |  |  | 366,417   |   |  |  | 523,089   |  
|                                                                    | Extensions, discoveries and
    improved recovery                        |                         |  | 65,970   |      |  |  | 119,790   |   |  |  | 157,343   |  
|                                                                    | Development costs incurred                                               |                         |  | 4,008    |      |  |  | 14,829    |   |  |  | (11,282   | )
|                                                                    | Revisions of previous quantity
    estimates                             |                         |  | 24,596   |      |  |  | 13,420    |   |  |  | 21,678    |  
|                                                                    | Accretion of discount                                                    |                         |  | 89,584   |      |  |  | 101,787   |   |  |  | 144,709   |  
|                                                                    | Net change in income taxes                                               |                         |  | (36,255  | )    |  |  | (143,879  | ) |  |  | (174,880  | )
|                                                                    |                                                                          |                         |  |          |      |  |  |           |  
|                                                                    | End of year                                                              |                         |  | 715,114  |      |  |  | 1,000,458 |   |  |  | 1,386,194 |  
|                                                                    |                                                                          |                         |  |          |      |  |  |           |  

F-78



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##### Table of Contents

EXHIBIT INDEX

|        |    |     |                         |                                                                                                                                                                                                                                                                              
|------- | -- | --- | ----------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |                        
|Number  |    |     | Description of Exhibits
|        |    |     |                        
|        | 1  | .1  |                         | Articles of Association (as
    amended) (English translation)
    (1)                                                                                                                                                                                                       
|        | 1  | .2  |                         | Articles of Association (as amended
    and pending for approval of SASAC) (English translation)                                                                                                                                                                             
|        | 4  | .1  |                         | 2006 Management Performance
    Contract (English Translation)                                                                                                                                                                                                               
|        | 4  | .2  |                         | Crude Oil Mutual Supply Framework
    Agreement, dated March 10, 2006, between China Petroleum
    and Chemical Corporation and PetroChina (English translation)                                                                                                             
|        | 4  | .3  |                         | Second Supplemental Agreement to
    Comprehensive products and Services Agreement, dated
    September 1, 2005, between CNPC and PetroChina (English
    translation)                                                                                                       
|        | 4  | .4  |                         | Capital Contribution Agreement,
    dated June 9, 2005, among China National Oil and Gas
    Exploration and Development Corporation, Central Asia Petroleum
    Company Limited, Zhong You Kan Tan Kai Fa Company Limited and
    PetroChina (English
    Translation)(2)   
|        | 4  | .5  |                         | Transfer Agreement, dated
    June 9, 2005, between Zhong You Kan Tan Kai Fa Company
    Limited and PetroChina (English
    Translation)(2)                                                                                                                                 
|        | 4  | .6  |                         | Supplementary Agreement to
    Comprehensive Products and Services Agreement, dated
    June 9, 2005, between CNPC and PetroChina (English
    Translation)(2)                                                                                                               
|        | 4  | .7  |                         | Form of Non-competition Agreement
    between CNPC and PetroChina (together with English
    translation)(3)                                                                                                                                                                 
|        | 4  | .87 |                         | Form of Comprehensive Products and
    Services Agreement between CNPC and PetroChina (together with
    English
    translation)(3)                                                                                                                                         
|        | 4  | .9  |                         | Form of Land Use Rights Leasing
    Contract between CNPC and PetroChina (together with English
    translation)(3)                                                                                                                                                          
|        | 4  | .10 |                         | Form of Buildings Leasing Contract
    between CNPC and PetroChina (together with English
    translation)(3)                                                                                                                                                                
|        | 4  | .11 |                         | Form of Trademark Licensing
    Contract between CNPC and PetroChina (together with English
    translation)(3)                                                                                                                                                              
|        | 4  | .12 |                         | Form of Patent and Know-how
    Licensing Contract between CNPC and PetroChina (together with
    English
    translation)(3)                                                                                                                                                
|        | 4  | .13 |                         | Form of Computer Software Licensing
    Contract between CNPC and PetroChina (together with English
    translation)(3)                                                                                                                                                      
|        | 4  | .14 |                         | Form of Contract for Transfer of
    Rights under Production Sharing Contracts between CNPC and
    PetroChina (together with English
    translation)(3)                                                                                                                    
|        | 4  | .15 |                         | Form of Guarantee of Debts Contract
    between CNPC and PetroChina (together with English
    translation)(3)                                                                                                                                                               
|        | 4  | .16 |                         | Form of Contract for the
    Supervision of Certain Sales Enterprises between CNPC and
    PetroChina (together with English
    translation)(3)                                                                                                                             
|        | 4  | .17 |                         | Form of Agreement for Transfer of
    Rights and Interests under the Crude Oil Premium and Discount
    Calculation Agreement between China Petrochemical Corporation,
    CNPC and PetroChina (together with English
    translation)(3)                                    
|        | 4  | .18 |                         | Form of Agreement for the Transfer
    of Rights and Interests under the Retainer Contracts relating to
    Oil Exploration and Exploitation in Lengjiapu Area, Liaohe Oil
    Region and No. 9.1-9.5 Areas, Karamay Oil Field (together
    with English
    translation)(3)
|        | 8  | .1  |                         | List of major subsidiaries                                                                                                                                                                                                                                                   
|        | 10 | .1  |                         | Significant Differences in
    Corporate Governance Practices for Purposes of
    Section 303A.11 of the New York Exchange Listed Company
    Manual(2)                                                                                                                      
|        | 12 | .1  |                         | Certification of Chief Executive
    Officer required by Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                                                  
|        | 12 | .2  |                         | Certification of Chief Financial
    Officer required by Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                                                  



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##### Table of Contents



|        |    |    |                         |                                                                                                                                                           
|------- | -- | -- | ----------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |    |                        
|Number  |    |    | Description of Exhibits
|        |    |    |                        
|        | 13 | .1 |                         | Certification of Chief Executive
    Officer required by 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|        | 13 | .2 |                         | Certification of Chief Financial
    Officer required by 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|        | 16 | .1 |                         | Code of Ethics for Senior
    Management(2)                                                                                                               
|        | 16 | .2 |                         | Code of Ethics for
    Employees(2)                                                                                                                       






|    |                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to our annual report on Form 20-F
    for the fiscal year ended December 31, 2001 (File
    No. 1-15006) filed with the Commission.       
|   
|(2) | Incorporated by reference to our annual report on Form 20-F
    for the fiscal year ended December 31, 2004 (File
    No. 1-15006) filed with the Commission.       
|   
|(3) | Incorporated by reference to our Registration Statement on
    Form F-1 (File No. 333-11566) filed with the
    Commission, as declared effective on March 29, 2000.