TABLE OF CONTENTS




|                                                                                           |                                                           |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------ | --------------------------------------------------------- |  |  |  |  |  |  | 
|CERTAIN TERMS AND CONVENTIONS                                                             
|                                                                                           | Conventions Which Apply to this Annual Report            
|                                                                                           | Conversion Table                                         
|                                                                                           | Certain Oil and Gas Terms                                
|FORWARD-LOOKING STATEMENTS                                                                
|PART I                                                                                    
|ITEM 1  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                            
|ITEM 2  OFFER STATISTICS AND EXPECTED TIMETABLE                                          
|ITEM 3  KEY INFORMATION                                                                  
|                                                                                           | Exchange Rates                                           
|                                                                                           | Selected Financial Data                                  
|                                                                                           | Risk Factors                                             
|ITEM 4  INFORMATION ON THE COMPANY                                                       
|                                                                                           | Introduction                                             
|                                                                                           | Exploration and Production                               
|                                                                                           | Refining and Marketing                                   
|                                                                                           | Chemicals and Marketing                                  
|                                                                                           | Natural Gas and Pipeline                                 
|                                                                                           | Competition                                              
|                                                                                           | Environmental Matters                                    
|                                                                                           | Legal Proceedings                                        
|                                                                                           | Properties                                               
|                                                                                           | Regulatory Matters                                       
|ITEM 5  OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                     
|                                                                                           | General                                                  
|                                                                                           | Operating Results                                        
|                                                                                           | Liquidity and Capital Resources                          
|                                                                                           | Research and Development                                 
|                                                                                           | Trend Information                                        
|                                                                                           | Other Information                                        
|ITEM 6  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                       
|                                                                                           | Directors, Senior Management and Supervisors             
|                                                                                           | Compensation                                             
|                                                                                           | Board Practices                                          
|                                                                                           | Employees                                                
|                                                                                           | Share Ownership                                          
|ITEM 7  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                
|                                                                                           | Major Shareholders                                       
|                                                                                           | Related Party Transactions                               
|ITEM 8  FINANCIAL INFORMATION                                                            
|                                                                                           | Financial Statements                                     
|                                                                                           | Dividend Policy                                          
|                                                                                           | Significant Changes                                      
|ITEM 9  OFFER AND LISTING                                                                
|                                                                                           | Nature of the Trading Market and Market Price Information
|ITEM 10  ADDITIONAL INFORMATION                                                          
|                                                                                           | Memorandum and Articles of Association                   
|                                                                                           | Material Contracts                                       
|                                                                                           | Exchange Control                                         
|                                                                                           | Taxation                                                 
|                                                                                           | Documents on Display                                     
|ITEM 11  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                      
|ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                          
|PART II                                                                                   
|ITEM 13  DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES                                
|ITEM 14  MATERIAL MODIFICATIONS TO THE RIGHTS TO SECURITY HOLDERS AND USE OF PROCEEDS    
|ITEM 15  [RESERVED]                                                                      
|ITEM 16  [RESERVED]                                                                      
|PART III                                                                                  
|ITEM 17  FINANCIAL STATEMENTS                                                            
|ITEM 18  FINANCIAL STATEMENTS                                                            
|ITEM 19  EXHIBITS                                                                        
|SIGNATURE                                                                                 
|INDEX OF FINANCIAL STATEMENTS                                                             
|REPORT OF INDEPENDENT ACCOUNTANTS                                                         
|CONSOLIDATED STATEMENTS OF INCOME                                                         
|CONSOLIDATED BALANCE SHEETS                                                               
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                     
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY                                
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                                            
|SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (UNAUDITED)
|EXHIBIT INDEX                                                                             
|Article of Accodication                                                                   
|2001 Performance Contract btw Huang Yan & Co.                                             
|2001 Performance Contract btw Ren Chuanjun & Co.                                          
|2001 Performance Contract btw Su Shulin & Co.                                             
|2001 Performance Contract btw Wang Fucheng & Co.                                          
|2001 Performance Contract btw Luo Yingjun & Co.                                           
|2001 Performance Contract btw Shi Xingquan & Co.                                          
|2001 Performance Contract btw Lin Qingshan & Co.                                          
|2001 Performance Contract btw Zhang Xinzhi & Co.                                          
|2001 Performance Contract btw Wang Guoliang & Co.                                         
|2001 Performance Contract btw Shen Pingping & Co.                                         
|2001 Performance Contract btw Jia Chengzao & Co.                                          
|Crude Oil Mutual Supply Framework Agreement                                               
|SUBSIDIARIES OF PETROCHINA COMPANY LIMITED                                                



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##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 20-F

(Mark One)



|  |                                                                   
|- | ------------------------------------------------------------------
|o | REGISTRATION STATEMENT PURSUANT TO
    SECTION 12(b) OR (g) OF THE

SECURITIES EXCHANGE ACT OF 1934


OR



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

For the fiscal year ended December 31,
2001


OR



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

For the transition period
from                                to


Commission File Number 1-15006



---

(PETRO CHINA COMPANY LOGO)

(Exact name of Registrant as specified in its
charter)


PetroChina Company Limited

(Translation of Registrants name into
English)




---

The Peoples Republic of China

(Jurisdiction of incorporation or organization)




---

16 Andelu

Dongcheng District, Beijing, 100011


The Peoples Republic of China


(Address of principal executive offices)




---

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

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

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

None

(Title of Class)


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

None

(Title of Class)


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

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

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

Yes X  No

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

Item 17  Item 18
X



---



| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| | * | PetroChinas H Shares are listed and traded
    on The Stock Exchange of Hong Kong Limited.

| |    |                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------
| | ** | Not for trading, but only in connection with the
    registration of American Depository Shares.

|    |                                                                            
|--- | ---------------------------------------------------------------------------
|*** | Include 877,159,000 H Shares represented by
    American Depositary Shares.









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##### Table of Contents



Table of Contents

|         |  |         |  |                                                                                  |  |      |     | 
|-------- |  | ------- |  | -------------------------------------------------------------------------------- |  | ---- | --- | 
|         |  |         |  |                                                                                  |  | Page
|         |  |         |  |                                                                                  |  |     
|         |  |         |  | Certain Terms and Conventions                                                    |  |      | 2   | 
|         |  |         |  | Forward-looking Statements                                                       |  |      | 5   | 
|Part I   |  | Item 1  |  | Identity of Directors, Senior Management and
    Advisors                        |  |      | 6   | 
|         |  | Item 2  |  | Offer Statistics and Expected Timetable                                          |  |      | 6   | 
|         |  | Item 3  |  | Key Information                                                                  |  |      | 6   | 
|         |  |         |  | Exchange Rates                                                                   |  |      | 6   | 
|         |  |         |  | Selected Financial Data                                                          |  |      | 7   | 
|         |  |         |  | Risk Factors                                                                     |  |      | 10  | 
|         |  | Item 4  |  | Information on the Company                                                       |  |      | 13  | 
|         |  |         |  | Introduction                                                                     |  |      | 13  | 
|         |  |         |  | Exploration and Production                                                       |  |      | 19  | 
|         |  |         |  | Refining and Marketing                                                           |  |      | 29  | 
|         |  |         |  | Chemicals and Marketing                                                          |  |      | 36  | 
|         |  |         |  | Natural Gas and Pipeline                                                         |  |      | 40  | 
|         |  |         |  | Competition                                                                      |  |      | 44  | 
|         |  |         |  | Environmental Matters                                                            |  |      | 45  | 
|         |  |         |  | Legal Proceedings                                                                |  |      | 46  | 
|         |  |         |  | Properties                                                                       |  |      | 46  | 
|         |  |         |  | Regulatory Matters                                                               |  |      | 46  | 
|         |  | Item 5  |  | Operating and Financial Review and Prospects                                     |  |      | 54  | 
|         |  |         |  | General                                                                          |  |      | 54  | 
|         |  |         |  | Operating Results                                                                |  |      | 60  | 
|         |  |         |  | Liquidity and Capital
    Resources                                              |  |      | 69  | 
|         |  |         |  | Research and Development                                                         |  |      | 76  | 
|         |  |         |  | Trend Information                                                                |  |      | 77  | 
|         |  |         |  | Other Information                                                                |  |      | 77  | 
|         |  | Item 6  |  | Directors, Senior Management and Employees                                       |  |      | 81  | 
|         |  |         |  | Directors, Senior
    Management and Supervisors                                 |  |      | 81  | 
|         |  |         |  | Compensation                                                                     |  |      | 87  | 
|         |  |         |  | Board Practices                                                                  |  |      | 89  | 
|         |  |         |  | Employees                                                                        |  |      | 90  | 
|         |  |         |  | Share Ownership                                                                  |  |      | 90  | 
|         |  | Item 7  |  | Major Shareholders and Related Party Transactions                                |  |      | 92  | 
|         |  |         |  | Major Shareholders                                                               |  |      | 92  | 
|         |  |         |  | Related Party Transactions                                                       |  |      | 92  | 
|         |  | Item 8  |  | Financial Information                                                            |  |      | 95  | 
|         |  | Item 9  |  | Offer and Listing                                                                |  |      | 97  | 
|         |  | Item 10 |  | Additional Information                                                           |  |      | 97  | 
|         |  |         |  | Memorandum and Articles
    of Association                                       |  |      | 97  | 
|         |  |         |  | Material Contracts                                                               |  |      | 98  | 
|         |  |         |  | Exchange Control                                                                 |  |      | 98  | 
|         |  |         |  | Taxation                                                                         |  |      | 98  | 
|         |  |         |  | Documents on Display                                                             |  |      | 100 | 
|         |  | Item 11 |  | Quantitative and Qualitative Disclosures About
    Market Risk                   |  |      | 100 | 
|         |  | Item 12 |  | Description of Securities Other Than Equity
    Securities                       |  |      | 105 | 
|Part II  |  | Item 13 |  | Defaults, Dividend Arrearages and Delinquencies                                  |  |      | 105 | 
|         |  | Item 14 |  | Material Modifications to the Rights to Security
    Holders and Use of Proceeds |  |      | 105 | 
|         |  | Item 15 |  | [Reserved]                                                                       |  |      | 105 | 
|         |  | Item 16 |  | [Reserved]                                                                       |  |      | 105 | 
|Part III |  | Item 17 |  | Financial Statements                                                             |  |      | 105 | 
|         |  | Item 18 |  | Financial Statements                                                             |  |      | 105 | 
|         |  | Item 19 |  | Exhibits                                                                         |  |      | 106 | 
|         |  |         |  | Consolidated Financial Statements                                                |  |      | F-1 | 

1



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##### Table of Contents






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,
IAS refers to International Accounting Standards.






Conversion Table


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






Certain Oil and Gas Terms


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



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

2



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##### Table of Contents





|                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|day                           |  | When used with respect to production or capacity,
    means the total annual available production or capacity (after
    taking into account scheduled plant shutdowns) divided by 365.                                                                                                                                                                                                                                                                                                                                                                                         
|                               
|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. 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. 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                                                                                                                                                                                                                                                                                                                                                                                                                                               

3



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##### Table of Contents



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

References to:



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

4



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##### Table of Contents






FORWARD-LOOKING STATEMENTS

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



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

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

The forward-looking statements reflect our
current views with respect to future events and are not a
guarantee of future performance. Actual results may differ
materially from information contained in the forward-looking
statements as a result of a number of factors, including,
without limitation, the risk factors set forth in this annual
report and the following:



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

5



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##### Table of Contents






PART I




ITEM 1  IDENTITY OF DIRECTORS,
SENIOR MANAGEMENT AND ADVISORS

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




ITEM 2  OFFER STATISTICS AND
EXPECTED TIMETABLE

Not applicable.




ITEM 3  KEY
INFORMATION




Exchange Rates

Translations of amounts in this annual report
from Renminbi into U.S. dollars and vice versa have been
made at the rate of RMB 8.2766 to US$1.00, which was the
noon buying rate in New York City for cable transfers in
Renminbi per U.S. dollar as certified for customs purposes
by the Federal Reserve Bank of New York on December 31,
2001. You should not construe these translations as
representations that the RMB amounts could be converted into
U.S. dollar amounts at that rate, or at all.

The noon buying rate in New York City for cable
transfers as certified for customs purposes by the Federal
Reserve Bank of New York was US$1.00=RMB 8.2768 on
June 11, 2002. The following table set 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 2001               |  | 8.2773           |  | 8.2676
|January 2002                |  | 8.2768           |  | 8.2765
|February 2002               |  | 8.2770           |  | 8.2765
|March 2002                  |  | 8.2780           |  | 8.2766
|April 2002                  |  | 8.2780           |  | 8.2769
|May 2002                    |  | 8.2775           |  | 8.2765
|June 2002 (through June 11) |  | 8.2770           |  | 8.2767

The following table sets forth the average noon
buying rates between Renminbi and U.S. dollars for each of 1997,
1998, 1999, 2000 and 2001, calculated by averaging the noon
buying rates on the last day of each month during the relevant
year:

|     |  |                          |        | 
|---- |  | ------------------------ | ------ | 
|     |  | Average noon buying rate
|     |  |                         
|     |  | (RMB per US$)           
|1997 |  |                          | 8.3194 | 
|1998 |  |                          | 8.3009 | 
|1999 |  |                          | 8.2784 | 
|2000 |  |                          | 8.2784 | 
|2001 |  |                          | 8.2770 | 

6



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##### Table of Contents






Selected Financial Data

Historical Financial Information

You should read the selected historical financial
data set forth below in conjunction with the consolidated
financial statements of PetroChina and their notes and
Item 5  Operating and Financial Review and
Prospects included elsewhere in this annual report. The
selected historical income statement data for the years ended
December 31, 1999, 2000 and 2001 and the selected
historical balance sheet data as of December 31, 2000 and
2001 set forth below are derived from our audited consolidated
financial statements, including their notes, included elsewhere
in this annual report. The selected historical income statement
data for the years ended December 31, 1997 and 1998 and the
selected historical balance sheet data as of December 31,
1997, 1998 and 1999 set forth below are derived from our
previously audited financial statements. The financial
information included in this section may not necessarily reflect
our results of operations, financial position and cash flows in
the future or what our results of operations, financial position
and cash flows would have been had we been a separate and
stand-alone entity during the relevant periods.

We have prepared our consolidated financial
statements in accordance with IAS. IAS differ materially from
the generally accepted accounting principals in the U.S.
(US GAAP). For a discussion of material differences
between IAS and US GAAP, see Note 33 to our consolidated
financial statements.

|                                              |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |        |         |  
|--------------------------------------------- | ----------------------------------------------------------------------- | ----------------------------------------------------------- | ------ | ------- | -------- | ---- | ------ | ------- | -------- | ---- | ------ | ------- | -------- | - | ------ | ------- | -------- | - | ------ | ------- | -------- | - | ----- | ------ | ------- | -
|                                              |                                                                         |                                                            
|                                              |                                                                         | Year ended December 31,                                    
|                                              |                                                                         |                                                            
|                                              |                                                                         | 1997                                                        |        | 1998    |          | 1999 |        | 2000    |          | 2001 |        | 2001   
|                                              |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |        
|                                              |                                                                         | RMB                                                         |        | RMB     |          | RMB  |        | RMB     |          | RMB  |        | US$    
|                                              |                                                                         |                                                            
|                                              |                                                                         | (in millions, except for per share and per ADS information)
|Income Statement Data                         |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|IAS                                           |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Revenues                                      |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|                                              | Sales and other operating revenues                                      |                                                             |        | 157,381 |          |      |        | 147,287 |          |      |        | 175,969 |          |   |        | 241,992 |          |   |        | 238,893 |          |   |       | 28,863 |        
|                                              |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Operating expenses                            |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|                                              | Purchases, services and other                                           |                                                             |        | (56,980 | )        |      |        | (58,190 | )        |      |        | (61,470 | )        |   |        | (62,598 | )        |   |        | (76,859 | )        |   |       | (9,287 | )      
|                                              | Employee compensation costs                                             |                                                             |        | (8,826  | )        |      |        | (9,752  | )        |      |        | (11,064 | )        |   |        | (14,430 | )        |   |        | (13,992 | )        |   |       | (1,690 | )      
|                                              | Exploration expenses, including exploratory
    dry
    holes           |                                                             |        | (6,830  | )        |      |        | (5,990  | )        |      |        | (7,344  | )        |   |        | (8,680  | )        |   |        | (7,344  | )        |   |       | (887   | )      
|                                              | Depreciation, depletion and amortization                                |                                                             |        | (16,450 | )        |      |        | (17,803 | )        |      |        | (23,533 | )        |   |        | (33,760 | )        |   |        | (33,367 | )        |   |       | (4,031 | )      
|                                              | Selling, general and administrative expenses                            |                                                             |        | (9,827  | )        |      |        | (9,838  | )        |      |        | (12,596 | )        |   |        | (16,649 | )        |   |        | (20,837 | )        |   |       | (2,518 | )      
|                                              | Employee separation costs and shutting down of
    manufacturing assets |                                                             |        |        |          |      |        |        |          |      |        |        |          |   |        | (6,579  | )        |   |        | (478    | )        |   |       | (58    | )      
|                                              | Revaluation loss                                                        |                                                             |        |        |          |      |        |        |          |      |        | (1,122  | )        |   |        |        |          |   |        |        |          |   |       |       |        
|                                              | Impairment loss on assets to be retained by CNPC                        |                                                             |        |        |          |      |        | (310    | )        |      |        | (2,007  | )        |   |        |        |          |   |        |        |          |   |       |       |        
|                                              | Taxes other than income taxes                                           |                                                             |        | (9,279  | )        |      |        | (9,579  | )        |      |        | (10,278 | )        |   |        | (13,230 | )        |   |        | (13,916 | )        |   |       | (1,681 | )      
|                                              | Other income/(expenses), net                                            |                                                             |        | (557    | )        |      |        | (336    | )        |      |        | 345     |          |   |        | (307    | )        |   |        | 117     |          |   |       | (14    | )      
|                                              |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|                                              |                                                                         | Total operating expenses                                    |        |         | (108,749 | )    |        |         | (111,798 | )    |        |         | (129,069 | ) |        |         | (156,233 | ) |        |         | (166,676 | ) |       |        | (20,138 | )
|                                              |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Income from operations                        |                                                                         |                                                             | 48,632 |         |          |      | 35,489 |         |          |      | 46,900 |         |          |   | 85,759 |         |          |   | 72,217 |         |          |   | 8,725 |       
|                                              | Income from equity affiliates                                           |                                                             |        | 331     |          |      |        | 88      |          |      |        | 128     |          |   |        | 584     |          |   |        | 341     |          |   |       | 41     |        
|                                              | Exchange gain (loss), net                                               |                                                             |        | 3,126   |          |      |        | (1,872  | )        |      |        | (2,233  | )        |   |        | 1,172   |          |   |        | 250     |          |   |       | 30     |        
|                                              | Interest income                                                         |                                                             |        | 1,048   |          |      |        | 1,326   |          |      |        | 632     |          |   |        | 584     |          |   |        | 799     |          |   |       | 97     |        
|                                              | Interest expense                                                        |                                                             |        | (10,928 | )        |      |        | (12,276 | )        |      |        | (8,896  | )        |   |        | (6,048  | )        |   |        | (4,149  | )        |   |       | (502   | )      
|Income before income taxes                    |                                                                         |                                                             | 42,209 |         |          |      | 22,755 |         |          |      | 36,531 |         |          |   | 82,051 |         |          |   | 69,458 |         |          |   | 8,391 |       
|                                              | Income taxes                                                            |                                                             |        | (12,200 | )        |      |        | (7,537  | )        |      |        | (9,403  | )        |   |        | (26,985 | )        |   |        | (23,054 | )        |   |       | (2,785 | )      
|                                              |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|                                              | Income before minority interests                                        |                                                             |        | 30,009  |          |      |        | 15,218  |          |      |        | 27,128  |          |   |        | 55,066  |          |   |        | 46,404  |          |   |       | 5,606  |        
|                                              |                                                                         | (Income) loss applicable to minority interests              |        |         | (161     | )    |        |         | 57       |      |        |         | (127     | ) |        |         | 165      |   |        |         | 404      |   |       |        | 49      |  
|                                              |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Net income                                    |                                                                         |                                                             | 29,848 |         |          |      | 15,275 |         |          |      | 27,001 |         |          |   | 55,231 |         |          |   | 46,808 |         |          |   | 5,655 |       
|                                              |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Basic and diluted net income per
    share(1) |                                                                         |                                                             | 0.19   |         |          |      | 0.10   |         |          |      | 0.17   |         |          |   | 0.32   |         |          |   | 0.27   |         |          |   | 0.03  |       
|                                              |                                                                         |                                                             |        |         |          |      |        |         |          |      |        |         |          |   |        |         |          |   |        |         |          |   |       |       
|Basic and diluted net income per ADS(2)       |                                                                         |                                                             | 18.66  |         |          |      | 9.55   |         |          |      | 16.88  |         |          |   | 32.18  |         |          |   | 27.27  |         |          |   | 3.30  |       

7



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##### Table of Contents



|                                              |  |                                                             |        |      |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |       | 
|--------------------------------------------- |  | ----------------------------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ |  |  |  | ----- | 
|                                              |  |                                                            
|                                              |  | Year ended December 31,                                    
|                                              |  |                                                            
|                                              |  | 1997                                                        |        | 1998 |  | 1999 |        | 2000 |  | 2001 |        | 2001
|                                              |  |                                                             |        |      |  |      |        |      |  |      |        |     
|                                              |  | RMB                                                         |        | RMB  |  | RMB  |        | RMB  |  | RMB  |        | US$ 
|                                              |  |                                                            
|                                              |  | (in millions, except for per share and per ADS information)
|US GAAP                                       |  |                                                             |        |      |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |       | 
|Net income                                    |  |                                                             | 29,848 |      |  |      | 15,275 |      |  |      | 30,987 |      |  |  | 60,822 |  |  |  | 52,273 |  |  |  | 6,316 | 
|                                              |  |                                                             |        |      |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |       | 
|Basic and diluted net income per
    share(1) |  |                                                             | 0.19   |      |  |      | 0.10   |      |  |      | 0.19   |      |  |  | 0.35   |  |  |  | 0.30   |  |  |  | 0.04  | 
|                                              |  |                                                             |        |      |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |       | 
|Basic and diluted net income per ADS(2)       |  |                                                             | 18.66  |      |  |      | 9.55   |      |  |      | 19.37  |      |  |  | 35.44  |  |  |  | 29.73  |  |  |  | 3.59  | 
|                                              |  |                                                             |        |      |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |       | 

|                                                              |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |        |        | 
|------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- | ---- | ------- | ------- | ------- | ---- | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ------ | ------ | ------ | 
|                                                              |                                                                                              |                                           
|                                                              |                                                                                              | As of December 31,                        
|                                                              |                                                                                              |                                           
|                                                              |                                                                                              | 1997                                       |         | 1998    |         | 1999 |         | 2000    |         | 2001 |         | 2001   
|                                                              |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |        
|                                                              |                                                                                              | RMB                                        |         | RMB     |         | RMB  |         | RMB     |         | RMB  |         | US$    
|                                                              |                                                                                              |                                           
|                                                              |                                                                                              | (in millions)                             
|Balance Sheet Data                                            |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|IAS                                                           |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|Assets                                                        |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|Current assets                                                |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|                                                              | Cash and cash equivalents                                                                    |                                            |         | 16,456  |         |      |         | 15,109  |         |      |         | 17,848  |         |  |         | 18,060  |         |  |         | 11,117  |         |  |        | 1,343  |       
|                                                              | Time deposits with maturities over three months                                              |                                            |         |        |         |      |         |        |         |      |         |        |         |  |         |        |         |  |         | 3,253   |         |  |        | 393    |       
|                                                              | Notes receivable                                                                             |                                            |         | 2,003   |         |      |         | 1,905   |         |      |         | 2,224   |         |  |         | 2,464   |         |  |         | 2,359   |         |  |        | 285    |       
|                                                              | Short-term investments                                                                       |                                            |         | 16      |         |      |         | 53      |         |      |         | 1,487   |         |  |         |        |         |  |         |        |         |  |        |       |       
|                                                              | Receivables under resale agreements                                                          |                                            |         |        |         |      |         |        |         |      |         |        |         |  |         | 5,815   |         |  |         | 11,505  |         |  |        | 1,390  |       
|                                                              | Accounts receivable, less allowance for doubtful
    accounts                                |                                            |         | 14,676  |         |      |         | 19,355  |         |      |         | 14,883  |         |  |         | 12,695  |         |  |         | 7,909   |         |  |        | 956    |       
|                                                              | Inventories, at net book value                                                               |                                            |         | 17,924  |         |      |         | 17,493  |         |      |         | 17,602  |         |  |         | 31,514  |         |  |         | 27,961  |         |  |        | 3,378  |       
|                                                              | Prepaid expenses and other current assets                                                    |                                            |         | 20,246  |         |      |         | 18,677  |         |      |         | 26,564  |         |  |         | 8,933   |         |  |         | 22,308  |         |  |        | 2,695  |       
|                                                              |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|                                                              |                                                                                              | Total current assets                       |         |         | 71,321  |      |         |         | 72,592  |      |         |         | 80,608  |  |         |         | 79,481  |  |         |         | 86,412  |  |        |        | 10,440 | 
|                                                              | Net assets to be retained by CNPC                                                            |                                            |         | 7,494   |         |      |         | 8,478   |         |      |         |        |         |  |         |        |         |  |         |        |         |  |        |       |       
|                                                              | Property, plant and equipment, less accumulated
    depreciation, depletion and amortization |                                            |         | 212,970 |         |      |         | 228,710 |         |      |         | 324,990 |         |  |         | 341,229 |         |  |         | 365,063 |         |  |        | 44,108 |       
|                                                              | Long-term investments, at net book value                                                     |                                            |         | 3,152   |         |      |         | 3,579   |         |      |         | 3,799   |         |  |         | 4,784   |         |  |         | 5,436   |         |  |        | 657    |       
|                                                              | Intangible and other assets                                                                  |                                            |         | 1,361   |         |      |         | 1,724   |         |      |         | 1,888   |         |  |         | 2,586   |         |  |         | 3,963   |         |  |        | 479    |       
|                                                              |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|                                                              |                                                                                              | Total assets                               |         |         | 296,298 |      |         |         | 315,083 |      |         |         | 411,285 |  |         |         | 428,080 |  |         |         | 460,874 |  |        |        | 55,684 | 
|                                                              |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|Liabilities and shareholders
    equity                      |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|Current liabilities                                           |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|                                                              | Short-term debt                                                                              |                                            |         | 55,195  |         |      |         | 63,474  |         |      |         | 59,959  |         |  |         | 39,076  |         |  |         | 23,111  |         |  |        | 2,792  |       
|                                                              | Accounts payable and accrued liabilities                                                     |                                            |         | 36,906  |         |      |         | 39,462  |         |      |         | 45,190  |         |  |         | 36,802  |         |  |         | 51,214  |         |  |        | 6,189  |       
|                                                              | Income and other taxes payable                                                               |                                            |         | 4,325   |         |      |         | 3,884   |         |      |         | 4,739   |         |  |         | 16,570  |         |  |         | 14,423  |         |  |        | 1,742  |       
|                                                              |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|                                                              |                                                                                              | Total current liabilities                  |         |         | 96,426  |      |         |         | 106,820 |      |         |         | 109,888 |  |         |         | 92,448  |  |         |         | 88,748  |  |        |        | 10,723 | 
|Payable to CNPC                                               |                                                                                              |                                            | 7,494   |         |         |      | 8,478   |         |         |      |        |         |         |  |        |         |         |  |        |         |         |  |       |       
|Long-term debt                                                |                                                                                              |                                            | 105,522 |         |         |      | 105,354 |         |         |      | 84,458  |         |         |  | 53,341  |         |         |  | 65,484  |         |         |  | 7,912  |       
|Deferred credits and other long-term obligations              |                                                                                              |                                            | 929     |         |         |      | 2,119   |         |         |      | 1,146   |         |         |  | 1,176   |         |         |  | 1,354   |         |         |  | 164    |       
|Deferred income taxes                                         |                                                                                              |                                            | 9,769   |         |         |      | 10,381  |         |         |      | 1,182   |         |         |  | 3,169   |         |         |  | 7,030   |         |         |  | 849    |       
|                                                              |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|                                                              |                                                                                              | Total liabilities                          |         |         | 220,140 |      |         |         | 233,152 |      |         |         | 196,674 |  |         |         | 150,134 |  |         |         | 162,616 |  |        |        | 19,648 | 
|Minority interest                                             |                                                                                              |                                            | 3,291   |         |         |      | 3,798   |         |         |      | 4,200   |         |         |  | 4,989   |         |         |  | 5,136   |         |         |  | 621    |       
|Owners/Shareholders
    equity(6)                           |                                                                                              |                                            | 72,867  |         |         |      | 78,133  |         |         |      | 210,411 |         |         |  | 272,957 |         |         |  | 293,122 |         |         |  | 35,415 |       
|                                                              |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|                                                              |                                                                                              | Total liabilities and shareholders equity |         |         | 296,298 |      |         |         | 315,083 |      |         |         | 411,285 |  |         |         | 428,080 |  |         |         | 460,874 |  |        |        | 55,684 | 
|                                                              |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|Share capital, issued and outstanding,
    RMB 1.00 par value |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|                                                              | State-owned shares                                                                           |                                            |         |        |         |      |         |        |         |      |         | 160,000 |         |  |         | 158,242 |         |  |         | 158,242 |         |  |        | 19,119 |       
|                                                              | H shares and ADSs                                                                            |                                            |         |        |         |      |         |        |         |      |         |        |         |  |         | 17,582  |         |  |         | 17,582  |         |  |        | 2,124  |       
|US GAAP                                                       |                                                                                              |                                            |         |         |         |      |         |         |         |      |         |         |         |  |         |         |         |  |         |         |         |  |        |       
|Total assets                                                  |                                                                                              |                                            | 296,298 |         |         |      | 315,083 |         |         |      | 336,133 |         |         |  | 361,362 |         |         |  | 402,402 |         |         |  | 48,619 |       
|Owners/Shareholders
    equity(6)                           |                                                                                              |                                            | 72,867  |         |         |      | 78,133  |         |         |      | 160,663 |         |         |  | 228,800 |         |         |  | 254,430 |         |         |  | 30,741 |       

8



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##### Table of Contents



|                                              |  |                    |         |      |  |      |         |      |  |      |         |      |  |  |         |   |  |  |         |   |  |  |        |  
|--------------------------------------------- |  | ------------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  |  | ------- | - |  |  | ------- | - |  |  | ------ | -
|                                              |  |                   
|                                              |  | As of December 31,
|                                              |  |                   
|                                              |  | 1997               |         | 1998 |  | 1999 |         | 2000 |  | 2001 |         | 2001
|                                              |  |                    |         |      |  |      |         |      |  |      |         |     
|                                              |  | RMB                |         | RMB  |  | RMB  |         | RMB  |  | RMB  |         | US$ 
|                                              |  |                   
|                                              |  | (in millions)     
|Other Financial Data                          |  |                    |         |      |  |      |         |      |  |      |         |      |  |  |         |   |  |  |         |   |  |  |        |  
|IAS                                           |  |                    |         |      |  |      |         |      |  |      |         |      |  |  |         |   |  |  |         |   |  |  |        |  
|Dividend per share                            |  |                    |        |      |  |      |        |      |  |      |        |      |  |  | 0.14    |   |  |  | 0.12    |   |  |  | 0.01   |  
|Dividend per ADS                              |  |                    |        |      |  |      |        |      |  |      |        |      |  |  | 14.14   |   |  |  | 11.98   |   |  |  | 1.45   |  
|                                              |  |                    |         |      |  |      |         |      |  |      |         |      |  |  |         |   |  |  |         |   |  |  |        |  
|Capital expenditures(3)                       |  |                    | (53,440 | )    |  |      | (43,420 | )    |  |      | (42,870 | )    |  |  | (56,759 | ) |  |  | (51,118 | ) |  |  | (6,176 | )
|Net cash provided by operating activities     |  |                    | 54,809  |      |  |      | 37,651  |      |  |      | 54,053  |      |  |  | 104,169 |   |  |  | 84,492  |   |  |  | 10,209 |  
|Net cash used for investing
    activities(4) |  |                    | (52,469 | )    |  |      | (38,832 | )    |  |      | (40,418 | )    |  |  | (60,401 | ) |  |  | (61,624 | ) |  |  | (7,446 | )
|Net cash used for financing
    activities(5) |  |                    | (2,063  | )    |  |      | (166    | )    |  |      | (10,896 | )    |  |  | (43,556 | ) |  |  | (29,811 | ) |  |  | (3,602 | )



---

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Historical income per share for the year ended
    December 31, 2001 has been calculated by dividing the net
    profit by the number of 175,824 million shares issued and
    outstanding for the period presented. Historical income per
    share for the year ended December 31, 2000 has been
    calculated by dividing the net profit by the weighted average
    number of 171,630 million shares issued and outstanding for
    the period presented. Historical income per share for the years
    ended December 31, 1997, 1998 and 1999 has been calculated
    by dividing the net profit by the 160,000 million shares
    issued and outstanding upon the formation of PetroChina on
    November 5, 1999 for such periods presented.                                                                                                                                                   
|   
|(2) | Historical income per ADS for the year ended
    December 31, 2001 has been calculated by dividing the net profit
    by the number of 175,824 million shares issued and outstanding
    for the period presented, assuming each ADS representing 100 H
    shares. Historical income per ADS for the year ended
    December 31, 2000 has been calculated by dividing the net
    profit by the weighted average number of 171,630 million
    shares issued and outstanding for the period presented, assuming
    each ADS representing 100 H shares. Historical income
    per ADS for the years ended December 31, 1997, 1998 and
    1999 has been calculated by dividing the net profit by the
    160,000 million shares issued and outstanding upon the
    completion of the global offering of our H shares for such
    periods presented, assuming each ADS representing
    100 H shares.
|   
|(3) | Excludes capital expenditures for assets retained
    by CNPC of RMB 1,692 million,
    RMB 1,687 million and RMB 111 million in
    1997, 1998 and 1999, respectively. We did not incur such capital
    expenditures in 2000 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) | Includes capital expenditures for assets by CNPC
    of RMB 1,692 million, RMB 1,687 million and
    RMB 111 million in 1997, 1998 and 1999, respectively.
    We did not incur such capital expenditures in 2000 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(5) | Includes contributions from CNPC for assets
    retained by CNPC of RMB 1,692 million,
    RMB 1,687 million and RMB 111 million in
    1997, 1998 and 1999, respectively. CNPC did not make such
    contributions for such assets in 2000 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(6) | Prior to our formation on November 5, 1999,
    the financial statements were presented on a carve-out combined
    basis and no direct ownership existed prior to such date among
    all the Core Units as described in Note 1 to our audited
    consolidated financial statements included elsewhere in this
    annual report. Accordingly, owners equity was shown in the
    combined financial statements until November 5, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                             

9



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



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



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



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

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | a Comprehensive Products and Services Agreement
    with CNPC, 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 China Petroleum and Chemical
    Corporation, or Sinopec. In addition, we incur relatively higher
    transportation costs for delivery of our refined products and
    chemical products to certain areas of these regions from our
    refineries and chemical plants in western and northern China. As
    a result, we expect that we will continue to encounter
    difficulty in increasing our sales of refined products and
    chemical products in these regions.
|
| |  | We are currently constructing and renovating
    several natural gas and refined product pipelines and storage
    facilities and plan to construct and renovate other natural gas
    and refined product pipelines and storage facilities. We cannot
    give assurance that the cash generated by our operations will be
    sufficient to fund these development plans or that our actual
    future capital expenditures and investments will not
    significantly exceed our current planned amounts. If either of
    these conditions arises, we may have to seek external financing
    to satisfy our capital needs. Under such circumstance, our
    inability to obtain sufficient funding for our development plans
    could adversely affect our business, financial condition and
    results of operations.                                                                  
|
| |  | We are also subject to a number of risks relating
    to the PRC and the PRC oil and gas industry. These risks are
    described as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



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

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

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

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##### Table of Contents






ITEM 4  INFORMATION ON THE
COMPANY




Introduction

History and Development on the
Company

Overview of
Our Operations

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



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

We are Chinas largest producer of crude oil
and natural gas. Currently, substantially all of our crude oil
and natural gas reserves and production-related assets are
located in China. In the year ended December 31, 2001, we
had total revenue of RMB 238,893 million
(US$28,863 million) and net income of
RMB 46,808 million (US$5,655 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, 2001, we had estimated proved reserves of
approximately 11.0 billion barrels of crude oil and
approximately 36.1 trillion cubic feet of natural gas. We
believe that we hold production licenses for the substantial
majority of Chinas proved crude oil reserves and proved
natural gas reserves. In the year ended December 31, 2001,
we produced 763.5 million barrels of crude oil and
563.5 billion cubic feet of natural gas for sale,
representing an average production of 2,091.8 thousand
barrels of crude oil and 1,543.8 million cubic feet of
sales natural gas per day. Approximately 75% of the crude oil we
sold in the year ended December 31, 2001 was supplied to
our refineries.

We commenced limited refining activities in the
mid-1950s, when we began producing gasoline and diesel at
refineries in the Yumen oil region. We now operate 23 refineries
located in eight provinces, two autonomous regions and one
municipality. In 2001, our refineries processed approximately
567.0 million barrels of crude oil or 1,553.4 thousand
barrels per day. In the year ended December 31, 2001, we
produced approximately 46.5 million tons of gasoline,
diesel and kerosene and sold approximately 51.6 million
tons of these products. Approximately 95% of the crude oil
processed in our refineries in the year ended December 31,
2001 was supplied by our exploration and production operations.
As of December 31, 2001, our retail distribution network
consisted of 6,524 service stations that we own and
operate, 3,536 service stations wholly-owned by CNPC or
jointly-owned by CNPC and third parties to which we provide
supervisory support and 2,042 franchise service stations.

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

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##### Table of Contents



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 2001, our sales of natural
gas totaled 529.8 billion cubic feet, of which
442.2 billion cubic feet was sold through our natural gas
and pipeline segment. As of December 31, 2001, we owned and
operated regional natural gas pipeline networks consisting of
approximately 12,918 kilometers of pipelines, of which
approximately 11,826 kilometers were used by our natural
gas and pipeline segment. As of December 31, 2001, we owned
and operated a crude oil pipeline network consisting of
9,186 kilometers of pipelines with an average daily
throughput of approximately 2.1 million barrels of crude
oil. As of December 31, 2000, we also had a refined product
pipeline network consisting of approximately 984 kilometers
of pipelines with an average daily throughput of approximately
12,022 tons of refined products.

We plan to pursue attractive business
opportunities outside China as part of our business growth
strategy. We intend to enter into international oil and gas
markets and utilize both the domestic and international
resources to strengthen our competitiveness. We have established
a company which focuses on international oil and gas exploration
and development. We entered into an agreement with Devon Energy
Corporation on April 12, 2002 in connection with our
acquisition of Devon Energy Corporations Indonesian oil
and gas operations for a price of US$216 million. We used
cash generated by our operations to fund this acquisition.

Our Corporate
Organization and Shareholding Structure

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

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

14



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##### Table of Contents



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

(CNPC CORPORATE ORGANIZATION CHART)




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

15



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##### Table of Contents



The following chart sets forth our management
structure:

(CHART)




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

16



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##### Table of Contents



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.

17



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##### Table of Contents





(MAP)

18



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##### Table of Contents






Exploration and Production

We are engaged in crude oil and natural gas
exploration, development and production in China. Substantially
all of our total estimated proved crude oil and natural gas
reserves are located in China, principally in northeastern,
northern, southwestern and northwestern China. The Songliao
basin, located in Heilongjiang and Jilin provinces in
northeastern China, including the Daqing and Jilin oil regions,
accounted for 53.6% of our proved crude oil reserves as of
December 31, 2001 and 54.1% of our crude oil production in
2001. We also have significant crude oil reserves and operations
in the area around the Bohai Bay. The Bohai Bay basin includes
the Liaohe, Dagang, Huabei and Jidong oil regions and accounted
for 20.6% of our proved crude oil reserves as of
December 31, 2001 and 22.0% of our crude oil production in
2001. Our proved natural gas reserves and production are
generally concentrated in northwestern and southwestern China,
specifically in the Erdos, Tarim and Sichuan basins.

We currently hold exploration licenses covering a
total area of approximately 356 million acres and
production licenses covering a total area of approximately
11.2 million acres. We believe that we hold a majority of
Chinas exploration and production acreage. In 2001, our
exploration and production segment had income from operations of
RMB 76,932 million (US$9,295 million).

Reserves

Our estimated proved reserves of crude oil and
natural gas as of December 31, 2001 totaled approximately
11.0 billion barrels of crude oil and approximately
36.1 trillion cubic feet of natural gas, respectively. As
of December 31, 2001, proved developed reserves accounted
for 84.9% and 35.9% of our total proved crude oil and natural
gas reserves, respectively. Total proved hydrocarbon reserves on
a barrels-of-oil equivalent basis increased by a total of 3.2%
from approximately 16,453.9 million barrels-of-oil
equivalent as of the end of 2000 to approximately
16,976.2 million barrels-of-oil equivalent as of the end of
2001. Natural gas as a percentage of total proved hydrocarbon
reserves increased from 33.0% to 35.4% over the same period.

The following table sets forth our estimated
proved reserves and proved developed reserves of crude oil and
natural gas as of December 31, 1999, 2000 and 2001. We
prepared our reserve estimates as of December 31, 1999,
2000 and 2001 on the basis of a report prepared by DeGolyer and
MacNaughton, independent engineering consultants, in accordance
with Statement of Financial Accounting Standards No. 69
(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

19



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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 |   | Combined          
|                                              |                                 |                       |          |             |   |                   
|                                              |                                 | (millions of barrels) |          | (Bcf)       |   | (BOE, in millions)
|Proved developed and undeveloped
    reserves |                                 |                       |          |             |   |                    |          |          |   |  |          |         
|Reserves as of December 31, 1999              |                                 |                       | 10,999.4 |             |   |                    | 24,602.3 |          |   |  | 15,099.8 |         
|                                              | Revisions of previous estimates |                       |          | 138.3       |   |                    |          | 339.6    |   |  |          | 194.9    |  
|                                              | Extensions and discoveries      |                       |          | 296.4       |   |                    |          | 8,237.5  |   |  |          | 1,669.3  |  
|                                              | Improved recovery               |                       |          | 362.9       |   |                    |          | 0        |   |  |          | 362.9    |  
|                                              | Production for the year(1)      |                       |          | (765.2      | ) |                    |          | (646.8   | ) |  |          | (873.0   | )
|Reserves as of December 31, 2000              |                                 |                       | 11,031.8 |             |   |                    | 32,532.6 |          |   |  | 16,453.9 |         
|                                              | Revisions of previous estimates |                       |          | 189.6       |   |                    |          | 487.6    |   |  |          | 270.9    |  
|                                              | Extensions and discoveries      |                       |          | 360.4       |   |                    |          | 3,773.4  |   |  |          | 989.3    |  
|                                              | Improved recovery               |                       |          | 140.8       |   |                    |          | 35.8     |   |  |          | 146.7    |  
|                                              | Production for the year(1)      |                       |          | (763.5      | ) |                    |          | (726.8   | ) |  |          | (884.6   | )
|Reserves as of December 31, 2001              |                                 |                       | 10,959.1 |             |   |                    | 36,102.6 |          |   |  | 16,976.2 |         
|Proved developed reserves                     |                                 |                       |          |             |   |                    |          |          |   |  |          |         
|                                              | As of December 31, 1999         |                       |          | 9,744.1     |   |                    |          | 12,098.0 |   |  |          | 11,760.4 |  
|                                              | As of December 31, 2000         |                       |          | 9,545.7     |   |                    |          | 12,502.5 |   |  |          | 11,629.4 |  
|                                              | As of December 31, 2001         |                       |          | 9,308.8     |   |                    |          | 12,945.6 |   |  |          | 11,466.4 |  




|    |                                                                                                   
|--- | --------------------------------------------------------------------------------------------------
|(1) | Represents crude oil wellhead production and
    natural gas wellhead production, less flared gas.

The following tables set forth our crude oil and
natural gas proved reserves and proved developed reserves by
region as of December 31, 1999, 2000 and 2001.

|                   |       |                       |         |           |  |             |         |           |  |             |         |           |  |  |         |         |  |  |         |          |  |  |         |         | 
|------------------ | ----- | --------------------- | ------- | --------- |  | ----------- | ------- | --------- |  | ----------- | ------- | --------- |  |  | ------- | ------- |  |  | ------- | -------- |  |  | ------- | ------- | 
|                   |       |                      
|                   |       | As of December 31,   
|                   |       |                      
|                   |       |                       |         |           |  |            
|                   |       | 1999                  |         | 2000      |  | 2001       
|                   |       |                       |         |           |  |            
|                   |       | 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             |       |                       | 6,034.5 |           |  |             | 5,816.2 |           |  |             | 5,682.1 |           |  |  | 5,426.0 |         |  |  | 5,349.8 |          |  |  | 5,029.1 |        
|Liaohe             |       |                       | 1,048.1 |           |  |             | 887.3   |           |  |             | 1,223.8 |           |  |  | 999.9   |         |  |  | 1,217.3 |          |  |  | 1,027.4 |        
|Xinjiang           |       |                       | 1,068.5 |           |  |             | 850.3   |           |  |             | 1,084.9 |           |  |  | 821.5   |         |  |  | 1,089.9 |          |  |  | 854.4   |        
|Changqing          |       |                       | 591.0   |           |  |             | 397.6   |           |  |             | 627.3   |           |  |  | 472.0   |         |  |  | 821.8   |          |  |  | 576.9   |        
|Jilin              |       |                       | 480.9   |           |  |             | 372.1   |           |  |             | 477.6   |           |  |  | 373.7   |         |  |  | 527.0   |          |  |  | 371.7   |        
|Tarim              |       |                       | 377.3   |           |  |             | 298.6   |           |  |             | 466.1   |           |  |  | 300.7   |         |  |  | 495.0   |          |  |  | 298.8   |        
|Huabei             |       |                       | 482.5   |           |  |             | 376.7   |           |  |             | 500.3   |           |  |  | 375.4   |         |  |  | 483.3   |          |  |  | 345.9   |        
|Dagang             |       |                       | 417.9   |           |  |             | 303.1   |           |  |             | 439.4   |           |  |  | 295.8   |         |  |  | 447.2   |          |  |  | 331.9   |        
|Qinghai            |       |                       | 228.4   |           |  |             | 182.0   |           |  |             | 239.5   |           |  |  | 192.4   |         |  |  | 229.9   |          |  |  | 186.6   |        
|Tuha               |       |                       | 183.5   |           |  |             | 173.4   |           |  |             | 196.8   |           |  |  | 194.4   |         |  |  | 199.9   |          |  |  | 188.0   |        
|Sichuan            |       |                       | 8.7     |           |  |             | 8.7     |           |  |             | 8.6     |           |  |  | 8.6     |         |  |  | 5.7     |          |  |  | 5.7     |        
|Other regions(1)   |       |                       | 78.0    |           |  |             | 78.0    |           |  |             | 85.3    |           |  |  | 85.3    |         |  |  | 92.5    |          |  |  | 92.5    |        
|                   |       |                       |         |           |  |             |         |           |  |             |         |           |  |  |         |         |  |  |         |          |  |  |         |        
|                   | Total |                       |         | 10,999.4  |  |             |         | 9,744.1   |  |             |         | 11,031.8  |  |  |         | 9,545.7 |  |  |         | 10,959.1 |  |  |         | 9,308.8 | 
|                   |       |                       |         |           |  |             |         |           |  |             |         |           |  |  |         |         |  |  |         |          |  |  |         |        

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|                     |       |                    |         |           |  |             |         |           |  |             |          |           |  |  |         |          |  |  |          |          |  |  |         |          | 
|-------------------- | ----- | ------------------ | ------- | --------- |  | ----------- | ------- | --------- |  | ----------- | -------- | --------- |  |  | ------- | -------- |  |  | -------- | -------- |  |  | ------- | -------- | 
|                     |       |                   
|                     |       | As of December 31,
|                     |       |                   
|                     |       |                    |         |           |  |            
|                     |       | 1999               |         | 2000      |  | 2001       
|                     |       |                    |         |           |  |            
|                     |       | Proved             |         |           |  | Proved      |         |           |  | Proved      |          |          
|                     |       | Developed          |         |           |  | developed   |         |           |  | developed   |          |          
|                     |       | and                |         | Proved    |  | and         |         | Proved    |  | and         |          | Proved   
|                     |       | undeveloped        |         | developed |  | undeveloped |         | developed |  | undeveloped |          | developed
|                     |       |                    |         |           |  |             |         |           |  |             |          |          
|                     |       |                   
|                     |       | (Bcf)             
|Natural gas reserves |       |                    |         |           |  |             |         |           |  |             |          |           |  |  |         |         
|Changqing            |       |                    | 5,808.1 |           |  |             | 1,636.9 |           |  |             | 6,798.9  |           |  |  | 2,360.5 |          |  |  | 10,256.6 |          |  |  | 2,864.3 |         
|Tarim                |       |                    | 3,653.6 |           |  |             | 1,264.6 |           |  |             | 10,007.0 |           |  |  | 481.3   |          |  |  | 10,158.1 |          |  |  | 531.1   |         
|Sichuan              |       |                    | 7,173.4 |           |  |             | 4,682.1 |           |  |             | 7,247.4  |           |  |  | 4,917.2 |          |  |  | 7,074.1  |          |  |  | 4,814.8 |         
|Qinghai              |       |                    | 2,926.3 |           |  |             | 104.4   |           |  |             | 2,923.2  |           |  |  | 101.2   |          |  |  | 2,946.8  |          |  |  | 487.0   |         
|Xinjiang             |       |                    | 1,275.6 |           |  |             | 1,049.7 |           |  |             | 1,421.2  |           |  |  | 1,345.3 |          |  |  | 1,584.8  |          |  |  | 1,293.5 |         
|Daqing               |       |                    | 1,599.6 |           |  |             | 1,447.1 |           |  |             | 1,617.2  |           |  |  | 1,459.2 |          |  |  | 1,551.7  |          |  |  | 1,374.2 |         
|Dagang               |       |                    | 319.8   |           |  |             | 239.2   |           |  |             | 622.5    |           |  |  | 211.5   |          |  |  | 719.9    |          |  |  | 276.6   |         
|Liaohe               |       |                    | 738.2   |           |  |             | 654.2   |           |  |             | 745.4    |           |  |  | 645.0   |          |  |  | 697.6    |          |  |  | 623.9   |         
|Tuha                 |       |                    | 642.6   |           |  |             | 604.5   |           |  |             | 599.4    |           |  |  | 598.7   |          |  |  | 583.1    |          |  |  | 329.3   |         
|Huabei               |       |                    | 285.2   |           |  |             | 277.1   |           |  |             | 364.3    |           |  |  | 237.4   |          |  |  | 366.8    |          |  |  | 229.6   |         
|Jilin                |       |                    | 164.1   |           |  |             | 122.4   |           |  |             | 172.3    |           |  |  | 131.0   |          |  |  | 151.3    |          |  |  | 109.5   |         
|Other regions(1)     |       |                    | 15.7    |           |  |             | 15.7    |           |  |             | 14.0     |           |  |  | 14.0    |          |  |  | 11.9     |          |  |  | 11.9    |         
|                     |       |                    |         |           |  |             |         |           |  |             |          |           |  |  |         |          |  |  |          |          |  |  |         |         
|                     | Total |                    |         | 24,602.3  |  |             |         | 12,098.0  |  |             |          | 32,532.8  |  |  |         | 12,502.5 |  |  |          | 36,102.6 |  |  |         | 12,945.6 | 
|                     |       |                    |         |           |  |             |         |           |  |             |          |           |  |  |         |          |  |  |          |          |  |  |         |         




|    |                                             
|--- | --------------------------------------------
|(1) | Represents the Jidong and Yumen oil regions.

Exploration and Development

We are currently conducting exploration and
development efforts in eleven provinces, two municipalities and
three autonomous regions in China. 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. Beginning in the 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
|     |  |                                      |  |        |       |          |  |        |     |           |  |        |     |        |  |         |     |           |  |      
|1999 |  | Net exploratory wells
    drilled(2) |  |        | 107   |          |  |        | 82  |           |  |        | 47  |        |  |         | 127 |           |  |       | 61  |  |  |  | 15  |  |  |  | 40 |  |  |  | 146 |  |  |  | 625   | 
|     |  | Crude oil                            |  |        | 55    |          |  |        | 59  |           |  |        | 41  |        |  |         | 52  |           |  |       | 14  |  |  |  | 5   |  |  |  | 0  |  |  |  | 51  |  |  |  | 277   | 
|     |  | Natural gas                          |  |        | 3     |          |  |        | 0   |           |  |        | 0   |        |  |         | 5   |           |  |       | 0   |  |  |  | 1   |  |  |  | 13 |  |  |  | 1   |  |  |  | 23    | 
|     |  | Dry(3)                               |  |        | 49    |          |  |        | 23  |           |  |        | 6   |        |  |         | 70  |           |  |       | 47  |  |  |  | 9   |  |  |  | 27 |  |  |  | 94  |  |  |  | 325   | 
|     |  | Net development wells
    drilled(2) |  |        | 3,038 |          |  |        | 847 |           |  |        | 787 |        |  |         | 631 |           |  |       | 297 |  |  |  | 189 |  |  |  | 37 |  |  |  | 985 |  |  |  | 6,811 | 
|     |  | Crude oil                            |  |        | 3,026 |          |  |        | 843 |           |  |        | 784 |        |  |         | 583 |           |  |       | 293 |  |  |  | 186 |  |  |  | 9  |  |  |  | 970 |  |  |  | 6,694 | 
|     |  | Natural gas                          |  |        | 0     |          |  |        | 2   |           |  |        | 3   |        |  |         | 42  |           |  |       | 0   |  |  |  | 0   |  |  |  | 16 |  |  |  | 14  |  |  |  | 77    | 
|     |  | Dry(3)                               |  |        | 12    |          |  |        | 2   |           |  |        | 0   |        |  |         | 6   |           |  |       | 4   |  |  |  | 3   |  |  |  | 12 |  |  |  | 1   |  |  |  | 40    | 

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|     |  |                                      |  |        |       |          |  |        |       |           |  |        |     |        |  |         |       |           |  |       |     |  |  |  |     |  |  |  |    |  |  |  |     |  |  |  |       | 
|---- |  | ------------------------------------ |  | ------ | ----- | -------- |  | ------ | ----- | --------- |  | ------ | --- | ------ |  | ------- | ----- | --------- |  | ----- | --- |  |  |  | --- |  |  |  | -- |  |  |  | --- |  |  |  | ----- | 
|Year |  |                                      |  | Daqing |       | Xinjiang |  | Liaohe |       | Changqing |  | Huabei |     | Dagang |  | Sichuan |       | Others(1) |  | Total
|     |  |                                      |  |        |       |          |  |        |       |           |  |        |     |        |  |         |       |           |  |      
|2000 |  | Net exploratory wells
    drilled(2) |  |        | 93    |          |  |        | 96    |           |  |        | 70  |        |  |         | 157   |           |  |       | 71  |  |  |  | 36  |  |  |  | 38 |  |  |  | 142 |  |  |  | 706   | 
|     |  | Crude oil                            |  |        | 57    |          |  |        | 79    |           |  |        | 45  |        |  |         | 54    |           |  |       | 30  |  |  |  | 19  |  |  |  | 4  |  |  |  | 61  |  |  |  | 349   | 
|     |  | Natural gas                          |  |        | 1     |          |  |        | 3     |           |  |        | 0   |        |  |         | 28    |           |  |       | 4   |  |  |  | 6   |  |  |  | 20 |  |  |  | 12  |  |  |  | 74    | 
|     |  | Dry(3)                               |  |        | 35    |          |  |        | 14    |           |  |        | 25  |        |  |         | 75    |           |  |       | 37  |  |  |  | 11  |  |  |  | 14 |  |  |  | 72  |  |  |  | 283   | 
|     |  | Net development wells
    drilled(2) |  |        | 2,783 |          |  |        | 1,135 |           |  |        | 800 |        |  |         | 614   |           |  |       | 268 |  |  |  | 165 |  |  |  | 41 |  |  |  | 974 |  |  |  | 6,780 | 
|     |  | Crude oil                            |  |        | 2,774 |          |  |        | 1,129 |           |  |        | 792 |        |  |         | 534   |           |  |       | 254 |  |  |  | 159 |  |  |  | 8  |  |  |  | 955 |  |  |  | 6,605 | 
|     |  | Natural gas                          |  |        | 1     |          |  |        | 1     |           |  |        | 8   |        |  |         | 61    |           |  |       | 3   |  |  |  | 2   |  |  |  | 23 |  |  |  | 14  |  |  |  | 113   | 
|     |  | Dry(3)                               |  |        | 8     |          |  |        | 5     |           |  |        | 0   |        |  |         | 19    |           |  |       | 11  |  |  |  | 4   |  |  |  | 10 |  |  |  | 5   |  |  |  | 62    | 
|    
|2001 |  | Net exploratory wells
    drilled(2) |  |        | 84    |          |  |        | 71    |           |  |        | 63  |        |  |         | 127   |           |  |       | 68  |  |  |  | 44  |  |  |  | 37 |  |  |  | 169 |  |  |  | 663   | 
|     |  | Crude oil                            |  |        | 33    |          |  |        | 45    |           |  |        | 34  |        |  |         | 55    |           |  |       | 38  |  |  |  | 32  |  |  |  | 4  |  |  |  | 83  |  |  |  | 324   | 
|     |  | Natural gas                          |  |        | 2     |          |  |        | 13    |           |  |        | 0   |        |  |         | 18    |           |  |       | 3   |  |  |  | 0   |  |  |  | 14 |  |  |  | 5   |  |  |  | 55    | 
|     |  | Dry(3)                               |  |        | 49    |          |  |        | 13    |           |  |        | 29  |        |  |         | 54    |           |  |       | 27  |  |  |  | 12  |  |  |  | 19 |  |  |  | 81  |  |  |  | 284   | 
|     |  | Net development wells
    drilled(2) |  |        | 2,406 |          |  |        | 1,140 |           |  |        | 733 |        |  |         | 1,168 |           |  |       | 287 |  |  |  | 208 |  |  |  | 23 |  |  |  | 983 |  |  |  | 6,948 | 
|     |  | Crude oil                            |  |        | 2,392 |          |  |        | 1,130 |           |  |        | 722 |        |  |         | 1,140 |           |  |       | 275 |  |  |  | 204 |  |  |  | 8  |  |  |  | 964 |  |  |  | 6,835 | 
|     |  | Natural gas                          |  |        | 5     |          |  |        | 4     |           |  |        | 11  |        |  |         | 10    |           |  |       | 2   |  |  |  | 1   |  |  |  | 11 |  |  |  | 18  |  |  |  | 62    | 
|     |  | Dry(3)                               |  |        | 9     |          |  |        | 6     |           |  |        | 0   |        |  |         | 18    |           |  |       | 10  |  |  |  | 3   |  |  |  | 4  |  |  |  | 1   |  |  |  | 51    | 




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

Properties

The following table sets forth our interests in
developed and undeveloped acreage by oil region and in
productive crude oil and natural gas wells as of
December 31, 2001.

|                 |       |                     |        |             |  |                                |     |             |  |           |       |             |  |  |       |         |  |  |       |         |  |  |         |         | 
|---------------- | ----- | ------------------- | ------ | ----------- |  | ------------------------------ | --- | ----------- |  | --------- | ----- | ----------- |  |  | ----- | ------- |  |  | ----- | ------- |  |  | ------- | ------- | 
|                 |       |                     |        |             |  |                               
|                 |       |                     |        |             |  | 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           |       |                     | 32,106 |             |  |                                | 114 |             |  |           | 494.6 |             |  |  | 22.4  |         |  |  | 642.9 |         |  |  | 95.3    |        
|Liaohe           |       |                     | 15,410 |             |  |                                | 575 |             |  |           | 154.9 |             |  |  | 27.4  |         |  |  | 114.7 |         |  |  | 12.5    |        
|Xinjiang         |       |                     | 12,502 |             |  |                                | 39  |             |  |           | 231.0 |             |  |  | 26.8  |         |  |  | 120.3 |         |  |  | 12.9    |        
|Huabei           |       |                     | 4,376  |             |  |                                | 64  |             |  |           | 89.6  |             |  |  | 9.5   |         |  |  | 105.5 |         |  |  | 5.8     |        
|Dagang           |       |                     | 2,738  |             |  |                                | 42  |             |  |           | 79.7  |             |  |  | 14.5  |         |  |  | 88.3  |         |  |  | 23.7    |        
|Changqing        |       |                     | 6,489  |             |  |                                | 212 |             |  |           | 157.1 |             |  |  | 578.1 |         |  |  | 320.4 |         |  |  | 1,398.3 |        
|Jilin            |       |                     | 9,851  |             |  |                                | 42  |             |  |           | 195.6 |             |  |  | 19.5  |         |  |  | 237.6 |         |  |  | 25.3    |        
|Tarim            |       |                     | 400    |             |  |                                | 48  |             |  |           | 66.4  |             |  |  | 51.6  |         |  |  | 38.3  |         |  |  | 78.3    |        
|Tuha             |       |                     | 859    |             |  |                                | 12  |             |  |           | 21.5  |             |  |  | 1.4   |         |  |  | 23.6  |         |  |  | 12.0    |        
|Sichuan          |       |                     | 349    |             |  |                                | 977 |             |  |           | 273.8 |             |  |  | 229.5 |         |  |  | 0     |         |  |  | 108.2   |        
|Other regions(2) |       |                     | 2,229  |             |  |                                | 82  |             |  |           | 53.7  |             |  |  | 33.4  |         |  |  | 21.7  |         |  |  | 0.2     |        
|                 |       |                     |        |             |  |                                |     |             |  |           |       |             |  |  |       |         |  |  |       |         |  |  |         |        
|                 | Total |                     |        | 87,309      |  |                                |     | 2,207       |  |           |       | 1,817.9     |  |  |       | 1,014.1 |  |  |       | 1,713.3 |  |  |         | 1,772.5 | 
|                 |       |                     |        |             |  |                                |     |             |  |           |       |             |  |  |       |         |  |  |       |         |  |  |         |        




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

Approximately 69.9% of our proved crude oil
reserves are concentrated in the Daqing, Liaohe and Xinjiang oil
regions, and approximately 84.3% of our proved natural gas
reserves are concentrated in the Changqing oil and gas region,
the Tarim oil region, the Sichuan gas region and the Qinghai oil
region. We believe that the Erdos, Junggar, Tarim, Songliao
basins and Bohai

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##### Table of Contents



Bay have the highest potential for increasing our
crude oil reserve base through future exploration and
development, and the Tarim, Erdos, Sichuan and Qaiddam basins
have the highest potential for increasing our natural gas
reserve base through future exploration and development.


Production

For the periods ended December 31, 1999,
2000 and 2001, the following table sets forth our historical
average net daily crude oil and natural gas production by region
and our average sales price.

|                                                                                |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      |  |       |  
|------------------------------------------------------------------------------- | ---------------- | ------------------ | ------- | ------ | ------- | ---- | ------- | ---------- | ------- |  | ------- | ------ | ------- |  | ---- |  | ----- | -
|                                                                                |                  |                    |         |       
|                                                                                |                  | For the year ended |         |       
|                                                                                |                  | December 31,       |         |       
|                                                                                |                  |                    |         | % of  
|                                                                                |                  | 1999               |         | 2000   |         | 2001 |         | 2001 total
|                                                                                |                  |                    |         |        |         |      |         |           
|Crude oil production(1)                                                         |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|(thousands of barrels per day, except percentages
    or otherwise indicated)   |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|Daqing                                                                          |                  |                    | 1,109.5 |        |         |      | 1,079.0 |            |         |  | 1,048.4 |        |         |  | 50.1 | 
|Liaohe                                                                          |                  |                    | 274.3   |        |         |      | 268.7   |            |         |  | 265.6   |        |         |  | 12.7 | 
|Xinjiang                                                                        |                  |                    | 184.1   |        |         |      | 188.5   |            |         |  | 198.4   |        |         |  | 9.5  | 
|Changqing                                                                       |                  |                    | 87.6    |        |         |      | 94.5    |            |         |  | 105.9   |        |         |  | 5.1  | 
|Tarim                                                                           |                  |                    | 85.7    |        |         |      | 89.0    |            |         |  | 96.7    |        |         |  | 4.6  | 
|Huabei                                                                          |                  |                    | 95.1    |        |         |      | 92.7    |            |         |  | 91.6    |        |         |  | 4.4  | 
|Jilin                                                                           |                  |                    | 77.4    |        |         |      | 76.4    |            |         |  | 82.3    |        |         |  | 3.9  | 
|Dagang                                                                          |                  |                    | 82.5    |        |         |      | 80.5    |            |         |  | 79.5    |        |         |  | 3.8  | 
|Tuha                                                                            |                  |                    | 63.6    |        |         |      | 61.5    |            |         |  | 55.0    |        |         |  | 2.6  | 
|Other(2)                                                                        |                  |                    | 64.1    |        |         |      | 65.8    |            |         |  | 68.3    |        |         |  | 3.3  | 
|                                                                                |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|                                                                                |                  | Total              |         |        | 2,123.9 |      |         |            | 2,096.4 |  |         |        | 2,091.8 |  |      |  | 100.0 | %
|                                                                                |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|Annual production (million barrels)                                             |                  |                    | 775.2   |        |         |      | 765.2   |            |         |  | 763.5   |        |         |  |      | 
|Average sales price                                                             |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|                                                                                | (RMB per barrel) |                    |         | 139.71 |         |      |         | 225.23     |         |  |         | 195.37 |         |  |      |  |      
|                                                                                | (US$ per barrel) |                    |         | 16.87  |         |      |         | 27.21      |         |  |         | 23.61  |         |  |      |  |      
|                                                                               
|Natural gas
    production(1)(3)                                                |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|(millions of cubic feet per day, except
    percentages or otherwise indicated) |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|Sichuan                                                                         |                  |                    | 696.2   |        |         |      | 740.2   |            |         |  | 774.6   |        |         |  | 50.2 | 
|Changqing                                                                       |                  |                    | 108.8   |        |         |      | 187.3   |            |         |  | 299.1   |        |         |  | 19.4 | 
|Daqing                                                                          |                  |                    | 142.5   |        |         |      | 142.0   |            |         |  | 137.4   |        |         |  | 8.9  | 
|Tuha                                                                            |                  |                    | 53.5    |        |         |      | 61.5    |            |         |  | 74.0    |        |         |  | 4.8  | 
|Liaohe                                                                          |                  |                    | 69.1    |        |         |      | 64.3    |            |         |  | 64.8    |        |         |  | 4.2  | 
|Xinjiang                                                                        |                  |                    | 21.4    |        |         |      | 56.8    |            |         |  | 51.2    |        |         |  | 3.3  | 
|Qinghai                                                                         |                  |                    | 27.1    |        |         |      | 30.5    |            |         |  | 45.9    |        |         |  | 3.0  | 
|Huabei                                                                          |                  |                    | 29.0    |        |         |      | 32.1    |            |         |  | 36.9    |        |         |  | 2.4  | 
|Dagang                                                                          |                  |                    | 31.9    |        |         |      | 33.7    |            |         |  | 32.6    |        |         |  | 2.1  | 
|Tarim                                                                           |                  |                    | 7.2     |        |         |      | 28.8    |            |         |  | 20.6    |        |         |  | 1.3  | 
|Other(4)                                                                        |                  |                    | 10.7    |        |         |      | 7.2     |            |         |  | 6.7     |        |         |  | 0.4  | 
|                                                                                |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 
|                                                                                |                  | Total              |         |        | 1,197.5 |      |         |            | 1,384.4 |  |         |        | 1,543.7 |  |      |  | 100.0 | %
|                                                                                |                  |                    |         |        |         |      |         |            |         |  |         |        |         |  |      | 

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|                        |               |                    |       |       |  |      |       |            |  |  |       |       |  |  |  |  | 
|----------------------- | ------------- | ------------------ | ----- | ----- |  | ---- | ----- | ---------- |  |  | ----- | ----- |  |  |  |  | 
|                        |               |                    |       |      
|                        |               | For the year ended |       |      
|                        |               | December 31,       |       |      
|                        |               |                    |       | % of 
|                        |               | 1999               |       | 2000  |  | 2001 |       | 2001 total
|                        |               |                    |       |       |  |      |       |           
|Annual production (Bcf) |               |                    | 437.1 |       |  |      | 505.3 |            |  |  | 563.5 |       |  |  |  | 
|Average sales price     |               |                    |       |       |  |      |       |            |  |  |       |       |  |  |  | 
|                        | (RMB per Mcf) |                    |       | 17.52 |  |      |       | 17.63      |  |  |       | 18.41 |  |  |  |  | 
|                        | (US$ per Mcf) |                    |       | 2.10  |  |      |       | 2.13       |  |  |       | 2.22  |  |  |  |  | 




|    |                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 and the Sichuan gas region.                                                      
|   
|(3) | Represents production of sales gas.                                                                                                                       
|   
|(4) | Represents production from the Jilin, Jidong and
    Yumen oil regions.                                                                                   

In 2001, we supplied approximately 75%, 16%, 6%
and 3% of our total crude oil sales to our refineries,
Sinopecs refineries, regional refineries controlled by
unrelated third parties in China and companies or entities
outside China, respectively. We entered into a crude oil mutual
supply framework agreement with Sinopec on January 30, 2002
for the supply of crude oil to each others refineries in
2002. Under this agreement, we agreed in principle to supply
approximately 112.7 million barrels of crude oil to Sinopec
in 2002 at prices determined on the basis of the crude oil
benchmark prices published by the PRC government and the premium
and discount formulas set forth in the crude oil premium and
discount calculation agreement and its supplemental agreement
between Sinopec and us. See Item 5 
Operating and Financial Review and Prospects  Factors
Affecting Results of Operations  Crude Oil
Prices for a detailed discussion of the crude oil premium
and discount calculation agreement and its supplemental
agreement.

Principal Oil and Gas Regions

Daqing Oil Region

The Daqing oil region, our largest oil and gas
producing property, is located in the Songliao basin and covers
an area of approximately one million acres. In terms of proved
hydrocarbon reserves and annual production, the Daqing oil
region is the largest oil region in China and one of the most
prolific oil and gas properties in the world. We commenced
exploration activities in the Daqing oil region in 1955 and
discovered oil in the region in 1959. Annual crude oil
production volume in the Daqing oil region reached one million
barrels per day in 1976 and has remained relatively stable for
the past 26 years. As of December 31, 2001, we
produced crude oil from 20 fields in the Daqing oil region.
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 Chinese oil and gas industry.

As of December 31, 2001, our proved crude
oil reserves in the Daqing oil region were 5,349.8 million
barrels, representing 48.8% of our total proved crude oil
reserves. The proved crude oil reserves in our Daqing oil region
decreased by 5.8% in 2001, as compared to 5,682.1 million
barrels in 2000, because the crude oil production exceeded the
crude oil reserve additions in 2001 in our Daqing oil region. In
2001, our oil fields in the Daqing oil region produced an
average of 1,048.4 thousand barrels of crude oil per day,
representing approximately 50.1% of our total daily crude oil
production. In 2001, the crude oil reserve-to-production ratio
of the Daqing oil region was 14.0 years. The crude oil we
produce in the Daqing oil region has an average API gravity of
35.7 degrees. In 2001, the crude oil we produced in the
Daqing oil region had an average water cut of 87.4%.

The major oil reservoirs in the Daqing oil region
are generally evenly spread with relatively moderate depths, and
have simple geological structures. As a consequence of these
factors, our

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finding and development costs in the Daqing oil
region are the lowest among all oil-producing regions in China.


Because the crude oil in the Daqing oil region is
primarily located in large reservoirs with relatively moderate
depths of approximately 900 meters to 1,500 meters and most of
the crude oil produced at Daqing is medium viscosity oil,
lifting costs in the Daqing oil region are relatively low among
our oil regions. Crude oil produced using enhanced recovery
techniques accounted for 15.2%, 17.7% and 18.5% of our crude oil
production from the Daqing oil region in 1999, 2000 and 2001,
respectively.

Consistent with our shift in focus from
production to profitability and return-based targets, we have
been implementing measures at the Daqing oil region since 1996
designed to control our finding and development costs and
increase our production efficiency. 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. Nevertheless, we believe that we will be able to
continue to maintain our lifting costs at these fields at their
current level by:



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

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

Daqings crude oil has a low sulfur content
and a 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 2001, we refined
approximately 65.4% of Daqing crude oil in our own refineries,
exported approximately 7.4% and sold the remaining portion to
Sinopec or local refineries.

Liaohe Oil
Region

The Liaohe oil region is our second largest crude
oil producing property and is located in the northern part of
the Bohai Bay basin. We began commercial production in the
Liaohe oil region in 1971. The Liaohe oil region covers a total
area of approximately 580,000 acres. The Liaohe oil region
is Chinas third largest oil region in terms of 2001
production.

As of December 31, 2001, proved crude oil
reserves in the Liaohe oil region were 1,217.3 million
barrels, representing 11.1% of our total proved oil reserves. In
2001, our oil fields in the Liaohe oil region produced an
average of 265.6 thousand barrels of crude oil per day,
representing approximately 12.7% of our total daily crude oil
production. In 2001, the crude oil reserve-to-production ratio
in the Liaohe oil region was 12.6 years. In 2001, the crude
oil we produced in the Liaohe oil region had an average API
gravity of 26.0 degrees and an average water cut of 73.0%.
Production levels in the Liaohe oil region have remained
relatively stable during the past seven years. We have proved
crude oil reserves in 36 fields in the Liaohe oil region,
including 32 fields currently in production. We produce
several varieties of crude oil in the Liaohe oil region, ranging
from light crude oil to heavy crude oil and high pour point
crude oil.

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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
2001, we sold about 87.8% of the crude oil we produced at the
Liaohe oil region to our own refineries.

Xinjiang Oil
Region

The Xinjiang oil region is located in the Junggar
basin in northwestern China. We commenced our operations in the
Xinjiang oil region in 1951. The Xinjiang oil region covers a
total area of approximately 900 thousand acres. As of
December 31, 2001, our proved crude oil reserves in the
Xinjiang oil region were 1,089.9 million barrels,
representing 9.9% of our total proved crude oil reserves. In
2001, our oil fields in the Xinjiang oil region produced an
average of 198.4 thousand barrels of crude oil per day,
representing 9.5% of our total crude oil production. In 2001,
the crude oil reserve-to-production ratio at the Xinjiang oil
region was 15.1 years. In 2001, 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 69.3%.

Our average lifting costs in the Xinjiang oil
region increased between 1997 and 1999. However, our lifting
costs in this oil region were US$4.47 per barrel in 2000,
slightly lower than the lifting costs in 1999. Our lifting costs
in this oil region were US$3.77 per barrel in 2001. We plan
to maintain our lifting costs in the Xinjiang oil region by
conserving energy and material consumption and increasing
preventive maintenance.

Sichuan Gas
Region

The Sichuan gas region is the largest natural gas
region in China in terms of annual natural gas production. We
began natural gas exploration and production in Sichuan in the
1950s. The Sichuan gas region covers a total area of
approximately 2.3 million acres. The natural gas
reserve-to-production ratio in the Sichuan gas region was
25.0 years in 2001. As of December 31, 2001, we had
90 natural gas fields under development in the Sichuan gas
region.

As of December 31, 2001, our proved natural
gas reserves in the Sichuan gas region were 7,074.1 billion
cubic feet, representing 19.6% of our total proved natural gas
reserves. In 2001, our natural gas production for sale in the
Sichuan gas region reached 282.7 billion cubic feet,
representing 50.2% and approximately 27% of our total natural
gas production and Chinas natural gas production for sale,
respectively.

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 plan to continue to accelerate our development of
proved reserves in the Sichuan gas region and deliver natural
gas produced in the Sichuan gas region to major cities in
central China, such as Wuhan. We intend to continue to
substantially increase our natural gas reserves and annual
natural gas production in the Sichuan gas region by adopting
advanced technologies and reducing costs.

Changqing Oil
and Gas Region

The Changqing oil and gas region covers parts of
Shaanxi and Gansu provinces and the Ningxia and Inner Mongolia
Autonomous Regions. We commenced operations in the Changqing oil
and gas region in 1970. In 2001, we produced 38.7 million
barrels of crude oil in the Changqing oil and gas region. Since
1996 the adoption of a series of new methods of management and
technologies in relation to exploration and development of low
permeable oil fields has reduced our lifting costs in the
Changqing oil and gas region. Our lifting costs in the Changqing
oil and gas region decreased by 4.8% from US$5.20 per barrel in
2000 to US$4.95

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per barrel in 2001. We expect to continue to
decrease lifting costs in the Changqing oil and gas region by:




| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | undertaking preventive maintenance to reduce
    overhaul;                                                                           
|
| |  | shutting down the operation of wells with high
    water cut and increasing production efficiency through
    hesitation lifting; and
|
| |  | reducing energy consumption cost through using
    low cost electricity.                                                             

In the early 1990s, we discovered the Changqing
gas field, which had total estimated proved natural gas reserves
of 10,256.6 billion cubic feet as of December 31,
2001, representing 28.4% of our total proved natural gas
reserves. In January 2001, we discovered the Sugeli oil
field with total proved natural gas reserves of 2,500.2 billion
cubic feet. In 2001, we produced 109.2 billion cubic feet
of natural gas for sale in the Changqing oil and gas region. The
establishment of a natural gas pipeline from Shaanxi to Beijing
in 1997 has significantly expanded the range of target markets
for natural gas produced in the Changqing oil and gas region. In
the four years following the establishment of the pipeline, we
significantly increased daily natural gas production for sale in
the Changqing oil and gas region.

Tarim Oil
Region

The Tarim oil region is located in the Tarim
basin in northwestern China with a total area of approximately
590 thousand acres. As of December 31, 2001, our proved crude
oil reserves in the Tarim oil region were 495.0 million
barrels. The Kela 2 natural gas field, which we discovered
in 1998 in the oil region, had estimated proved natural gas
reserves of approximately 6,320 billion cubic feet as of
December 31, 2001. As of December 31, 2001, the proved
natural gas reserves in the Tarim oil region reached
10,158.1 billion cubic feet, representing 28.1% 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 2001, we produced 7.5 billion cubic feet
of natural gas for sale in the Tarim oil region. We plan to
deliver the natural gas to be produced in the Tarim oil region
to the central and eastern regions of China where there is
strong demand for natural gas through our West to East natural
gas pipeline project. See  Natural Gas 
Expansion of Our Natural Gas Transmission and Marketing
Business for a discussion of our West to East natural gas
pipeline project. We plan to significantly increase our natural
gas production in the Tarim oil region after the commencement of
the operation of this West to East natural gas pipeline.

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(MAP)

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##### Table of Contents






Refining and Marketing

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

The following sets forth the highlights of our
refining and marketing segment in 2001:



| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | as of December 31, 2001, our
    refineries annual primary distillation capacity totaled
    712.3 million barrels of crude oil per year, or 1,951.5 thousand
    barrels per day;
|
| |  | we processed 566.9 million barrels of crude
    oil, or 1,553.1 thousand barrels per day;                                                                                          
|
| |  | we produced approximately 46.5 million tons
    of gasoline, diesel and kerosene and sold approximately
    51.6 million tons of these products;                                   
|
| |  | as of December 31, 2001, our retail
    distribution network consisted of:                                                                                                         



| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 6,524 service stations owned and operated by us,                                                                                                
|
| |  | 3,536 service stations wholly-owned by CNPC or
    jointly-owned by CNPC and third parties and to which we provide
    supervisory support, and 
|
| |  | 2,042 franchise service stations owned and
    operated by third parties with which we have long-term refined
    product supply agreements; and



| |   |                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | these service stations are located throughout
    China. All these service stations sell exclusively gasoline and
    diesel produced or supplied by us. These service stations sold
    approximately 15.8 million tons of gasoline and diesel,
    representing 31.8% of the total of these products sold through
    our marketing operations.

Refining

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

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Refined Products

We produce a wide range of refined products at
our refineries. Some of our refined products are consumed
internally as feedstocks for our chemical operations. The table
below sets forth production volume for our principal refined
products for each of the three years ended December 31,
1999, 2000 and 2001.

|           |       |                         |          |          |  |      |          |          |  |  |          |          | 
|---------- | ----- | ----------------------- | -------- | -------- |  | ---- | -------- | -------- |  |  | -------- | -------- | 
|           |       |                        
|           |       | Year ended December 31,
|           |       |                        
|Product    |       | 1999                    |          | 2000     |  | 2001
|           |       |                         |          |          |  |     
|           |       |                        
|           |       | (in thousands of tons) 
|Diesel     |       |                         | 23,777.0 |          |  |      | 25,160.3 |          |  |  | 28,080.9 |         
|Gasoline   |       |                         | 14,034.1 |          |  |      | 15,266.7 |          |  |  | 16,563.4 |         
|Fuel oil   |       |                         | 7,427.4  |          |  |      | 7,283.9  |          |  |  | 6,582.2  |         
|Naphtha    |       |                         | 4,850.5  |          |  |      | 3,673.6  |          |  |  | 3,453.3  |         
|Kerosene   |       |                         | 2,051.5  |          |  |      | 2,277.2  |          |  |  | 1,893.6  |         
|Lubricants |       |                         | 1,207.1  |          |  |      | 1,183.3  |          |  |  | 1,197.2  |         
|Asphalt    |       |                         | 1,297.0  |          |  |      | 1,311.6  |          |  |  | 1,406.8  |         
|Paraffin   |       |                         | 825.9    |          |  |      | 932.7    |          |  |  | 857.6    |         
|           |       |                         |          |          |  |      |          |          |  |  |          |         
|           | Total |                         |          | 55,470.5 |  |      |          | 57,089.3 |  |  |          | 60,035.0 | 
|           |       |                         |          |          |  |      |          |          |  |  |          |         

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

In recent years, we have made significant capital
investments in facility expansions and upgrades to improve
product quality to meet evolving market demand and environmental
requirements in China. In each of the three years ended
December 31, 1999, 2000 and 2001, our capital expenditures
for our refining and marketing segment were
RMB 9,208 million, RMB 13,227 million and
RMB 11,048 million (US$1,335 million),
respectively. These capital expenditures were incurred primarily
in connection with our refining facility upgrades and expansion
of our refined product retail marketing network and storage
infrastructure. In addition, we have also focused on enhancing
our processing technologies and methods. These efforts have
enabled us to improve the quality of refined products at our
refineries, particularly that of gasoline and diesel. We believe
that our refined products generally meet product specification
and environmental protection requirements as set by the PRC
government. In addition, we are in the process of reducing
gasoline olefin content in order to comply with a new
specification published by the PRC government. The PRC
government requires all refineries in China to comply with this
new specification by 2003. We believe that our refineries will
be capable of meeting the requirement without any material
impact on our production and any additional material expenditure.

In 1998, our refining and marketing operations
were affected by widespread gasoline and diesel smuggling. The
PRC government took various anti-smuggling measures to deter
smuggling of gasoline and diesel in 1998. Since 1999, the PRC
government has intensified its anti-smuggling efforts. As a
result, the effects of smuggling on our overall sales of refined
products significantly diminished in 2000 and 2001.

In the past four years, the PRC government has
taken active measures to consolidate local refineries in China
to improve efficiency, resource allocation and the quality of
refined products. In 1998, the PRC government implemented a
number of measures to achieve those goals. Those measures
included ordering the closure of many small local refineries in
China. In May 1999, the

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State Council issued a document calling for the
further consolidation of refineries operated by companies other
than Sinopec and us. Further, the PRC government ordered the
closure of a number of small refineries that produced
low-quality products and were not in compliance with
environmental protection laws and regulations. We believe these
government efforts have had a positive impact on our wholesale
prices and sales volume of gasoline and diesel.


Our
Refineries

Most of our refineries are strategically located
close to our crude oil storage facilities, along our crude oil
and refined product transmission pipelines and/or railways.
These systems provide our refineries with secure supplies of
crude oil and facilitate our distribution of refined products to
the domestic markets. In each of the three years ended
December 31, 1999, 2000 and 2001, our exploration and
production operations supplied approximately 96%, 93% and 95%,
respectively, of the crude oil processed in our refineries.

The table below sets forth certain operating
statistics regarding our refineries as of December 31,
1999, 2000 and 2001.

|                                                               |       |                    |         |         |  |      |       |         |  |  |       |         | 
|-------------------------------------------------------------- | ----- | ------------------ | ------- | ------- |  | ---- | ----- | ------- |  |  | ----- | ------- | 
|                                                               |       |                   
|                                                               |       | As of December 31,
|                                                               |       |                   
|                                                               |       | 1999               |         | 2000    |  | 2001
|                                                               |       |                    |         |         |  |     
|Primary distillation
    capacity(1)(thousand barrels per day) |       |                    |         |         |  |      |       |         |  |  |       |        
|Dalian Petrochemical                                           |       |                    | 143.7   |         |  |      | 143.7 |         |  |  | 178.1 |        
|Fushun Petrochemical                                           |       |                    | 186.2   |         |  |      | 162.0 |         |  |  | 162.0 |        
|Lanzhou Petrochemical(2)                                       |       |                    | 151.8   |         |  |      | 151.8 |         |  |  | 151.8 |        
|Daqing Petrochemical                                           |       |                    | 121.5   |         |  |      | 121.5 |         |  |  | 121.5 |        
|Jinzhou Petrochemical(3)                                       |       |                    | 111.3   |         |  |      | 113.3 |         |  |  | 113.3 |        
|Jinxi Petrochemical                                            |       |                    | 111.3   |         |  |      | 111.3 |         |  |  | 111.3 |        
|Jilin Petrochemical(4)                                         |       |                    | 113.4   |         |  |      | 101.2 |         |  |  | 101.2 |        
|Urumqi Petrochemical                                           |       |                    | 101.2   |         |  |      | 101.2 |         |  |  | 101.2 |        
|Other refineries                                               |       |                    | 1,025.3 |         |  |      | 911.1 |         |  |  | 911.1 |        
|                                                               |       |                    |         |         |  |      |       |         |  |  |       |        
|                                                               | Total |                    |         | 2,065.7 |  |      |       | 1,917.1 |  |  |       | 1,951.5 | 
|                                                               |       |                    |         |         |  |      |       |         |  |  |       |        
|Refining throughput(thousand barrels per day)                  |       |                    |         |         |  |      |       |         |  |  |       |        
|Dalian Petrochemical                                           |       |                    | 104.9   |         |  |      | 119.5 |         |  |  | 121.6 |        
|Fushun Petrochemical                                           |       |                    | 153.3   |         |  |      | 162.7 |         |  |  | 168.3 |        
|Lanzhou Petrochemical(2)                                       |       |                    | 116.8   |         |  |      | 129.7 |         |  |  | 128.8 |        
|Daqing Petrochemical                                           |       |                    | 107.3   |         |  |      | 107.4 |         |  |  | 108.9 |        
|Jinzhou Petrochemical(3)                                       |       |                    | 77.9    |         |  |      | 90.8  |         |  |  | 93.9  |        
|Jinxi Petrochemical                                            |       |                    | 90.1    |         |  |      | 98.9  |         |  |  | 104.1 |        
|Jilin Petrochemical(4)                                         |       |                    | 91.2    |         |  |      | 91.1  |         |  |  | 87.9  |        
|Urumqi Petrochemical                                           |       |                    | 67.3    |         |  |      | 68.8  |         |  |  | 71.7  |        
|Other refineries                                               |       |                    | 566.8   |         |  |      | 628.5 |         |  |  | 667.9 |        
|                                                               |       |                    |         |         |  |      |       |         |  |  |       |        
|                                                               | Total |                    |         | 1,375.6 |  |      |       | 1,497.4 |  |  |       | 1,553.1 | 
|                                                               |       |                    |         |         |  |      |       |         |  |  |       |        
|Conversion
    equivalent(5)(percent)                          |       |                    |         |         |  |      |       |         |  |  |       |        
|Dalian Petrochemical                                           |       |                    | 46.5    |         |  |      | 46.5  |         |  |  | 37.5  |        
|Fushun Petrochemical                                           |       |                    | 67.2    |         |  |      | 96.0  |         |  |  | 78.6  |        
|Lanzhou Petrochemical(2)                                       |       |                    | 32.7    |         |  |      | 38.7  |         |  |  | 31.3  |        
|Daqing Petrochemical                                           |       |                    | 72.7    |         |  |      | 79.4  |         |  |  | 72.7  |        
|Jinzhou Petrochemical(3)                                       |       |                    | 63.6    |         |  |      | 63.6  |         |  |  | 63.4  |        
|Jinxi Petrochemical                                            |       |                    | 70.9    |         |  |      | 70.9  |         |  |  | 69.1  |        
|Jilin Petrochemical(4)                                         |       |                    | 40.7    |         |  |      | 45.6  |         |  |  | 47.6  |        
|Urumqi Petrochemical                                           |       |                    | 48.0    |         |  |      | 52.0  |         |  |  | 48.0  |        
|Average of other refineries                                    |       |                    | 42.0    |         |  |      | 47.5  |         |  |  | 43.9  |        

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

In each of the three years ended
December 31, 1999, 2000 and 2001, the average utilization
rate of the primary distillation capacity at our refineries was
67.8%, 78.1% and 80.3%, respectively. We plan to continue to
increase the utilization rate of the primary distillation
capacity at our refineries by means of shutting down inefficient
refining units and facilities. The average yield for our four
principal refined products (gasoline, kerosene, diesel and
lubricants) at our refineries was 62.3%, 58.9% and 62.2%,
respectively, in the same periods. Yield represents
the number of tons of a refined product expressed as a
percentage of the number of tons of crude oil from which that
product was processed. In each of the three years ended
December 31, 1999, 2000 and 2001, the yield for all refined
products at our refineries was approximately 91%, 91% and 91%,
respectively.

Dalian Petrochemical, Fushun Petrochemical,
Lanzhou Petrochemical and Daqing Petrochemical were our leading
refineries in terms of both primary distillation capacity and
throughput in 2001. They are all located close to our major oil
fields in the northeast and northwest regions of China and
produce a wide range of refined products. In October 2000,
Lanzhou Refinery was consolidated into Lanzhou Petrochemical as
part of our ongoing restructuring. The primary distillation
capacity of Lanzhou Petrochemical reached 151.8 thousand
barrels per day as of December 31, 2001. Lanzhou
Petrochemical has a strategic position in our plan to expand our
markets in refined product sales in the southwestern and central
regions of China. It is located in the northwestern part of
China, providing easy access to markets in southwestern and
central regions in China. In 2001, we increased the primary
distillation capacity at Dalian Petrochemical by
34.4 thousand barrels per day. We expect its throughput to
increase in the future. As of December 31, 2001, these four
refineries had an aggregate primary distillation capacity of
223.9 million barrels per year or 613.4 thousand
barrels per day, representing approximately 31.4% of the total
primary distillation capacity of all our refineries. In 2001,
these four refineries processed 192.6 million barrels of
crude oil or 527.6 thousand barrels per day in the
aggregate, representing approximately 34.0% of our total
throughput.

Marketing

We market a wide range of refined products,
including gasoline, diesel, kerosene and lubricants, through an
extensive network of sales personnel and independent
distributors and a broad wholesale and retail distribution
system across China. As of December 31, 2001, our marketing
network consisted of:



| |   |                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | approximately 773 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

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 6,524 service stations owned and operated by
    us, 3,536 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
    2,042 franchise service stations owned and operated by
    third parties. These service stations are located across China
    and sell exclusively gasoline and diesel produced by us.

In 2001, we sold approximately 49.7 million
tons of gasoline and diesel. The PRC government and other
institutional customers, including airlines and railway
operators, have been our long-term purchasers of the gasoline
and diesel that we produce. We sell gasoline and diesel to those
customers at the ex-factory median prices published by the PRC
government with a premium of up to 8%, which was increased from
5% before, on the ex-factory median prices. See
 Regulatory Matters 
Pricing  Refined Products for a discussion of
refined product pricing. Sales of gasoline and diesel to those
customers accounted for approximately 7% and 17% of our total
sales of gasoline and diesel, respectively, in 2001. The
following table sets forth our refined product sales by
principal product category for each of the three years ended
December 31, 1999, 2000 and 2001.

|           |       |                         |          |          |  |      |          |          |  |  |          |          | 
|---------- | ----- | ----------------------- | -------- | -------- |  | ---- | -------- | -------- |  |  | -------- | -------- | 
|           |       |                        
|           |       | Year ended December 31,
|           |       |                        
|Product    |       | 1999                    |          | 2000     |  | 2001
|           |       |                         |          |          |  |     
|           |       |                        
|           |       | (in thousands of tons) 
|Diesel     |       |                         | 28,053.4 |          |  |      | 26,338.1 |          |  |  | 31,548.4 |         
|Gasoline   |       |                         | 18,022.7 |          |  |      | 15,536.8 |          |  |  | 18,155.6 |         
|Fuel oil   |       |                         | 5,240.3  |          |  |      | 5,059.2  |          |  |  | 4,783.3  |         
|Naphtha    |       |                         | 3,160.3  |          |  |      | 3,734.8  |          |  |  | 4,332.7  |         
|Kerosene   |       |                         | 2,704.7  |          |  |      | 2,289.7  |          |  |  | 1,931.7  |         
|Lubricants |       |                         | 1,219.6  |          |  |      | 1,632.1  |          |  |  | 1,979.4  |         
|Asphalt    |       |                         | 1,318.0  |          |  |      | 934.6    |          |  |  | 920.4    |         
|Paraffin   |       |                         | 816.2    |          |  |      | 906.8    |          |  |  | 806.5    |         
|           |       |                         |          |          |  |      |          |          |  |  |          |         
|           | Total |                         |          | 60,535.2 |  |      |          | 56,432.1 |  |  |          | 64,458.0 | 
|           |       |                         |          |          |  |      |          |          |  |  |          |         

Wholesale
Marketing

We sell refined products both directly and
through independent distributors into various wholesale markets,
as well as the utility, commercial, petrochemical, aviation,
agricultural, fishery and transportation companies in China. We
sold approximately 49.7 million tons of gasoline and diesel
through our wholesale operations in 2001, including transfers to
our retail operations. We sold approximately 2 million tons
of gasoline and diesel through our wholesale operations to
Sinopec, representing approximately 4% of our total sales of
these products in that period. In 2001, we sold approximately
14.8 million tons of our other principal refined products.

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

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Retail Marketing

In 2001, we sold approximately 15.8 million
tons of gasoline and diesel through our service station network,
accounting for 31.8% of the total of these products sold through
our marketing operations. Average daily sales volumes of
gasoline and diesel at our service station network were
approximately 2.5 tons, 2.7 tons and 3.6 tons per
service station, respectively, for the year ended
December 31, 1999, 2000 and 2001, although these numbers
vary significantly by geographic region.

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

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

Most of the service stations in our service
station network are concentrated in the northern, northeastern
and northwestern regions of China where we have a dominant
wholesale market position. However, the eastern and southern
regions of China have a higher demand for gasoline and diesel.
In 2001, we sold approximately 6,630 thousand tons of
gasoline and diesel through our owned and franchised service
stations in those regions, as compared to approximately
2,250 thousand tons we sold in 2000. We intend to continue
to expand our sales and market share in those regions through
expanding the number of our service stations and storage
facilities in those regions. As part of this expansion strategy,
we have recently established a Sino-foreign equity joint venture
with BP Amoco p.l.c. to engage in the development and
operation of service stations in Guangdong Province and Fujian
Province in eastern China. We hold a 51% equity interest in the
joint venture and BP Amoco p.l.c. holds a 49% equity
interest in the joint venture. We have obtained all necessary
government approvals for the establishment of the joint venture.
In 2001, the joint venture commenced operation and operated
208 service stations as of December 31, 2001.

In 2001, we acquired or constructed an additional
1,841 service stations which are owned and operated by us,
and franchised an additional 101 service stations to third
parties. We plan to further increase our retail market share and
improve the efficiency of our retail operations. We currently
plan to invest approximately RMB 10,044 million for
the period between 2002 to 2004 to expand our service station
network by way of acquisition, joint ventures, new construction
and franchising from or with CNPC or other third parties. We
invested RMB 5,360 million in expanding our service
station network in 2001. We currently intend to add 2,000 to
5,000 new service stations between 2002 to 2004.

In addition, in order to improve the efficiency
and profitability of our existing service station network, we
standardize the interior and exterior of our service stations,
our service procedures, staff uniforms and the product quality
of all our service stations. In addition to selling gasoline and
diesel, we have gradually increased the sale of lubricants and
other non-fuel products at our service stations.

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(MAP)



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Chemicals and Marketing

Through 13 chemical plants, we produce basic
petrochemical products, derivative petrochemical products, and
other chemical products. In the year ended December 31,
2001, our loss from operations of our chemicals segment was
RMB 2,374 million (US$287 million).

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

Our Chemical Products

The table below sets forth the production volumes
of our principal chemical products for each of the three years
ended December 31, 1999, 2000 and 2001.

|                          |               |                          |  |         |         |      |  |         |         |  |  |         |         | 
|------------------------- | ------------- | ------------------------ |  | ------- | ------- | ---- |  | ------- | ------- |  |  | ------- | ------- | 
|                          |               |                         
|                          |               | Year ended December 31, 
|                          |               |                         
|                          |               | 1999                     |  | 2000    |         | 2001
|                          |               |                          |  |         |         |     
|                          |               |                         
|                          |               | (in thousands of tons)  
|Basic petrochemicals      |               |                          |  |         |         |      |  |         |         |  |  |        
|                          | Ethylene      |                          |  | 1,351.1 |         |      |  | 1,495.3 |         |  |  | 1,571.2 |        
|                          | Propylene     |                          |  | 915.4   |         |      |  | 1,127.1 |         |  |  | 1,177.4 |        
|                          | Benzene       |                          |  | 274.1   |         |      |  | 200.6   |         |  |  | 215.7   |        
|Derivative petrochemicals |               |                          |  |         |         |      |  |         |         |  |  |        
|                          | Polyolefin    |                          |  |         |         |      |  |         |         |  |  |         |        
|                          |               | Polyethylene             |  |         | 844.1   |      |  |         | 970.0   |  |  |         | 1,028.5 | 
|                          |               | Polypropylene            |  |         | 414.3   |      |  |         | 508.4   |  |  |         | 622.4   | 
|                          |               | ABS(1)                   |  |         | 120.3   |      |  |         | 117.5   |  |  |         | 201.5   | 
|                          | Fibers        |                          |  |         |         |      |  |         |         |  |  |         |        
|                          |               | Terylene fiber           |  |         | 168.4   |      |  |         | 175.0   |  |  |         | 177.5   | 
|                          |               | Polyacrylic fiber(2)     |  |         | 77.8    |      |  |         | 79.7    |  |  |         | 81.2    | 
|                          | Rubber        |                          |  |         |         |      |  |         |         |  |  |         |        
|                          |               | Butadiene styrene rubber |  |         | 129.9   |      |  |         | 125.5   |  |  |         | 128.0   | 
|                          | Intermediates |                          |  |         |         |      |  |         |         |  |  |         |        
|                          |               | Alkylbenzene             |  |         | 136.6   |      |  |         | 133.4   |  |  |         | 130.0   | 
|Other chemicals           |               |                          |  |         |         |      |  |         |         |  |  |        
|                          |               | Urea                     |  |         | 3,061.4 |      |  |         | 3,113.2 |  |  |         | 3,068.1 | 
|                          |               | Ammonium nitrate         |  |         | 487.6   |      |  |         | 297.0   |  |  |         | 129.2   | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our ABS production volume in 1999 include ABS
    produced by five chemical production facilities that were not
    transferred to us by CNPC as part of the restructuring of the
    CNPC group in 1999. On a pro forma basis, taking into account
    the exclusion of the five chemical production facilities in
    1999, our ABS production volume in 1999 would have been 115.2
    thousands tons. Our ABS production volumes in 2000 and 2001 do
    not include ABS produced by the five chemical production
    facilities.
|   
|(2) | Our polyacrylic fiber production volume in 1999
    include polyacrylic fiber produced by five chemical production
    facilities that were not transferred to us by CNPC as part of the                                                                                                                                                                                                                                                                                                                                             

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| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | restructuring of the CNPC group in 1999. On a pro
    forma basis, taking into account the exclusion of the five
    chemical production facilities in 1999, our polyacrylic fiber
    production volume in 1999 would have been 64.7 thousand tons.
    Our polyacrylic fiber production volumes in 2000 and 2001 do not
    include polyacrylic fiber produced by the five chemical
    production facilities.

We are a major producer of ethylene in China. We
use the bulk of the ethylene we produce as a principal feedstock
for the production of many chemical products, such as
polyethylene. As of December 31, 2001, we had a total
ethylene production capacity of 1,463 thousand tons per year. We
plan to invest RMB 11,000 million (US$1,329 million) to
upgrade our ethylene production facilities at the Daqing
Petrochemical, Jilin Petrochemical, Fushun Petrochemical,
Liaoyang Petrochemical, Dushanzi Petrochemical and Lanzhou
Petrochemical from 2001 to 2005. After those upgrade projects,
we expect our total ethylene production capacity to reach 2,600
thousand tons per year. In 2001, we invested approximately
RMB 1,280 million (US$155 million) for these
upgrade projects.

In 2001, the monthly average capacity utilization
rate at our ethylene production facilities was 100.1%. 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.

In 2001, the average energy consumption of our
ethylene production facilities was 817.2 kilograms of standard
oil per ton. This is significantly higher than the world average
of 500 to 690 kilograms of standard oil per ton. We have
implemented a series of measures to reduce our energy
consumption. We expect to reduce the average energy consumption
of our ethylene production facilities to 800 kilograms of
standard oil per ton by the end of 2002.

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 implemented a series of measures at
our chemical plants in 2001, 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 of the implementation of these measures, the average
ethylene percentage loss at our chemical plants decreased from
1.34% in 2000 to 1.04% in 2001. We believe that these measures
will enable us to continue to reduce the cost of our ethylene
production without significant capital expenditure.

We produce a number of polyolefin products,
including polyethylene, polypropylene and ABS. Since 1996, we
have significantly increased the production of these products.
As of December 31, 2001, our production capacities for
polyethylene, polypropylene and ABS were 920 thousand tons,
640 thousand tons and 150 thousand tons, respectively.
In 2001, we produced 1,028.5 thousand tons,
622.4 thousand tons and 201.5 thousand tons of
polyethylene, polypropylene and ABS, respectively. Currently,
China imports significant volumes of these products to meet the
domestic demand due to an inadequate supply of high-quality
domestically produced polyethylene, polypropylene and ABS. We
intend to continue to increase our production of these products.
We plan to continue to improve the quality of these products. We
intend to achieve these objectives through renovating and
upgrading our production facilities and improving technology for
the production of these products in Daqing Petrochemical,
Dushanzi Petrochemical, Lanzhou Petrochemical and other branch
companies.

Sales and Marketing

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

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In addition to the four sales branch companies we
formed in 2000, which are responsible for marketing and selling
our chemical products in eastern, northeastern, northwestern and
northern regions of China, we established eight additional
chemical products marketing centers in Daqing, Jilin, Fushun,
Liaoyang, Lanzhou, Urumqi, Dushanzi and Ningxia at the end of
2001. In addition, in order to expand our sales of chemical
products in the southwestern region of China, our sales branch
company which was originally in charge of the market in
northwest China is now responsible for marketing and selling our
chemical products in the southwestern region of China. We
believe that these geographically based sales branch companies
and marketing centers will further increase the efficiency of
our chemical product marketing operations.

The following table sets forth our chemical
product sales by principal product category for each of the
three years ended December 31, 1999, 2000 and 2001.

|                          |                  |                          |  |         |       |      |  |         |       |  |  |         |         | 
|------------------------- | ---------------- | ------------------------ |  | ------- | ----- | ---- |  | ------- | ----- |  |  | ------- | ------- | 
|                          |                  |                         
|                          |                  | Year ended December 31, 
|                          |                  |                         
|Product                   |                  | 1999                     |  | 2000    |       | 2001
|                          |                  |                          |  |         |       |     
|                          |                  |                         
|                          |                  | (in thousands of tons)  
|Basic petrochemicals      |                  |                          |  |         |       |      |  |         |       |  |  |        
|                          | Benzene          |                          |  | 137.2   |       |      |  | 185.3   |       |  |  |        | (1)    
|                          | Propylene        |                          |  | 99.5    |       |      |  | 147.4   |       |  |  |        | (1)    
|Derivative petrochemicals |                  |                          |  |         |       |      |  |         |       |  |  |        
|                          | Polyolefin       |                          |  |         |       |      |  |         |       |  |  |         |        
|                          |                  | Polyolefin Polyethylene  |  |         | 817.7 |      |  |         | 994.0 |  |  |         | 1,016.2 | 
|                          |                  | Polypropylene            |  |         | 357.7 |      |  |         | 490.0 |  |  |         | 597.8   | 
|                          |                  | ABS(2)                   |  |         | 122.4 |      |  |         | 118.0 |  |  |         | 174.5   | 
|                          | Fibers           |                          |  |         |       |      |  |         |       |  |  |         |        
|                          |                  | Terylene fiber           |  |         | 162.7 |      |  |         | 169.3 |  |  |         | 183.4   | 
|                          |                  | Polyacrylic fiber(3)     |  |         | 87.1  |      |  |         | 67.0  |  |  |         | 105.6   | 
|                          | Rubber           |                          |  |         |       |      |  |         |       |  |  |         |        
|                          |                  | Butadiene styrene rubber |  |         | 125.0 |      |  |         | 128.8 |  |  |         | 128.5   | 
|                          | Intermediates    |                          |  |         |       |      |  |         |       |  |  |         |        
|                          |                  | Alkylbenzene             |  |         | 137.7 |      |  |         | 131.4 |  |  |         | 115.8   | 
|Other chemicals           |                  |                          |  |         |       |      |  |         |       |  |  |        
|                          | Urea             |                          |  | 2,779.8 |       |      |  | 3,143.9 |       |  |  | 3,419.7 |        
|                          | Ammonium nitrate |                          |  | 412.8   |       |      |  | 338.6   |       |  |  | 168.1   |        




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Since 2001, we used substantially all of the
    propylene and benzene we produced as feedstock for the
    production of our other chemical products.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(2) | Our ABS sales volume in 1999 include sales of ABS
    produced by five chemical production facilities that were not
    transferred to us by CNPC as part of the restructuring of the
    CNPC group in 1999. On a pro forma basis, taking into account
    the exclusion of the five chemical production facilities in
    1999, our ABS sales volume in 1999 would have been 120.3
    thousand tons. Our ABS sales volumes in 2000 and 2001 do not
    include ABS produced by the five chemical production facilities.                                                                             
|   
|(3) | Our polyacrylic fiber sales volume in 1999
    include sales of polyacrylic fiber produced by five chemical
    production facilities that were not transferred to us by CNPC as
    part of the restructuring of the CNPC group in 1999. On a pro
    forma basis, taking into account the exclusion of the five
    chemical production facilities in 1999, our polyacrylic fiber
    sales volume in 1999 would have been 80.4 thousand tons. Our
    polyacrylic fiber sales volumes in 2000 and 2001 do not include
    polyacrylic fiber produced by the five chemical production
    facilities.

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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 11,321 million (US$1,368 million) and
total sales volume of 529.8 billion cubic feet in 2001, of
which 442.2 billion cubic feet was sold by our natural gas
segment. We sell natural gas primarily to fertilizer and
chemical companies, commercial users and municipal utilities
owned by local governments.

The following table sets forth the length of our
natural gas pipelines and the volumes of natural gas sold by us
as of December 31, 1999, 2000 and 2001 or in each of the
three years ended December 31, 1999, 2000 and 2001.

|                                                                             |  |                         |        |      |  |      |        |  |  |  |        | 
|---------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                                             |  |                        
|                                                                             |  | As of December 31 or   
|                                                                             |  | year ended December 31,
|                                                                             |  |                        
|                                                                             |  | 1999                    |        | 2000 |  | 2001
|                                                                             |  |                         |        |      |  |     
|Length of natural gas pipelines used by our
    natural gas
    segment (km) |  |                         | 10,424 |      |  |      | 10,525 |  |  |  | 11,826 | 
|Total length of natural gas pipelines (km)                                   |  |                         | 11,516 |      |  |      | 11,617 |  |  |  | 12,918 | 
|Volume of natural gas sold by our natural gas
    segment (Bcf)              |  |                         | 373.3  |      |  |      | 391.0  |  |  |  | 442.2  | 
|Total volume of natural gas
    sold(1)(Bcf)                                 |  |                         | 393.0  |      |  |      | 480.5  |  |  |  | 529.8  | 




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

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

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

Our Principal Markets for Natural
Gas

In 2001, 63.9, 18.9%, 12.4% and 4.8% of our
natural gas sales were to the southwestern, northern,
northwestern and northeastern regions of the PRC, respectively.

Currently, Sichuan Province and Chongqing
Municipality in southwest China are two of our principal markets
for natural gas. We sold 239.7 billion cubic feet of
natural gas to Sichuan Province and Chongqing Municipality in
2001, representing approximately 45.2% of our total natural gas
sales. We supply natural gas to Sichuan Province and Chongqing
Municipality from our exploration and production operations in
the Sichuan oil region. Our natural gas pipelines in these areas
are well developed, consisting of a natural gas transmission
network with a total length of approximately
6,278 kilometers. As these areas lack adequate supply of
alternative energy resources, such as coal, we believe that we
can further expand our natural gas sales as energy demand
increases in these areas.

Beijing, Tianjin, Hebei Province and Shandong
Province in northern China also have high energy consumption
levels. These areas are also important markets for our natural
gas transmission and marketing business. We sold
82.1 billion cubic feet of natural gas to these areas in
2001. Our natural gas sales to Beijing in 2001 increased 29.1%
over 2000 from 46.0 billion cubic feet in 2000 to
59.4 billion cubic feet in 2001. We supply natural gas to
Beijing, Tianjin and Hebei Province primarily from the Changqing
oil region through the Shaanxi to Beijing natural gas
pipeline, which is one of our natural gas trunk pipelines, and
from the Huabei and Dagang oil regions. We have approximately
1,741 kilometers of natural gas pipelines in these areas.

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

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

We have entered into long-term take-or-pay
contracts with nine municipalities and enterprises in Qinghai
Province and Gangsu Province, 18 municipalities in Hubei
Province and Hunan Province and one municipality in Shandong
Province. Under these take-or-pay contracts, we have agreed in
principle to supply natural gas to these customers in the next
20 to 25 years at prices determined based on the ex-factory
prices published by the State Development Planning Commission,
supplemented by the pipeline transportation tariffs. See
 Regulatory Matters 
Pricing  Natural Gas for a discussion of
natural gas pricing.

In 2001, we sold 336.9 billion cubic feet,
or 76.2% of the natural gas sales volume of our natural gas and
pipeline segment, to customers not subject to the
government-formulated guidance supply plan, such as commercial
end users and municipal utilities, representing a 19.7% increase
over 2000. We believe that sales volume of our natural gas to
customers not subject to the government-formulated guidance
supply plan as a percentage of our total sales will continue to
increase. See  Regulatory Matters 
Pricing  Natural Gas for a discussion of the
government-formulated guidance supply plan.

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

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

Natural Gas Transmission
Infrastructure

As of December 31, 2001, our natural gas and
pipeline segment owned and operated approximately
11,826 kilometers of natural gas pipelines in China, which
represented the vast majority of Chinas onshore natural
gas pipelines. Since 1990, the length of our natural gas
pipelines has grown at a compound annual rate of 6.3%. Our
existing natural gas pipelines form regional natural gas supply
networks in southwestern and northern China. Our experience in
the design, construction management and operation of our
existing natural gas pipelines has enabled us to develop
relatively advanced technologies and skills in China in long
distance pipeline design, construction and automated operational
communications. We believe that we will continue to benefit from
those technologies and skills in the future expansion of our
natural gas pipeline networks and their ancillary facilities.

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Expansion of Our Natural Gas Transmission and
Marketing Business

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

In November 2001, we, jointly with another
natural gas company in Shangdong Province, made a total
investment of approximately RMB 297 million to build a
natural gas pipeline from Cangzhou City to Zibo City with a
total length of 213.5 kilometers to increase our natural
gas sales in Shangdong Province. We own a 70% interest in this
project. This pipeline project was completed and commenced
operation in March 2002.

We plan to construct natural gas pipelines
transporting natural gas produced in our natural gas fields in
western and southwestern regions to large potential markets for
natural gas in Wuhan City, other areas in Hubei Province, Hunan
Province, Henan Province, Anhui Province, Shanghai and other
areas in the Yangtze River Delta. These projects are known as
the Zhong County to Wuhan City natural gas pipeline project and
the West to East natural gas pipeline project. The Zhong County
to Wuhan City natural gas pipeline project is designed to link
the Sichuan gas region with Hubei Province and Hunan Province
with a designed annual throughput capacity of 105.9 billion
cubic feet of natural gas. This projects feasibility study
report has been submitted to the State Development Planning
Commission for approval. Our West to East natural gas pipeline
project will link our natural gas fields in Xinjiang and
Changqing with Henan Province, Anhui Province, Shanghai and
other areas in the Yangtze River Delta. The total length of the
West to East natural gas pipeline project is expected to be
approximately 4,000 kilometers. In December 2001, the State
Development Planning Commission approved the feasibility study
report for the West to East natural gas pipeline project. We
have entered into non-binding letters of intent with
45 subscribers and distributors for the purchase of natural
gas to be supplied to them through the West to East natural gas
pipeline project. We believe that successful completion of these
natural gas pipeline and storage facilities will substantially
enhance our ability to capitalize on anticipated growth in
demand for natural gas in these regions. The State Development
Planning Commission has approved these natural gas pipeline
projects.

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

On December 29, 2001, we and the Shell
Investment Consortium, consisting of Shell International Gas
Limited, OAO Gazprom, OAO Stroytransgaz and Hong Kong China Gas
Company Limited, entered into an Interim Agreement on Basis for
Finalization of West to East Gas Pipeline Joint Venture
Framework Agreement. This agreement contemplates a number of
structural and operating principles for the development of a
portion of the West to East natural gas pipeline, including:



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | to adopt a production sharing contract model for
    oil and gas exploration and production;  
|
| |  | to establish a co-operative pipeline joint
    venture for a term of 45 years;                
|
| |  | to establish an equity joint venture natural gas
    sales company for a term of 45 years; and

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| |   |                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to have shareholding interests of 55% and 45% for
    us and the foreign party, respectively, in the pipeline joint
    venture and, the natural gas sales company to have participating
    interests in the production sharing contracts for the Tarim
    Basin which will supply natural gas for the pipeline.

We and the Shell Investment Consortium are
currently negotiating the West to East Pipeline Joint Venture
Framework Agreement. We cannot assure you that negotiations with
the Shell Investment Consortium will be successful.

Crude Oil and Refined Product Transportation
and Storage Infrastructure

On January 1, 2001, we transferred the
pipeline operations for our crude oil and refined products from
the refining and marketing segment to the natural gas segment,
which was renamed as the natural gas and pipeline segment, to
improve management effectiveness, operating efficiency and
safety of our crude oil and refined product transportation and
storage businesses. 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, 2001, our crude oil
transportation and storage infrastructure consisted of:



| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | 9,186 kilometers of crude oil pipelines with
    an average daily throughput of approximately 2,140 thousand
    barrels; and
|
| |  | crude oil storage facilities with an aggregate
    storage capacity of approximately 13.6 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 2001, approximately 74.3% of our crude oil
production was delivered to our refineries through our crude oil
pipeline network. We believe that our crude oil pipeline network
is sufficient for our current and anticipated transportation
needs. During the past five years, we have not experienced
any delays in our ability to deliver crude oil due to pipeline
capacity constraints.

Our transportation and storage infrastructure
also includes:



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | 984 kilometers of refined product pipelines
    with an average daily throughput of approximately
    12,022 tons; and               
|
| |  | approximately 342 refined product storage
    facilities with a total storage capacity of approximately
    7.0 million cubic meters.

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

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We are in the process of constructing a refined
product pipeline from Lanzhou, Gansu Province, to Chengdu,
Sichuan Province, and Chongqing Municipality. This pipeline will
connect Lanzhou Petrochemical directly with the southwestern
region of China. In this region, there is a lack of crude oil
resources and refining capacity, which has resulted in the
demand for refined products significantly exceeding supply. This
pipeline is designed to have a total length of
1,247 kilometers and a throughput capacity of five million
tons of refined products per year. We estimate that the total
capital investment for this project will be approximately
RMB 3,800 million (US$459 million).

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




Competition

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

Exploration and Production
Operations

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

Refining and Marketing and Chemicals and
Marketing Operations

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

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

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




Environmental Matters

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



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

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

We anticipate that the environmental laws and
regulations to which we are subject will become increasingly
strict and are therefore likely to have an increasing impact on
our operations. It is impossible, however, to predict accurately
the effect of future developments in such laws and regulations
on our future earnings and operations. Some risk of
environmental costs and liabilities is inherent in certain of
our operations and products, as it is with other companies
engaged in similar businesses, and there can be no assurance
that material costs and liabilities will not be incurred.
However, we do not currently expect any material adverse effect
on our financial condition or results of operations as a result
of compliance with such laws and regulations. We paid pollutant
discharge fees of approximately RMB 124.5 million,
RMB 84.5 million and RMB 112.7 million
(US$13.6 million), respectively, in 1999, 2000 and 2001.

To meet future environmental obligations, we are
engaged in a continuing program to develop effective environment
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

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| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | developing and installing monitoring systems at
    our facilities and developing environmental impact assessments
    for major projects.

Our capital expenditures on environmental
programs in 1999, 2000 and 2001 totaled approximately
RMB 954.8 million, RMB 1,150.9 million and
RMB 1,205.0 million (US$145.6 million),
respectively.




Legal Proceedings

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




Properties

Under the restructuring agreement we entered into
with CNPC, CNPC has undertaken to us the following:



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

As of December 31, 2001, CNPC obtained
formal land use right certificates for 12,417 of the
28,649 parcels of land and some of the building ownership
certificates. The necessary governmental procedures for the
above-mentioned service stations located on collectively-owned
land have not been completed to date. Our directors confirm that
the use of and the conduct of relevant activities at the
above-mentioned parcels of land, service stations and buildings
are not affected by the fact that the relevant land use right
certificates or individual building ownership certificates have
not been obtained or the fact that the relevant governmental
procedures have not been completed. Our directors believe that
these will not have any material adverse effect on our results
of operations and financial condition.

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




Regulatory Matters

Overview

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



| |   |                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The State Economic and Trade Commission has the
    industry administration and policy coordination authority over
    Chinas oil and gas industry. It is also responsible for
    setting

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | import and export quotas for crude oil and
    refined products on the basis of overall supply and demand for
    crude oil and refined products in China as well as the WTO
    requirements for China.                                                                                                                                                                                                                                     
|
| |  | 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 Foreign Trade and Economic
    Cooperation has the authority to examine and approve production
    sharing contracts and Sino-foreign equity and cooperative joint
    venture contracts. It is also responsible for issuing import and
    export licenses for crude oil and refined products to oil and
    gas companies once they have obtained import or export quotas
    from the State Economic and Trade Commission.
|
| |  | The State Development Planning Commission:                                                                                                                                                                                                                                                                                                                                                                                                   



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

Exploration Licenses and Production
Licenses

The Mineral Resources Law authorizes the Ministry
of Land and Resources to exercise the administrative authority
over the exploration and production of the 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.
Investment ranges from RMB 2,000 per square kilometer for
the initial year 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 the subsequent years up to a
maximum of RMB 500 per square kilometer. The maximum
term of an exploration license is seven years subject to renewal
upon expiration of the original term, with each renewal being
for a two-year term. At the exploration stage, an applicant can
also apply for a progressive exploration and production license
that allows the holder to test and develop reserves not yet
fully proved. The progressive exploration and production license
has a maximum term of 15 years. Upon the reserves becoming
proved for a block, the holder must apply for a full production
license in order to undertake production. In addition, the
holder needs to obtain the right to use that block of land.
Generally, the holder of a full production license must either
obtain a land use rights certificate for industrial land use
covering that block of land or lease such land from the relevant
land administrative authorities.

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

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

Pricing

Crude Oil

PetroChina and Sinopec set their crude oil median
prices each month based on the average Singapore market FOB
prices for crude oil of different grades in the previous month
plus an amount equal to the customs duties payable on the import
of crude oil. 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
State Development Planning Commission will mediate if PetroChina
and Sinopec cannot agree on the amount of premium or discount.

Refined Products

Prior to October 2001, PetroChina set its retail
prices based on the published retail median guidance prices of
gasoline and diesel published by the State Development Planning
Commission, with an allowable upward or downward adjustment of
up to 5%. Since October 2001, PetroChina has set its retail
prices within an 8% floating range of the published retail
median guidance prices of gasoline and diesel. These retail
median guidance prices of gasoline and diesel vary in each
provincial level distribution region. Since June 2000, the
State Development Planning Commission has published the retail
median guidance prices of gasoline and diesel monthly based on
the weighted average FOB Singapore, Rotterdam and New York
trading prices for diesel and gasoline in the previous month
plus transportation costs and taxes.

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

In addition, the State Development Planning
Commission sets the ex-factory median prices for gasoline and
diesel sold to the PRC government and other institutional
customers, including airlines and railway operators. These
ex-factory median prices are calculated with reference to the
average FOB Singapore, Rotterdam and New York trading prices for
gasoline and diesel in the previous month. PetroChina may charge
up to 8% premium, which was increased from 5% before, on the
ex-factory median prices to these customers.

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Chemical Products

PetroChina determines the prices of all of its
chemical products.

Natural Gas

The price of natural gas has three components:



| |   |                                    
| | - | -----------------------------------
| |  | wellhead price;                    
|
| |  | pipeline transportation tariff; and
|
| |  | purification fee.                  

Wellhead prices vary depending on whether or not
the natural gas sold is within the government-formulated natural
gas supply plan. For natural gas sold within the
government-formulated supply plan, the State Development
Planning Commission fixes wellhead prices according to the
nature of the customers. Most of these customers are fertilizer
producers.

For natural gas sold above the
government-formulated natural gas supply plan, the State
Development Planning Commission publishes the median guidance
wellhead price with permissible upward or downward adjustments
of 10% by the natural gas producer.

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

The State Development Planning 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 State Development Planning 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. PetroChina
sets the purification fee based on the cost of natural gas
purification, and the purification fee must be approved by the
State Development Planning Commission. In January 2002, the
State Development Planning Commission announced its decision to
merge the purification fee into the wellhead price to establish
a unified natural gas ex-factory price.

Production and Marketing

Crude Oil

Each year, the State Development Planning
Commission publishes the projected target for the production and
sale of crude oil by PetroChina, Sinopec and CNOOC Limited,
based on the domestic consumption estimates submitted by
domestic producers, including PetroChina, Sinopec and CNOOC
Limited, 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.

Refined Products

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

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Natural Gas

Each year, the State Development Planning
Commission publishes 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 State Development Planning
Commission also formulates the annual natural gas guidance
supply plan, which requires natural gas producers to distribute
a specified amount of natural gas to specified fertilizer
producers. The actual production levels of natural gas, except
the amount supplied to the fertilizer producers, are determined
by the natural gas producers.

Foreign Investments

Cooperation in Exploration and
Production with Foreign Companies

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

Sino-foreign cooperation projects and foreign
parties in onshore oil and gas exploration and production in
China are generally selected through open bids and bilateral
negotiations. Those projects are generally conducted through
production sharing contracts. The Ministry of Foreign Trade and
Economic Cooperation 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 Foreign Trade and Economic Cooperation, assign to PetroChina
most of its commercial and operational rights and obligations
under the production sharing contract as required by the
Non-competition Agreement between CNPC and PetroChina. See
Item 7  Major Shareholders and Related
Party Transactions  Contract for the Transfer of
Rights under Production Sharing Contracts.

Transportation and
Refining

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

Import and Export

The import and export of crude oil and refined
products is subject to quota and licensing control in China.
Currently, only a small number of State authorized companies,
including PetroChina and China National United Oil Corporation,
an affiliate of PetroChina, have licenses to import and export
crude oil and refined products. The State Economic and Trade
Commission sets import and export quotas for crude oil and
refined products by taking into account the supply and demand in
China as well as the WTO requirements for China. The Ministry of
Foreign Trade and Economic Cooperation is responsible for
issuing import and export licenses for

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products subject to quotas. Upon receiving quota
allocation, refining companies or enterprises can import crude
oil through State-authorized import companies. See
Item 3  Key Information  Risk
Factors for a discussion of the expected opening of
domestic markets to foreign competition in China.


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

Capital Investment and Financing

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

Taxation, Fees and Royalty

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

|                     |  |                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------------- |  | -------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Tax item             |  | Tax base       |  | Tax rate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                     |  |                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Corporate income tax |  | Taxable income |  | 33%. 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,
    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. Any value-added tax paid by
    PetroChina for purchasing materials consumed during the
    production process for charges paid for drilling and other
    engineering services and labor are deducted from the value-added
    tax to be charged to PetroChinas customers. 13% of the
    value-added tax paid in connection with export of crude oil and
    diesel is subject to a full rebate.

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|                                           |  |                                        |  |                                                                                                                                                                                                                                                                                                                                  
|------------------------------------------ |  | -------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Tax item                                   |  | Tax base                               |  | Tax rate                                                                                                                                                                                                                                                                                                                         
|                                           |  |                                        |  |                                                                                                                                                                                                                                                                                                                                  
|                                           |  | Sales volume                           |  | 5% for the Sino-foreign oil and gas exploration
    and development cooperative projects, but input value-added tax
    cannot be deducted.                                                                                                                                                                                      
|Business tax                               |  | Revenue from transportation services   |  | 3%                                                                                                                                                                                                                                                                                                                               
|Consumption tax                            |  | Aggregate volume sold or self-consumed |  | RMB 277.6 per ton for gasoline
    RMB 117.6 per ton for diesel
    All consumption taxes paid in connection with export of gasoline
    and diesel are subject to a full rebate.                                                                                                                                                
|Resource tax                               |  | Aggregate volume sold or self-consumed |  | RMB 8 to 30 per ton for crude oil
    RMB 2 to 15 per thousand cubic meter for natural gas
    The actual applicable rate for each oil field may differ
    depending on the resource differences, volume of the exploration
    and production activities and costs required for the production
    at the particular oil field.
|Compensatory fee for mineral
    resources |  | Revenue                                |  | 1% for crude oil and natural gas                                                                                                                                                                                                                                                                                                 
|Exploration license fee                    |  | Area                                   |  | RMB 100 to 500 per square kilometer per year                                                                                                                                                                                                                                                                                     
|Production license fee                     |  | Area                                   |  | RMB 1,000 per square kilometer per year                                                                                                                                                                                                                                                                                          
|Royalty fee(1)                             |  | Production volume                      |  | Progressive rate of 0 - 12.5% for crude oil and 0
    - 3% for natural gas                                                                                                                                                                                                                                                       




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

The PRC Highway Law was recently amended, and the
amendment became effective on October 31, 1999. The amended
Highway Law provides that the PRC government shall collect funds
for highway maintenance by imposing fuel taxes. The State
Council will formulate specific implementation methods and
procedures for the imposition of fuel tax. The State Council has
not yet announced or published any specific rate, implementation
method or procedure for the imposition of the tax.

Environmental Regulations

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

The environmental regulations require a company,
such as us, to register or file an environmental impact report
with the relevant environmental bureau for approval before it
undertakes any construction of a new production facility or any
major expansion or renovation of an existing production
facility. The new facility or the expanded or renovated facility
will not be

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permitted to operate unless the relevant
environmental bureau has inspected to its satisfaction that
environmental equipment that satisfies the environmental
protection requirements has been installed for the facility. A
company that wishes to discharge pollutants, whether it is in
the form of emission, water or materials, must submit a
pollutant discharge declaration statement detailing the amount,
type, location and method of treatment. After reviewing the
pollutant discharge declaration, the relevant environmental
bureau will determine the amount of discharge allowable under
the law and will issue a pollutant discharge license for that
amount of discharge subject to the payment of discharge fees. If
a company discharges more than is permitted in the pollutant
discharge license, the relevant environmental bureau can fine
the company up to several times the discharge fees payable by
the offending company for its allowable discharge, or require
the offending company to close its operation to remedy the
problem.


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ITEM 5  OPERATING AND FINANCIAL
REVIEW AND PROSPECTS






General


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

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

Overview

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



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

We are Chinas largest producer of crude oil
and natural gas and one of the largest companies in China in
terms of sales. In the year ended December 31, 2001, we
produced approximately 763.5 million barrels of crude oil
and approximately 563.5 billion cubic feet of natural gas
for sale. Our refineries also processed approximately
567.0 million barrels of crude oil in the year ended
December 31, 2001. In the year ended December 31,
2001, we had total revenue of RMB 238,893 million
(US$28,863 million) and net income of
RMB 46,808 million (US$5,655 million).

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

Critical Accounting Policies

Our main accounting policies are set forth in
Note 3 to our consolidated financial statements and conform
with IAS. We have identified the accounting policies below as
critical to our business operations and the understanding of our
results of operations. For a detailed discussion on the
application of these and other accounting policies, see Note 3
to our consolidated

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financial statements. The application of these
policies may require management to make judgments and estimates
that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of
our financial statements, and the reported amounts of revenue
and expenses during the reporting period. Our management uses
historical experience and all available information to make
these estimates and judgments, and different amounts could be
reported using different assumptions and estimates.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Oil and gas properties.The successful efforts method of
    accounting is used for oil and gas exploration and production
    activities. Under this method, all costs for development wells,
    support equipment and facilities, and proved mineral interests
    in oil and gas properties are capitalized. Costs of exploratory
    wells are capitalized as construction in progress pending
    determination of whether the wells find proved reserves. Proved
    oil and gas reserves are the estimated quantities of crude oil,
    natural gas and natural gas liquids which geological and
    engineering data demonstrate with reasonable certainty to be
    recoverable in future years from known reservoirs under existing
    economic and operating conditions, i.e., prices and costs as of
    the date the estimate is made. Prices include consideration of
    changes in existing prices provided only by contractual
    arrangements, but not on escalations based upon future
    conditions. Costs of wells with proved reserves remain
    capitalized. All other exploratory wells and geological and
    geophysical costs are expensed. We have 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 us 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 us in the future
    will be subject to the 30-year maximum unless additional special
    approvals can be obtained from the State Council. Each of our
    production licenses is renewable upon application by us
    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 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 these production licenses. We did not incur and
    does not anticipate to incur any material dismantlement,
    restoration and abandonment cost given the nature of its onshore
    producing activities and current PRC regulations governing such
    activities.
|
| |  | Revenue recognition.Our revenue recognition policy is
    critical because our revenue is a key component of our results
    of operations. We follow very specific and detailed accounting
    guidelines in accordance with IAS in measuring revenue. However,
    certain judgments affect the application of our revenue policy.
    Should changes in conditions cause management to determine that
    certain criteria for revenue recognition are not met for future
    transactions, revenue recognized for any reporting period could
    be affected.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Provision for accounts receivables.Accounts receivables are carried at
    original invoice amount less provision for impairment. We
    specifically analyzes historical bad debts, receivable ageings,
    customer concentrations, customer credit-worthiness, current
    economic trends and changes in our customer payment terms when
    evaluating the adequacy of the allowance for doubtful accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Inventories.Inventories are stated at the lower of
    cost or net realizable value. We estimate net realizable value
    based on intended use, current market value and inventory ageing
    analysis.                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Impairment of long-lived
    assets.We review long-lived assets
    for possible impairment by evaluating whether the carrying
    amount of an individual asset exceeds its recoverable amount.
    Our judgments regarding the existence of impairment indicators
    are based on legal factors, market conditions and operational
    performance of our assets. Future events could cause us to
    conclude that impairment indicators exist and that long-lived
    assets are impaired. Any resulting impairment loss could have a
    material adverse impact on our financial condition and results
    of operations.

Factors Affecting Results of
Operations

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

Crude Oil Prices

Our results of operations are substantially
influenced by crude oil prices. Until June 1, 1998, the
State Development Planning Commission set crude oil prices in
China at levels generally significantly lower than those
prevailing in international crude oil markets. In setting crude
oil prices, the State Development Planning Commission weighed a
range of factors, including the identity of the customer, the
volume and grade of crude oil purchased and the producers
costs of production. We sold crude oil at a fixed price to
customers purchasing under the PRC governments annual
crude oil allocation plan and charged a premium to customers
purchasing outside the plan. Volatility in international crude
oil prices in 1996, 1997 and 1998 often resulted in substantial
discrepancies between international crude oil prices and
domestic crude oil prices, which were not frequently adjusted
during that period. During the period from January 1, 1996
to June 1, 1998, the State Development Planning Commission
raised the prices of crude oil twice.

From June 1998 to March 2001, the PRC government
published benchmark prices for crude oil in China which are
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, 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 and
premiums have been determined in accordance with a crude oil
premium and discount calculation agreement and its supplemental
agreement we entered into with Sinopec. These agreements
establish premiums and discounts which effect adjustments to the
benchmark prices. These agreements do not obligate either party
to purchase or sell any crude oil and is thus subject to
renegotiation. Under these agreements, the State Development
Planning Commission will mediate if we cannot agree with Sinopec
on the premium or discount applicable to a particular crude oil
purchase. The table below sets forth the benchmark prices for
our principal grades of crude oil and the negotiated premiums
and discounts applicable to those grades during 1999, 2000 and
2001.

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|          |  |           |       |                             |  |                    |       |           |  |                 |       |            |  |           |       |  |  |  |                |  |  |  |                 |  |  |  |                 | 
|--------- |  | --------- | ----- | --------------------------- |  | ------------------ | ----- | --------- |  | --------------- | ----- | ---------- |  | --------- | ----- |  |  |  | -------------- |  |  |  | --------------- |  |  |  | --------------- | 
|          |  |           |       |                             |  |                   
|          |  |           |       | Average price published by  |  | Premium/(discount)
|          |  |           |       | PRC government (RMB/barrel) |  | (RMB/barrel)      
|          |  |           |       |                             |  |                   
|Grade of  |  |           |       | June-December               |  | Year 2000          |       | Year 2001 |  | September 1999- |       | July 2000- |  | Since    
|crude oil |  | Benchmark |       | 1999 average                |  | average            |       | average   |  | June 2000       |       | June 2001  |  | July 2001
|          |  |           |       |                             |  |                    |       |           |  |                 |       |            |  |          
|Daqing    |  |           | Minas |                             |  |                    | 166.3 |           |  |                 | 240.3 |            |  |           | 209.0 |  |  |  | 0  16.8       |  |  |  | (3.8)  0       |  |  |  | 0  2.8         | 
|Jidong    |  |           | Minas |                             |  |                    | 166.3 |           |  |                 | 240.3 |            |  |           | 209.0 |  |  |  | 0  16.8       |  |  |  | (3.8)  0       |  |  |  | 0  2.8         | 
|Huabei    |  |           | Minas |                             |  |                    | 166.3 |           |  |                 | 240.3 |            |  |           | 209.0 |  |  |  | 0  16.8       |  |  |  | (3.8)  0       |  |  |  | 0  2.8         | 
|Dagang    |  |           | Cinta |                             |  |                    | 161.0 |           |  |                 | 232.2 |            |  |           | 199.3 |  |  |  | 0  11.1       |  |  |  | (3.8)  0       |  |  |  | 0  3.0         | 
|Tarim     |  |           | Minas |                             |  |                    | 166.3 |           |  |                 | 240.3 |            |  |           | 209.0 |  |  |  | (5.8)  (22.6) |  |  |  | (26.4)  (22.6) |  |  |  | (29.4)  (22.6) | 
|Tuha      |  |           | Tapis |                             |  |                    | 186.1 |           |  |                 | 262.2 |            |  |           | 233.8 |  |  |  | (9.6)  (27.2) |  |  |  | (31.0)  (27.2) |  |  |  | (27.2)  (25.0) | 

In 2001, the average prices published by the PRC
government for our principal grades of crude oil and crude oil
produced in our Daqing oil region were RMB 204.9 per
barrel and RMB 209.0 per barrel, respectively.

Increases or decreases in the price of crude oil
in China have a significant impact on the revenue from our
exploration and production segment as well as the amount of
exploration expenses that we incur each year. In the year ended
December 31, 2001, our average realized selling price for
crude oil was RMB 195.4 (US$23.61) per barrel, as compared
to RMB 225.3 (US$27.21) per barrel in the year ended
December 31, 2000. As a result, the revenue from our
exploration and production segment and exploration expenses
decreased 13.3% and 15.4%, respectively, from RMB 170,928
million and RMB 8,680 million, respectively, in the year
ended December 31, 2000 to RMB 148,277 million
(US$17,915 million) and RMB 7,344 million
(US$887 million), respectively, in the year ended
December 31, 2001. See Item 4 
Information on the Company  Regulatory
Matters  Pricing for a more detailed discussion
of current PRC crude oil pricing regulations.

Refined Product
Prices

Until June 5, 1998, the State Development
Planning Commission set wholesale and retail prices for our
major refined products (gasoline, diesel and kerosene). However,
during the first six months of 1998, due to then prevailing
market conditions and increased smuggling of refined products,
actual wholesale prices in the refined products market were
lower than the wholesale prices set by the PRC government. In
June 1998, the State Development Planning Commission pegged
the prices of refined products of gasoline and diesel to the FOB
Singapore trading prices, supplemented by transportation costs,
customs duties, insurance charges, taxes and retail margins.
Prior to June 2000, the State Development Planning
Commission published from time to time retail median gasoline
and diesel guidance prices for major cities and provinces. Once
published, the retail median prices remained unchanged until
either we or Sinopec requested an adjustment and demonstrated
that the cumulative change of the FOB Singapore gasoline or
diesel trading price from the then applicable retail median
guidance price exceeded 5%. Since June 2000, the State
Development Planning Commission has adjusted such retail median
prices on a monthly basis to reflect the FOB Singapore,
Rotterdam and New York trading prices for gasoline and diesel in
the previous month, supplemented by transportation costs and
taxes. See Item 4  Information on the
Company  Regulatory Matters  Pricing
for a more detailed discussion of current PRC refined products
pricing regulations.

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

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The following table sets forth the retail median
prices for 90# gasoline and 0# diesel
published by the State Development Planning Commission from
January 2001 to December 2001 when such adjustments were
made.

|                          |  |             |       |           |  |  |       | 
|------------------------- |  | ----------- | ----- | --------- |  |  | ----- | 
|                          |  | 90#Gasoline |       | 0#Diesel 
|                          |  |             |       |          
|                          |  | (RMB/ton)   |       | (RMB/ton)
|January 2001              |  |             | 3,585 |           |  |  | 3,176 | 
|February 2001             |  |             | 3,422 |           |  |  | 2,986 | 
|March 2001                |  |             | 3,632 |           |  |  | 2,941 | 
|April 2001                |  |             | 3,523 |           |  |  | 2,852 | 
|May 2001                  |  |             | 3,623 |           |  |  | 3,062 | 
|June 2001                 |  |             | 3,813 |           |  |  | 3,192 | 
|July 2001                 |  |             | 3,363 |           |  |  | 3,132 | 
|August 2001               |  |             | 3,083 |           |  |  | 3,082 | 
|September 2001            |  |             | 3,083 |           |  |  | 2,982 | 
|October 2001              |  |             | 3,333 |           |  |  | 3,002 | 
|November to December 2001 |  |             | 2,973 |           |  |  | 2,642 | 

Chemical Product
Prices

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

Natural Gas
Prices

Our natural gas price is comprised of the
following three components:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Wellhead Price.We
    set our wellhead price within a 10% floating range of the median
    wellhead price published by the State Development Planning
    Commission, except for natural gas sold within the PRC
    governments natural gas supply plan, which must be sold at
    prices determined by the State Development Planning Commission.
    Sales volume of the natural gas subject to these price controls
    accounted for approximately 23.8% of our total sales of natural
    gas in 2001. The pricing mechanism may be subject to change in
    the near future;
|
| |  | Pipeline Transportation Tariff.The State Development Planning
    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, we prepare a tariff schedule based on our actual cost plus
    a profit margin and submit it to the State Development Planning
    Commission for approval; and                                                                                                                                       
|
| |  | Purification Fee.We
    set the purification price based on our actual costs, subject to
    approval by the State Development Planning Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                 

Since January 2002, the State Development
Planning Commission has merged the purification fee into the
wellhead price to establish a unified natural gas ex-factory
price.

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
Exposure

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

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Interest Rate
Exposure

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

The Restructuring of the CNPC Group

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



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

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

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

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Operating Results

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

Our income statement for each of the three years
ended December 31, 2001 is summarized in the table below.

|                              |  |                         |          |       |  |      |          |      |  |  |          |   |  |  |         |  
|----------------------------- |  | ----------------------- | -------- | ----- |  | ---- | -------- | ---- |  |  | -------- | - |  |  | ------- | -
|                              |  |                        
|                              |  | Year ended December 31,
|                              |  |                        
|                              |  | 1999                    |          | 2000  |  | 2001 |          | 2001
|                              |  |                         |          |       |  |      |          |     
|                              |  |                         |          | (US$)
|                              |  | (RMB in millions)       |          |      
|Total revenues                |  |                         | 175,969  |       |  |      | 241,992  |      |  |  | 238,893  |   |  |  | 28,863  |  
|Operating expenses            |  |                         | (129,069 | )     |  |      | (156,233 | )    |  |  | (166,676 | ) |  |  | (20,138 | )
|                              |  |                         |          |       |  |      |          |      |  |  |          |   |  |  |         |  
|Income from operations        |  |                         | 46,900   |       |  |      | 85,759   |      |  |  | 72,217   |   |  |  | 8,725   |  
|                              |  |                         |          |       |  |      |          |      |  |  |          |   |  |  |         |  
|Exchange gain (loss), net     |  |                         | (2,233   | )     |  |      | 1,172    |      |  |  | 250      |   |  |  | 30      |  
|Interest expense, net         |  |                         | (8,264   | )     |  |      | (5,464   | )    |  |  | (3,350   | ) |  |  | (405    | )
|                              |  |                         |          |       |  |      |          |      |  |  |          |   |  |  |         |  
|Income from equity affiliates |  |                         | 128      |       |  |      | 584      |      |  |  | 341      |   |  |  | 41      |  
|                              |  |                         |          |       |  |      |          |      |  |  |          |   |  |  |         |  
|Income before income taxes    |  |                         | 36,531   |       |  |      | 82,051   |      |  |  | 69,458   |   |  |  | 8,391   |  
|Income taxes                  |  |                         | (9,403   | )     |  |      | (26,985  | )    |  |  | (23,054  | ) |  |  | (2,785  | )
|                              |  |                         |          |       |  |      |          |      |  |  |          |   |  |  |         |  
|Net income                    |  |                         | 27,001   |       |  |      | 55,231   |      |  |  | 46,808   |   |  |  | 5,655   |  
|                              |  |                         |          |       |  |      |          |      |  |  |          |   |  |  |         |  

The table below sets forth our revenues by
business segment for each of the three years ended
December 31, 2001, as well as the percentage changes in
revenues for the periods shown.

|                                       |  |                                       |         |      |  |      |          |      |  |      |      |   |  |  |          |   |  |  |       |    
|-------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | -------- | ---- |  | ---- | ---- | - |  |  | -------- | - |  |  | ----- | ---
|                                       |  |                                       |         |      |  | 2000 |          |      |  | 2001
|                                       |  |                                       |         |      |  | vs.  |          |      |  | vs. 
|                                       |  | 1999                                  |         | 2000 |  | 1999 |          | 2001 |  | 2000
|                                       |  |                                       |         |      |  |      |          |      |  |     
|                                       |  |                                      
|                                       |  | (RMB in millions, except percentages)
|Sales and other operating revenues     |  |                                       |         |      |  |      |          |      |  |      |      |   |  |  |          |   |  |  |       |    
|Exploration and production             |  |                                       | 110,190 |      |  |      | 170,928  |      |  |      | 55.1 | % |  |  | 148,277  |   |  |  | (13.3 | )% 
|Refining and marketing(1)              |  |                                       | 117,562 |      |  |      | 161,148  | (2)  |  |      | 37.1 |   |  |  | 169,534  |   |  |  | 5.2   | (2)
|Chemicals and marketing                |  |                                       | 25,417  |      |  |      | 33,364   |      |  |      | 31.3 |   |  |  | 31,776   |   |  |  | (4.8) |    
|Natural gas and pipeline(1)            |  |                                       | 5,977   |      |  |      | 7,163    | (3)  |  |      | 19.8 |   |  |  | 11,321   |   |  |  | 58.0  | (3)
|Other                                  |  |                                       | 312     |      |  |      |         |      |  |      |     |   |  |  |         |   |  |  |      |    
|                                       |  |                                       |         |      |  |      |          |      |  |      |      |   |  |  |          |   |  |  |       |    
|Total                                  |  |                                       | 259,458 |      |  |      | 372,603  |      |  |      | 43.6 | % |  |  | 360,908  |   |  |  | (3.1  | )% 
|                                       |  |                                       |         |      |  |      |          |      |  |      |      |   |  |  |          |   |  |  |       |    
|Less intersegment sales                |  |                                       | (83,489 | )    |  |      | (130,611 | )    |  |      | 56.4 |   |  |  | (122,015 | ) |  |  | (6.6  | )  
|                                       |  |                                       |         |      |  |      |          |      |  |      |      |   |  |  |          |   |  |  |       |    
|Consolidated net sales from operations |  |                                       | 175,969 |      |  |      | 241,992  |      |  |      | 37.5 | % |  |  | 238,893  |   |  |  | 1.3   | %  
|                                       |  |                                       |         |      |  |      |          |      |  |      |      |   |  |  |          |   |  |  |       |    




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Effective January 1, 2001, our results of
    operations, together with the corresponding assets and
    liabilities, of certain pipeline operations are reclassified
    from the refining and marketing segment to the natural gas and
    pipeline segment to reflect the changes in the manner under
    which these operations are managed. The results of operations,
    together with the corresponding assets and liabilities, of these
    pipeline operations were included in the refining and marketing
    segment in the segment information for the years ended
    December 31, 1999 and 2000.
|   
|(2) | The sales and other operating revenue of our
    pipeline operations for the year ended December 31, 2000
    was RMB 2,506 million (US$303 million). Taking into
    account the exclusion of the pipeline operations in 2000, the
    sales and other operating revenue for our refining and marketing
    segment would have increased 6.9% from
    RMB 158,642 million for the year ended
    December 31, 2000 to RMB 169,534 million for the year ended
    December 31, 2001.                                                                                                                          

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

The table below sets forth our operating income
by business segment for each of the three years ended
December 31, 2001, 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.

|                              |  |                                       |        |      |  |      |        |       |  |      |          |   |  |  |        |   |  |  |          |    
|----------------------------- |  | ------------------------------------- | ------ | ---- |  | ---- | ------ | ----- |  | ---- | -------- | - |  |  | ------ | - |  |  | -------- | ---
|                              |  |                                       |        |      |  | 2000 |        |       |  | 2001
|                              |  |                                       |        |      |  | vs.  |        |       |  | vs. 
|                              |  | 1999                                  |        | 2000 |  | 1999 |        | 2001  |  | 2000
|                              |  |                                       |        |      |  |      |        |       |  |     
|                              |  |                                      
|                              |  | (RMB in millions, except percentages)
|Income (loss) from operations |  |                                       |        |      |  |      |        |       |  |      |          |   |  |  |        |   |  |  |          |    
|Exploration and production    |  |                                       | 50,895 |      |  |      | 95,143 |       |  |      | 86.9     | % |  |  | 76,932 |   |  |  | (19.1)   | %  
|Refining and marketing(1)     |  |                                       | (487   | )    |  |      | (8,742 | ) (2) |  |      | (1,695.1 | ) |  |  | (2,246 | ) |  |  | 74.3     | (2)
|Chemicals and marketing       |  |                                       | (1,704 | )    |  |      | 70     |       |  |      | 104.1    |   |  |  | (2,374 | ) |  |  | (3,491.4 | )  
|Natural gas and pipeline(1)   |  |                                       | (415   | )    |  |      | 14     | (3)   |  |      | 103.4    |   |  |  | 722    |   |  |  | 5,057.1  | (3)
|Other                         |  |                                       | (1,389 | )    |  |      | (726   | )     |  |      | 47.7     |   |  |  | (817   | ) |  |  | (12.5    | )  
|                              |  |                                       |        |      |  |      |        |       |  |      |          |   |  |  |        |   |  |  |          |    
|Total                         |  |                                       | 46,900 |      |  |      | 85,759 |       |  |      | 82.9     | % |  |  | 72,217 |   |  |  | (15.8    | )% 
|                              |  |                                       |        |      |  |      |        |       |  |      |          |   |  |  |        |   |  |  |          |    




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Effective January 1, 2001, our results of
    operations, together with the corresponding assets and
    liabilities, of certain pipeline operations are reclassified
    from the refining and marketing segment to the natural gas and
    pipeline segment to reflect the changes in the manner under
    which these operations are managed. The results of operations,
    together with the corresponding assets and liabilities, of these
    pipeline operations were included in the refining and marketing
    segment in the segment information for the years ended
    December 31, 1999 and 2000.
|   
|(2) | The income from operations of our pipeline
    operations for the year ended December 31, 2000 was
    RMB 29 million (US$4 million). Taking into
    account the exclusion of the pipeline operations in 2000, the
    loss from operations for our refining and marketing segment
    would have decreased 74.4% from RMB 8,771 million for
    the year ended December 31, 2000 to
    RMB 2,246 million for the year ended December 31,
    2001.                                                                                                                                                          
|   
|(3) | The income from operations of our pipeline
    operations for the year ended December 31, 2000 was
    RMB 29 million (US$4 million). Taking into
    account the inclusion of the pipeline operations in 2000, the
    income from operations for our natural gas and pipeline segment
    would have increased 1,579.1% from RMB 43 million for the year
    ended December 31, 2000 to RMB 722 million for
    the year ended December 31, 2001.                                                                                                                                                            

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



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

Total Revenue.Total
revenue decreased 1.3% from RMB 241,992 million for
the year ended December 31, 2000 to
RMB 238,893 million (US$28,863 million) for the
year ended December 31, 2001. This decrease reflected the
decrease in revenues in our exploration and production segment
and chemicals and marketing segment as a result of a decrease in
the sales volume and decline in the average realized selling
price of crude oil, and a decrease in the selling prices of
chemical products.

Operating Expenses.Operating expenses increased 6.7% from
RMB 156,233 million for the year ended
December 31, 2000 to RMB 166,676 million
(US$20,138 million) for the year ended December 31,
2001. This increase was due primarily to the increases in
purchases, services and

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other expenses, selling, general and
administrative expenses as well as taxes other than income taxes.


Purchases, Services and Other
Expenses.Purchases, services and
other expenses increased 22.8% from RMB 62,598 million
for the year ended December 31, 2000 to
RMB 76,859 million (US$9,287 million) for the
year ended December 31, 2001. This increase was due
primarily to an increase in purchase of direct materials as a
result of an increase in the sales volume of refined products.

Employee Compensation
Costs.Employee compensation costs
decreased 3.0% from RMB 14,430 million for the year
ended December 31, 2000 to RMB 13,992 million
(US$1,690 million) for the year ended December 31,
2001. This decrease was due primarily to the reduction in the
number of employees.

Selling, General and Administrative
Expenses.Selling, general and
administrative expenses increased 25.2% from
RMB 16,649 million for the year ended
December 31, 2000 to RMB 20,837 million
(US$2,518 million) for the year ended December 31,
2001. This increase was due primarily to the higher
transportation costs resulting from an increased sales volume in
the refining and marketing segment, the expansion and extension
of the sales and distribution network, and the expansion of our
markets and changes in the marketing methods and structures of
the chemicals and marketing segment.

Depreciation, Depletion and
Amortization.Depreciation, depletion
and amortization decreased 1.2% from
RMB 33,760 million for the year ended
December 31, 2000 to RMB 33,367 million
(US$4,031 million) for the year ended December 31,
2001. This decrease was due primarily to the fact that our
refining enterprises disposed of a number of installations in
2000 resulting in a decrease in the base value of the provision
for depreciation in 2001.

Expenses Relating to Workforce Reduction and
the Shutting Down of Manufacturing Facilities and
Units.Expenses relating to our
workforce reduction and the shutting down of manufacturing
facilities and units decreased 92.7%. For the year ended
December 31, 2000, the expenses relating to our workforce
reduction and the shutting down of manufacturing facilities and
units were RMB 6,579 million. We did not incur any
costs for the shutting down of manufacturing facilities and
units in 2001, with the costs for this period comprising only
workforce reduction expenses of RMB 478 million
(US$58 million).

Taxes Other than Income
Taxes.Taxes other than income taxes
increased 5.2% from RMB 13,230 million for the year
ended December 31, 2000 to RMB 13,916 million
(US$1,681 million) for the year ended December 31,
2001. This increase was due primarily to an increase in
consumption tax and other relevant taxes resulting from an
increased sales volume in the refining and marketing segment.

Income From
Operations.Income from operations
decreased 15.8% from RMB 85,759 million for the year
ended December 31, 2000 to RMB 72,217 million
(US$8,725 million) for the year ended December 31,
2001.

Net Exchange Gain.Net exchange gain decreased 78.7% from RMB 1,172 million
for the year ended December 31, 2000 to
RMB 250 million (US$30 million) for the year
ended December 31, 2001. The decrease was due primarily to
a substantial decrease in the balance of loans denominated in
currencies which had been affected to a greater extent by
fluctuations in exchange rates, such as the Japanese Yen and
Euro.

Net Interest
Expense.Net interest expense
decreased 38.7% from RMB 5,464 million for the year
ended December 31, 2000 to RMB 3,350 million
(US$405 million) for the year ended December 31, 2001.
This decrease was due primarily to our reinforcement of the
centralization of capital management and a decrease in the
average balance of debts as well as a decrease in the average
interest rate.

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Income Before Income
Taxes.Income before income taxes
decreased 15.3% from RMB 82,051 million for the year
ended December 31, 2000 to RMB 69,458 million
(US$8,391 million) for the year ended December 31,
2001.

Income Taxes.Income
taxes decreased 14.6% from RMB 26,985 million for the
year ended December 31, 2000 to
RMB 23,054 million (US$2,785 million) for the
year ended December 31, 2001 due primarily to an decrease
in income before income taxes.

Net Income.Net
income decreased 15.3% from RMB 55,231 million for the
year ended December 31, 2000 to
RMB 46,808 million (US$5,655 million) for the
year ended December 31, 2001.



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

Sales and Other Operating
Revenue.Sales and other operating
revenue decreased 13.3% from RMB 170,928 million for
the year ended December 31, 2000 to
RMB 148,277 million (US$17,915 million) for the
year ended December 31, 2001. This decrease was due
primarily to a decrease in our sales volume of crude oil (not
including condensate) and a decline in its average realized
selling price. As our oil prices are directly linked to the
international oil prices, the decline in the international oil
prices has resulted in a decrease of 13.2% in the average
realized selling price of our crude oil from US$27.21 per barrel
as at December 31, 2000 to US$23.61 per barrel as at
December 31, 2001.

Intersegment sales decreased 8.7% from
RMB 121,265 million for the year ended
December 31, 2000 to RMB 110,738 million
(US$13,380 million) for the year ended December 31,
2001. This decrease was due primarily to a decline in the price
at which crude oil was sold to other business segments in 2001
as compared with 2000.

Sales of crude oil to Sinopec decreased 32.7%
from RMB 31,637 million for the year ended
December 31, 2000 to RMB 21,299 million
(US$2,573 million) for the year ended December 31,
2001, primarily due to a decrease in the sales volume and the
average realized selling price of crude oil sold to Sinopec.

Operating Expenses.Operating expenses decreased 5.9% from
RMB 75,785 million for the year ended
December 31, 2000 to RMB 71,345 million
(US$8,620 million) for the year ended December 31,
2001. This decrease was due primarily to our continued
implementation of cost reduction measures resulting in decreases
in purchases, services and other expenses and decreases in
expenses relating workforce reduction and exploration expenses.

Income From
Operations.Income from operations
decreased 19.1% from RMB 95,143 million for the year
ended December 31, 2000 to RMB 76,932 million
(US$9,295 million) for the year ended December 31,
2001.



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

Sales and Other Operating
Revenue.Sales and other operating
revenue increased 5.2% from RMB 161,148 million for
the year ended December 31, 2000 to
RMB 169,534 million (US$20,484 million) for the
year ended December 31, 2001. The increase was due
primarily to an increase in the sales volume of principal
refined products such as gasoline and diesel. The sales and
other operating revenue of our pipeline transmission business
for the year ended December 31, 2000 was
RMB 2,506 million (US$303 million). Taking into
account the exclusion of the pipeline transmission business in
2000, the sales and other operating revenue for our refining and
marketing segment would have increased 6.9% from
RMB 158,642 million for the year ended
December 31, 2000 to RMB 169,534 million for the
year ended December 31, 2001.

Sales revenue from gasoline increased 9.3% from
RMB 42,211 million for the year ended
December 31, 2000 to RMB 46,151 million
(US$5,576 million) for the year ended December 31,

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2001. This increase was due primarily to an
increase in the sales volume of gasoline. The average realized
selling price of gasoline decreased 5.7%, from RMB 2,697
per ton for the year ended December 31, 2000 to
RMB 2,542 (US$307.13) per ton for the year ended
December 31, 2001.


Sales revenue from diesel increased 13.9% from
RMB 66,029 million for the year ended
December 31, 2000 to RMB 75,202 million
(US$9,086 million) for the year ended December 31,
2001. This increase was due primarily to an increase in the
sales volume. The average realized selling price of diesel
decreased 3.8%, from RMB 2,477 per ton for the year ended
December 31, 2000 to RMB 2,384 (US$288.04) per ton for
the year ended December 31, 2001.

Sales revenue from kerosene decreased 18.6% from
RMB 5,425 million for the year ended December 31,
2000 to RMB 4,414 million (US$533 million) for
the year ended December 31, 2001. This decrease was due
primarily to a decrease in the price and sales volume of
kerosene.

Intersegment sales increased 3.2% from
RMB 8,176 million for the year ended December 31,
2000 to RMB 8,436 million (US$1,019 million) for
the year ended December 31, 2001. This increase was due
primarily to an increase in the sales volume to other segments.

Sales of refined products to Sinopec decreased
4.1% from RMB 4,950 million for the year ended
December 31, 2000 to RMB 4,747 million
(US$574 million) for the year ended December 31, 2001.
This decrease was due primarily to a decrease in the sales
volume of diesel and the average selling price of kerosene sold
to Sinopec. We expect sales to Sinopec to continue to decline in
future periods as a percentage of our total sales of refined
products as we continue to expand our marketing network.

Operating Expenses.Operating expenses increased 1.1% from
RMB 169,890 million for the year ended
December 31, 2000 to RMB 171,780 million
(US$20,755 million) for the year ended December 31,
2001. The increase was due primarily to an increase in the
output and sales volume of refined products. The operating
expenses of our pipeline transmission business for the year
ended December 31, 2000 were RMB 2,477 million
(US$299 million). Taking into account the exclusion of the
pipeline transmission business in 2000, the operating expenses
for our refining and marketing segment would have increased 2.6%
from RMB 167,413 million for the year ended
December 31, 2000 to RMB 171,780 million for the year
ended December 31, 2001.

Income (Loss) From
Operations.Loss from operations
decreased 74.3% from RMB 8,742 million for the year
ended December 31, 2000 to RMB 2,246 million
(US$271 million) for the year ended December 31, 2001.



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

Sales and Other Operating
Revenue.Sales and other operating
revenue decreased 4.8% from RMB 33,364 million for the
year ended December 31, 2000 to
RMB 31,776 million (US$3,839 million) for the
year ended December 31, 2001. This decrease was due
primarily to a decrease in the prices of principal chemical
products as a result of the downturn in the market of chemical
products, despite an increase in the sales volume of chemical
products.

Operating Expenses.Operating expenses increased 2.6% from
RMB 33,294 million for the year ended
December 31, 2000 to RMB 34,150 million
(US$4,126 million) for the year ended December 31,
2001. This increase resulted primarily from the increase in
purchases, services and other expenses due to an increase in the
sales volume and inventory-related changes. Operating expenses
also increased due to higher sales and administrative expenses
as a result of increased losses related to bad debts.

Income From
Operations.Income from operations
decreased 3,491.4% from a gain of RMB 70 million for
the year ended December 31, 2000 to a loss of
RMB 2,374 million (US$287 million) for the year ended
December 31, 2001.

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

Sales and Other Operating
Revenue.Sales and other operating
revenue increased 58.0% from RMB 7,163 million for the
year ended December 31, 2000 to
RMB 11,321 million (US$1,368 million) for the
year ended December 31, 2001. This increase was due
primarily to an increase in the selling price and sales volume
of natural gas and the transfer of pipeline transmission
business from the refining and marketing segment to the natural
gas and pipeline segment. The sales volume of natural gas
increased 13.1% from 391.0 billion cubic feet in 2000 to
442.2 billion cubic feet in 2001. The sales and other
operating revenue of our pipeline transmission business for the
year ended December 31, 2000 was
RMB 2,506 million (US$303 million). Taking into
account the inclusion of the pipeline transmission business in
2000, the sales and other operating revenue for our natural gas
and pipeline segment would have increased 17.1% from
RMB 9,669 million for the year ended December 31,
2000 to RMB 11,321 million for the year ended
December 31, 2001.

Operating Expenses.Operating expenses increased 48.3% from
RMB 7,149 million for the year ended December 31,
2000 to RMB 10,599 million (US$1,281 million) for
the year ended December 31, 2001. This increase was due
primarily to an increase in the sales volume of natural gas
resulting in an increase in natural gas purchased and an
increase in the transmission costs for crude oil caused by the
transfer of the pipeline transmission business from the refining
and marketing segment. The operating expenses of our pipeline
transmission business for the year ended December 31, 2000
were RMB 2,477 million (US$299 million). Taking into
account the exclusion of the pipeline transmission business in
2000, the operating expenses for our natural gas and pipeline
segment would have increased 1.0% from
RMB 9,626 million for the year ended December 31,
2000 to RMB 10,599 million for the year ended December 31,
2001.

Income From
Operations.Income from operations
increased 5,057.1% from RMB 14 million for the year
ended December 31, 2000 to RMB 722 million
(US$87 million) for the year ended December 31, 2001.

Year Ended December 31, 2000 Compared to
Year Ended December 31, 1999

Consolidated Results of
Operation

Total Revenue.Total
revenue increased 37.5% from RMB 175,969 million for
the year ended December 31, 1999 to
RMB 241,992 million (US$29,236 million) for the
year ended December 31, 2000. This increase reflected an
increase in revenues in each of our business segments due
primarily to increases in the prices of crude oil, refined
products and natural gas as well as increased sales volume of
our chemical and natural gas segments.

Operating Expenses.Operating expenses increased 21.0%
from RMB 129,069 million for the year ended
December 31, 1999 to RMB 156,233 million
(US$18,875 million) for the year ended December 31,
2000. This increase resulted primarily from increases in
depreciation, depletion and amortization, expenses associated
with workforce reduction and the shutting down of inefficient
refining and chemical units and facilities, selling, general and
administrative expenses, employee compensation costs and taxes
other than income taxes.

Purchases, Services and Other Expenses.Purchases, services and other expenses
increased 1.8% from RMB 61,470 million for the year
ended December 31, 1999 to RMB 62,598 million
(US$7,563 million) for the year ended December 31,
2000. This increase reflected primarily increases in crude oil
purchase expenses in our refining and marketing segment, prices
of feedstock in our chemical segment, as well as purchase
expenses resulted from increased sales volume in our natural gas
segment.

Employee Compensation Costs.Employee compensation costs increased
30.4% from RMB 11,064 million for the year ended
December 31, 1999 to RMB 14,430 million
(US$1,743 million) for the year ended December 31,
2000. This increase was primarily due to

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our new employee compensation system adopted in
2000, resulting in corresponding increases in salary and certain
benefit expenses. Such benefit expenses were calculated at
actual direct costs prior to November 5, 1999. Since
November 5, 1999, CNPC has provided such services to us at
prices contemplated by the Comprehensive Products and Services
Agreement entered into between CNPC and us.


Selling, General and Administrative Expenses.Selling, general and administrative
expenses increased 32.2% from RMB 12,596 million for the
year ended December 31, 1999 to
RMB 16,649 million (US$2,011 million) for the
year ended December 31, 2000. This increase was due
primarily to an increase in land lease expenses, which were not
borne by us until November 5, 1999, and increases in bad
debt reserves and transportation and storage expenses resulting
from the expansion of our refined product retail network.

Depreciation, Depletion and Amortization.Depreciation, depletion and
amortization increased 43.5% from RMB 23,533 million
for the year ended December 31, 1999 to
RMB 33,760 million (US$4,079 million) for the
year ended December 31, 2000. This increase was due
primarily to increases in fixed assets in each of our business
segments and the effect of revaluation of our assets on
June 30, 1999.

Expenses Relating to Workforce Reduction and
the Shutting Down of Refining and Chemical Units and Facilities.Expenses relating to our workforce
reduction and the shutting down of refining and chemical units
and facilities were RMB 6,579 million
(US$795 million) for the year ended December 31, 2000.
Out of such expenses, RMB 4,215 million were used for
our workforce reduction, including RMB 3,180 million
paid to the 38,400 discharged employees in 2000 and
RMB 1,035 million as accrued expenses for our
workforce reduction in 2001, and RMB 2,364 million
were used for the shutting down of certain inefficient refining
and chemical units and facilities.

Taxes Other than Income Taxes.Taxes other than income taxes
increased 28.7% from RMB 10,278 million for the year
ended December 31, 1999 to RMB 13,230 million
(US$1,598 million) for the year ended December 31, 2000.
This increase was due primarily to increases in sales volume and
sales income in our chemicals and natural gas segments.

Income From Operations.Income from operations increased 82.9%
from RMB 46,900 million for the year ended
December 31, 1999 to RMB 85,759 million (US$10,361
million) for the year ended December 31, 2000.

Net Exchange Gain (Loss).Net exchange gain increased 152.5%
from a loss of RMB 2,233 million for the year ended
December 31, 1999 to a gain of RMB 1,172 million
(US$142 million) for the year ended December 31, 2000. The
net exchange gain was due to a depreciation of the Japanese Yen
against Renminbi in connection with our Japanese Yen denominated
borrowings and prepayment of a significant portion of our
Japanese Yen denominated borrowings.

Net Interest Expense.Net interest expense decreased 33.9%
from RMB 8,264 million for the year ended December 31,
1999 to RMB 5,464 million (US$660 million) for the year
ended December 31, 2000. This decrease was due primarily to
a reduction in our total borrowings as a result of the
prepayment of certain loans and a decrease in the weighted
average effective interest rate of our total borrowings as a
result of the replacement of higher interest rate loans with
lower interest rate loans.

Income Before Income Taxes.Income before income taxes increased
124.6% from RMB 36,531 million for the year ended
December 31, 1999 to RMB 82,051 million (US$9,913
million) for the year ended December 31, 2000.

Income Taxes.Income
taxes increased 187.0% from RMB 9,403 million for the year
ended December 31, 1999 to RMB 26,985 million
(US$3,260 million) for the year ended December 31,

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2000 due primarily to an increase in income
before income taxes. We pay corporate income tax at the rate of
33%.


Net Income.Net
income increased 104.6% from RMB 27,001 million for the
year ended December 31, 1999 to RMB 55,231 million
(US$6,673 million) for the year ended December 31, 2000.

Exploration and
Production

Sales and Other Operating Revenue.Sales and other operating revenue
increased 55.1% from RMB 110,190 million for the year ended
December 31, 1999 to RMB 170,928 million (US$20,650
million) for the year ended December 31, 2000. This
increase was due primarily to a 61.3% increase in our average
realized selling price of crude oil (excluding condensate) from
RMB 139.7 (US$16.9) per barrel for the year ended
December 31, 1999 to RMB 225.3 (US$27.2) per barrel
for the year ended December 31, 2000.

Intersegment sales increased 61.6% from
RMB 75,047 million for the year ended December 31,
1999 to RMB 121,265 million (US$14,650 million) for the
year ended December 31, 2000. This increase was due
primarily to an increase in the average realized selling price
of crude oil sold to our other business segments.

Sales of crude oil to Sinopec increased 42.4%
from RMB 22,217 million for the year ended
December 31, 1999 to RMB 31,637 million (US$3,822
million) for the year ended December 31, 2000, primarily
due to an increase in the average realized selling price of
crude oil sold to Sinopec.

Operating Expenses.Operating expenses increased 27.8%
from RMB 59,295 million for the year ended
December 31, 1999 to RMB 75,784 million (US$9,156
million) for the year ended December 31, 2000. This
increase was due primarily to an increase of RMB 8,341
million in depreciation, depletion and amortization, resulting
from an increase in fixed assets and the effect of revaluation
of our assets on June 30, 1999, an increase of
RMB 2,694 million in expenses relating to workforce
reduction and an increase of RMB 2,025 million in salary
and certain benefit expenses. Such benefit expenses were
calculated at actual direct costs prior to November 5,
1999. Since November 5, 1999, CNPC has provided such
services to us at prices contemplated by the Comprehensive
Products and Services Agreement entered into between CNPC and us.

Income From Operations.Income from operations increased 86.9%
from RMB 50,895 million for the year ended
December 31, 1999 to RMB 95,143 million (US$11,494
million) for the year ended December 31, 2000.

Refining and
Marketing

Sales and Other Operating Revenue.Sales and other operating revenue
increased 37.1% from RMB 117,562 million for the year ended
December 31, 1999 to RMB 161,148 million (US$19,468
million) for the year ended December 31, 2000. This
increase resulted primarily from increases in the average
realized prices for refined products.

Intersegment sales increased 3.3% from
RMB 7,917 million for the year ended December 31, 1999
to RMB 8,176 million (US$988 million) for the year ended
December 31, 2000. This increase was due primarily to
increases in the average realized prices for refined products
sold to our other segments.

Sales of refined products to Sinopec decreased
62.4% from RMB 13,165 million for the year ended
December 31, 1999 to RMB 4,950 million (US$598
million) for the year ended December 31, 2000. This
decrease was due primarily to an expansion of our refined
product retail marketing network in 2000 resulting in a decrease
in the sales of our refined products to Sinopec as a percentage
of our total refined products sold in 2000. We expect sales to
Sinopec

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to continue to decline in future periods as a
percentage of our total sales of refined products as we continue
to expand our retail marketing network.


Operating Expenses.Operating expenses increased 43.9%
from RMB 118,049 million for the year ended
December 31, 1999 to RMB 169,890 million (US$20,525
million) for the year ended December 31, 2000. This
increase was due primarily to increases in purchases, services
and other expenses, selling, general and administrative
expenses, employee compensation costs and expenses relating to
our workforce reduction and the shutting down of inefficient
refining units and facilities. Purchases, services and other
expenses increased by RMB 44,758 million primarily as a result
of an increase in the prices of crude oil purchased by us and an
increase in the volume of crude oil we processed in 2000.
Selling, general and administrative expenses increased by 2,010
million as a result of an increase in selling expenses related
to the establishment of additional sales branches and an
increase in bad debt reserves. Employee compensation costs
increased by RMB 1,938 million primarily as a result of an
increase in salary and certain benefit expenses. Such benefit
expenses were calculated at actual direct costs prior to
November 5, 1999. Since November 5, 1999, CNPC has
provided such services to us at prices contemplated by the
Comprehensive Products and Services Agreement entered into
between CNPC and us. Expenses relating to our workforce
reduction and the shutting down of inefficient refining units
and facilities were RMB 1,918 million for the year ended
December 31, 2000.

Income (Loss) From Operations.Loss from operations increased
1,695.1% from a loss of RMB 487 million for the year ended
December 31, 1999 to a loss of RMB 8,742 million
(US$1,056 million) for the year ended December 31,
2000. This increase was due primarily to a significant increase
in international crude oil prices in 2000 while the retail
median prices for gasoline and diesel set by the State
Development Planning Commission did not reflect the
international gasoline and diesel prices until July 2000.

Chemicals

Sales and Other Operating Revenue.Sales and other operating revenue
increased 31.3% from RMB 25,417 million for the year ended
December 31, 1999 to RMB 33,364 million
(US$4,031 million) for the year ended December 31,
2000. This increase was due primarily to increases in sales
volume as well as increases in the prices of our principal
chemical products. Because the PRC government intensified its
anti-smuggling efforts, the effects of smuggling on our overall
sales of chemical products diminished in 2000.

Operating Expenses.Operating expenses increased 22.8%
from RMB 27,120 million for the year ended
December 31, 1999 to RMB 33,293 million
(US$4,022 million) for the year ended December 31,
2000. This increase resulted primarily from an increase of
RMB 4,589 million in purchases, services and other
expenses and an increase of RMB 1,011 million in
depreciation, depletion and amortization, partially offset by a
decrease of RMB 1,908 in other costs.

Income From Operations.Income from operations increased
104.1% from a loss of RMB 1,704 million for the year
ended December 31, 1999 to a gain of
RMB 70 million (US$8 million) for the year ended
December 31, 2000.

Natural Gas

Sales and Other Operating Revenue.Sales and other operating revenue
increased 19.8% from RMB 5,977 million for the year
ended December 31, 1999 to RMB 7,163 million
(US$865 million) for the year ended December 31, 2000.
This increase was due primarily to an increase in our overall
sales volume and an increase in our sales volume to customers
not subject to the guidance supply plan in 2000.

Operating Expenses.Operating expenses increased 11.8%
from RMB 6,392 million for the year ended
December 31, 1999 to RMB 7,149 million
(US$864 million) for the year ended

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December 31, 2000. This increase was due
primarily to an increase of RMB 502 million in
purchases, services and other expenses as a result of increased
sales volume and an increase of RMB 121 million in
depreciation, depletion and amortization.


Income From Operations.Income from operations increased
103.4% from a loss of RMB 415 million for the year
ended December 31, 1999 to a gain of
RMB 14 million (US$2 million) for the year ended
December 31, 2000.




Liquidity and Capital Resources

Our primary sources of funding are cash provided
by operating activities, short-term and long-term borrowings,
cash and cash equivalents. Historically, our primary uses of
funds were for capital expenditures, repayment of short-term and
long-term borrowings and distributions of dividends to
shareholders. Our payments to CNPC are limited to dividends and
payments for services provided to us by CNPC. In the year ended
December 31, 2001, we distributed as dividends 45% of our
reported net income. We expect that we will continue to
distribute as dividends approximately 40% to 50% of our reported
net income for all years. See Item 8 Financial
Information  Dividend Policy for a discussion
of factors which may affect the determination by our board of
directors of the appropriate level of dividends.

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

In the year ended December 31, 2001, we
reduced our workforce by 19,800 employees. We had provided
for expenses in the aggregate amount of RMB 1,035 million in the
year ended December 31, 2000 for the reduction of 13,900
employees and incurred expenses in the aggregate amount of RMB
478 million in the year ended December 31, 2001 in
connection with the reduction of additional
5,900 employees. We believe that our workforce reduction
will have a positive effect on our financial condition and
results of operations in the long run.

We finance a significant portion of our business
operations with short-term borrowings, including short-term debt
obtained from the PRC State-owned banks. As of December 31,
2001, short-term debt comprised approximately 6% of our capital
employed as compared to approximately 12% as of
December 31, 2000. Our ability to obtain adequate financing
to satisfy our capital expenditure and debt servicing
requirements may be limited by our financial condition and our
results of operations and the liquidity of international and
domestic capital markets. Prior to accessing international
capital markets, we must obtain approval from various PRC
government authorities. In general, we must obtain PRC
government approval for any project involving significant
capital investment for our refining and marketing, chemicals and
marketing and natural gas and pipeline segments. For a more
detailed discussion of factors which may affect our ability to
satisfy our financing requirements, see
Item 3  Key Information  Risk
Factors.

We plan to fund the capital and related
expenditures described in this annual report principally through
cash provided by operating activities, short-term and long-term
debt and cash and cash equivalents. Net cash provided by
operating activities in the year ended December 31, 2001
was RMB 84,492 million. As of December 31, 2001,
we had cash and cash equivalents of
RMB 11,117 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

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believe that the failure to implement any one of
these projects would have a material adverse impact on our
financial condition or results of operations. If the price of
crude oil undergoes a steep decline in the future, it is likely
that we would delay or reduce the scale of the capital
expenditures for our exploration and development segment.


In our managements opinion, our working
capital is sufficient for our present requirements.

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, 2001, and do not currently have, any
transactions, arrangements and other relationships with
unconsolidated entities or other persons that are reasonably
likely to affect materially liquidity or the availability of or
requirements for our capital resources.

The table below sets forth our cash flows for
each of the three years ended December 31, 1998, 1999 and
2000 and our cash equivalents at the end of each period.

|                                                         |  |                         |         |       |  |      |         |   |  |  |         |  
|-------------------------------------------------------- |  | ----------------------- | ------- | ----- |  | ---- | ------- | - |  |  | ------- | -
|                                                         |  |                        
|                                                         |  | Year ended December 31,
|                                                         |  |                        
|                                                         |  | 1999                    |         | 2000  |  | 2001
|                                                         |  |                         |         |       |  |     
|                                                         |  |                        
|                                                         |  | (RMB millions)         
|Net cash provided by operating activities                |  |                         | 54,053  |       |  |      | 104,169 |   |  |  | 84,492  |  
|Net cash used for investing activities                   |  |                         | (40,418 | ) (1) |  |      | (60,401 | ) |  |  | (61,624 | )
|Net cash provided by (used for) financing
    activities |  |                         | (10,896 | ) (1) |  |      | (43,556 | ) |  |  | (29,811 | )
|Cash and cash equivalents at the end of period           |  |                         | 17,848  |       |  |      | 18,060  |   |  |  | 11,117  |  




|    |                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes capital expenditures for assets retained
    by CNPC and contributions from CNPC for assets retained by CNPC
    of RMB 111 million in 1999.

Our cash and cash equivalents increased by
RMB 212 million (US$26 million) from
RMB 17,848 million as of December 31, 1999 to
RMB 18,060 million as of December 31, 2000,
decreased by RMB 6,943 million (US$839 million)
to RMB 11,117 million (US$1,343 million) as of
December 31, 2001, representing a 38.4% decrease over 2000.

Cash Provided by Operating
Activities

Our net cash provided by operating activities
decreased 18.9% from RMB 104,169 million for the year
ended December 31, 2000 to RMB 84,492 million
(US$10,209 million) for the year ended December 31,
2001. This decrease was due primarily to decreases in the prices
of crude oil, refined products and chemical products, and to the
increase in income tax payments made in 2001. However, as we
continue to adopt the centralized management of debts and
capital, we have achieved a continuous decrease in interest
payment and hence a reduction in cash outflow.

We had a working capital deficit of
RMB 12,967 million as of December 31, 2000 and
RMB 2,336 million (US$282 million) as of December 31,
2001. The primary cause of these deficits was the fact that we
have typically taken advantage of significantly lower interest
rates on short-term debt and financed long-term projects with
short-term debt. Interest rates on short-term debt in China have
generally been approximately 0.4% or 0.7% lower than those on
long-term debt. In 2001, we repaid a portion of our short-term
liabilities with our internally generated cash flow in 2001,
thereby reducing our working capital deficit. In order to ensure
that the profile of our liabilities better matches the long-term
nature of our assets, we intend to continue to extend the
maturity profile of our debt by replacing short-term debt at
maturity with long-term debt in the form of domestic bank loans
or domestic bonds. As of December 31, 2001, we had undrawn
credit facilities in an aggregate amount of approximately
RMB 40,400 million from Bank of China, Industrial and
Commercial Bank of China, China Construction Bank and China

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Petroleum Finance Company Limited, a subsidiary
of CNPC and a non-bank financial institution approved by the
Peoples Bank of China. On August 24, 2001, Bank of
China signed a credit facility agreement with us to provide us
with a standby credit facility of RMB 20,000 million. We
can draw down a majority portion of the funds available under
this credit facility in the form of medium- or long-term loans.
We intend to use the funds available under this credit facility
to repay a significant portion of our short-term debts. We
expect to use the balance of the available funds to rollover or
refinance our remaining short-term debts.


In August 1999, we began the implementation
of a centralized cash management system on a trial basis at our
headquarters. In January 2000, most of our subsidiaries and
branches began implementing this system. This system has the
following principal components:



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

The implementation of this centralized cash
management system has resulted in the inter-segment accounts
receivable collection cycle being shortened by three to four
days on average.

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 Provided by (Used for) Financing
Activities

Our net borrowings for the years ended
December 31, 1999, 2000 and 2001 were as follows:

|                                                                  |                                                |                   |        |         |         |      |        |        |        |  |        |        |        | 
|----------------------------------------------------------------- | ---------------------------------------------- | ----------------- | ------ | ------- | ------- | ---- | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                                                                  |                                                |                  
|                                                                  |                                                | December 31,     
|                                                                  |                                                |                  
|                                                                  |                                                | 1999              |        | 2000    |         | 2001
|                                                                  |                                                |                   |        |         |         |     
|                                                                  |                                                |                  
|                                                                  |                                                | (RMB in millions)
|Short-term debt (including current portion of
    long-term debt) |                                                |                   | 59,959 |         |         |      | 39,076 |        |        |  | 23,111 |       
|Long-term debt                                                    |                                                |                   | 84,458 |         |         |      | 53,341 |        |        |  | 65,484 |       
|                                                                  | Total debt                                     |                   |        | 144,417 |         |      |        | 92,417 |        |  |        | 88,595 |       
|Less:                                                             |                                                |                   |        |         |         |      |        |        |        |  |        |       
|                                                                  | Cash and cash equivalents                      |                   |        | 17,848  |         |      |        | 18,060 |        |  |        | 11,117 |       
|                                                                  | Time deposits with term exceeding three months |                   |        |        |         |      |        |       |        |  |        | 3,253  |       
|                                                                  | Receivables under resale agreements            |                   |        | 1,487   |         |      |        | 5,815  |        |  |        | 11,505 |       
|                                                                  |                                                |                   |        |         |         |      |        |        |        |  |        |       
|                                                                  |                                                | Net debt          |        |         | 125,082 |      |        |        | 68,542 |  |        |        | 62,720 | 
|                                                                  |                                                |                   |        |         |         |      |        |        |        |  |        |       

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

The debts which were guaranteed by CNPC amounted
to RMB 61,409 million, RMB 17,712 million
and RMB 1,697 million for the three years ended
December 31, 1999, 2000 and 2001, respectively. As of
December 31, 2000, we had repaid all short-term debts
guaranteed by CNPC. CNPC and ourselves have undertaken to the
Hong Kong Stock Exchange that we will continue to, on a best
endeavor basis, approach each lender with respect to these
guaranteed debts with a view toward obtaining the unconditional
release of such guarantees.

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Of the total debts outstanding as of
December 31, 2001, approximately 39.6% were fixed-rate
loans and 60.4% were floating-rate loans. Of the total debts
outstanding as of December 31, 2001, approximately 79.5%
were denominated in Renminbi, approximately 17.0% were
denominated in the U.S. dollar and approximately 3.5% were
denominated in other major foreign currencies.

The amount of short-term debts owed to related
parties as of December 31, 1999, 2000 and 2001 were
RMB 15,544 million, RMB 14,269 million and
RMB 1,268 million, respectively. The amount of
long-term debts owed to related parties as of December 31,
1999, 2000 and 2001 were RMB 10,481 million,
RMB 9,652 million and RMB 20,753, respectively.

Our debts included short-term and long-term debts
owed to China Petroleum Finance Company Limited of
RMB 25,683 million, RMB 23,896 million and
RMB 22,021 million as of December 31, 1999, 2000
and 2001, respectively. These debts were unsecured with interest
bearing at below the prime rate as published by the
Peoples Bank of China. We also maintain a significant
portion of our deposits at China Petroleum Finance Company
Limited.

Our net cash used for financing activities for
the year ended December 31, 2001 decreased 31.6% over the
year ended December 31, 2000. This decrease primarily
resulted from the following:



| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | a decrease in the repayment of long-term loans,
    leading to a decrease of RMB 71,773 million in cash
    outflow;   
|
| |  | a distribution of RMB 2,640 million was
    made to CNPC in 2000 whereas no such distribution was made in
    2001; and
|
| |  | a decrease in the repayment of short-term loans,
    leading to a decrease of RMB 2,597 million in cash
    outflow.   

Such decrease was offset by the following:



| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a decrease in new short-term and long-term loans,
    leading to a decrease of RMB 26,166 million in cash
    inflow;                                                                    
|
| |  | new shares were issued in 2000 whereas no new
    shares were issued in 2001, leading to a decrease of
    RMB 20,336 million in cash inflow in the year ended
    December 31, 2001; and
|
| |  | an increase in the distribution of dividends
    leading to an increase of RMB 16,318 million in cash
    outflow.                                                                       

Our net cash used for financing activities for
the year ended December 31, 2000 increased 299.7% over the
year ended December 31, 1999. This increase primarily
resulted from the following:



| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase of RMB 31,182 million in
    repayment of long-term borrowings;                                                                   
|
| |  | a decrease of RMB 27,030 million in
    additional short-term borrowings;                                                                     
|
| |  | a RMB 2,640 million in net distribution
    to CNPC in 2000 as compared to a RMB 14,267 million in
    net contribution from CNPC in 1999; and
|
| |  | a RMB 10,381 million interim dividend
    to our shareholders.                                                                                

This increase was partially offset by:



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | a RMB 20,336 million in cash proceeds
    from issue of H shares; and    
|
| |  | an increase of RMB 10,857 million in
    additional long-term borrowings.

As at December 31, 2001, our loans of
RMB 284 million were secured loans (including
financing leases and bank loans), of which
RMB 58 million in banks loans were secured by our

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plants and equipment in the aggregate value of
RMB 111 million. We consider financing leases as
secured debts. As at December 31, 2001, the debts incurred
by us by way of financing leases amounted to
RMB 226 million. The net book value of the properties,
plant and equipment under financing leases was
RMB 428 million.


Long-Term Contractual Obligations and Other
Commercial Commitments

The tables below set forth certain information in
connection with our long-term contractual obligations and other
commercial commitments outstanding at December 31, 2001.

|                                   |  |                        |         |           |  |       |       |       |  |         |       |  |  |  |        |  |  |  |         | 
|---------------------------------- |  | ---------------------- | ------- | --------- |  | ----- | ----- | ----- |  | ------- | ----- |  |  |  | ------ |  |  |  | ------- | 
|                                   |  |                       
|                                   |  | Payments due by period
|                                   |  |                       
|                                   |  |                        |         | Less than |  | 1-2   |       | 3-5   |  | After 5
|Contractual obligations            |  | Total                  |         | 1 year    |  | years |       | years |  | years  
|                                   |  |                        |         |           |  |       |       |       |  |        
|                                   |  |                       
|                                   |  | (in RMB millions)     
|Long-term debt                     |  |                        | 70,417  |           |  |       | 5,055 |       |  |         | 6,131 |  |  |  | 43,854 |  |  |  | 15,377  | 
|Capital lease obligations          |  |                        | 226     |           |  |       | 104   |       |  |         | 66    |  |  |  | 56     |  |  |  |        | 
|Operating leases                   |  |                        | 97,606  |           |  |       | 2,421 |       |  |         | 2,139 |  |  |  | 6,253  |  |  |  | 86,793  | 
|Total contractual cash obligations |  |                        | 168,249 |           |  |       | 7,580 |       |  |         | 8,336 |  |  |  | 50,163 |  |  |  | 102,170 | 

|                             |  |                   |        |                                            |  |       |        |       |  |        |       |  |  |  |     |  |  |  |   | 
|---------------------------- |  | ----------------- | ------ | ------------------------------------------ |  | ----- | ------ | ----- |  | ------ | ----- |  |  |  | --- |  |  |  | - | 
|                             |  |                   |        |                                           
|                             |  |                   |        | Amount of commitment expiration per period
|                             |  | Total             |        |                                           
|Other commercial             |  | amounts           |        | Less than                                  |  | 1-2   |        | 3-5   |  | Over 5
|commitments                  |  | committed         |        | 1 year                                     |  | years |        | years |  | years 
|                             |  |                   |        |                                            |  |       |        |       |  |       
|                             |  |                  
|                             |  | (in RMB millions)
|Lines of credit              |  |                   | 40,400 |                                            |  |       | 40,400 |       |  |        |      |  |  |  |    |  |  |  |  | 
|Standby letters of credit    |  |                   | 728    |                                            |  |       | 232    |       |  |        | 248   |  |  |  | 248 |  |  |  |  | 
|Guarantees                   |  |                   | 1,049  |                                            |  |       | 125    |       |  |        | 872   |  |  |  | 52  |  |  |  |  | 
|Total commercial commitments |  |                   | 42,177 |                                            |  |       | 40,757 |       |  |        | 1,120 |  |  |  | 300 |  |  |  |  | 

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, 1999, 2000
and 2001 as well as those anticipated for the year ended
December 31, 2002. Actual capital expenditures and
investments for periods after January 1, 2002 may differ
materially from the amounts indicated below.

|                           |       |           |        |        |  |           |      |             |  |           |        |        |  |           |      |       |  |  |        |        |  |  |      |     |  |  |        |        |  |  |      |       | 
|-------------------------- | ----- | --------- | ------ | ------ |  | --------- | ---- | ----------- |  | --------- | ------ | ------ |  | --------- | ---- | ----- |  |  | ------ | ------ |  |  | ---- | --- |  |  | ------ | ------ |  |  | ---- | ----- | 
|                           |       |           |        |        |  |           |      |             |  |           |        |        |  |          
|                           |       |           |        |        |  |           |      | 2002       
|                           |       | 1999      |        | 2000   |  | 2001      |      | anticipated
|                           |       |           |        |        |  |           |      |            
|                           |       | (RMB in   |        |        |  | (RMB in   |      |             |  | (RMB in   |        |        |  | (RMB in   |      |      
|                           |       | millions) |        | %      |  | millions) |      | %           |  | millions) |        | %      |  | millions) |      | %    
|Exploration and production |       |           | 36,060 |        |  |           | 68.8 |             |  |           | 42,968 |        |  |           | 67.1 |       |  |  | 45,115 |        |  |  | 69.3 |     |  |  | 42,654 |        |  |  | 64.7 |      
|Refining and marketing     |       |           | 9,208  |        |  |           | 17.6 |             |  |           | 13,227 |        |  |           | 20.6 |       |  |  | 11,048 |        |  |  | 17.0 |     |  |  | 11,251 |        |  |  | 17.1 |      
|Chemicals and marketing    |       |           | 5,011  |        |  |           | 9.6  |             |  |           | 4,104  |        |  |           | 6.4  |       |  |  | 4,062  |        |  |  | 6.2  |     |  |  | 4,090  |        |  |  | 6.2  |      
|Natural gas and pipeline   |       |           | 1,646  |        |  |           | 3.1  |             |  |           | 3,214  |        |  |           | 5.0  |       |  |  | 4,557  |        |  |  | 7.0  |     |  |  | 7,392  |        |  |  | 11.2 |      
|Corporate and other        |       |           | 477    |        |  |           | 0.9  |             |  |           | 563    |        |  |           | 0.9  |       |  |  | 321    |        |  |  | 0.5  |     |  |  | 513    |        |  |  | 0.8  |      
|                           |       |           |        |        |  |           |      |             |  |           |        |        |  |           |      |       |  |  |        |        |  |  |      |     |  |  |        |        |  |  |      |      
|                           | Total |           |        | 52,402 |  |           |      | 100.0       |  |           |        | 64,076 |  |           |      | 100.0 |  |  |        | 65,103 |  |  |      | 100 |  |  |        | 65,900 |  |  |      | 100.0 | 
|                           |       |           |        |        |  |           |      |             |  |           |        |        |  |           |      |       |  |  |        |        |  |  |      |     |  |  |        |        |  |  |      |      

Our capital expenditures and investments
increased 1.6% from RMB 64,076 million for the year ended
December 31, 2000 to RMB 65,103 million for the year
ended December 31, 2001. This increase was due primarily to
an increase in the first stage exploration expenses for natural
gas developments, increased efforts in ensuring safety,
environmental protection and upgrading

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of existing oilfields, and increases in capital
expenditures resulting from the commencement of the experimental
phase of the West to East natural gas pipeline project. Taking
into account the exclusion of the investments relating to the
non dry hole exploration expenses, our capital expenditures for
the years ended 1999, 2000 and 2001 would have been
RMB 49,220 million, RMB 59,762 million and
RMB 61,181 million (US$7,392 million), respectively.


As of December 31, 2001, the capital
expenditures contracted for at the balance sheet date but not
recognized in our consolidated financial statements were
RMB 682 million (US$82 million).

Exploration &
Production

A majority of our capital expenditures and
investments relate to our exploration and production segment.
Our capital expenditures and investments for the year ended
December 31, 2001 totaled RMB 45,115 million
(US$5,451 million), including RMB 10,146 million for
exploration activities and RMB 29,444 million for
development activities. Our capital expenditures and investments
for the year ended December 31, 2000 totaled
RMB 42,968 million, including RMB 10,856 million for
exploration activities and RMB 27,765 million for
development activities. This increase in our capital
expenditures from the year ended December 31, 2000 to the
year ended December 31, 2001 was due primarily to increases
in the first stage exploration expenses for natural gas
developments, increased efforts in ensuring safety,
environmental protection and upgrading of existing oilfields,
and increases in reserves and output. Taking into account the
exclusion of the investments relating to the non-dry hole
exploration expenses, the capital expenditures of our
exploration and production segment for the years ended
December 31, 1999, 2000 and 2001 would have been
RMB 32,878 million, RMB 38,654 million and
RMB 41,193 million (US$4,977 million), respectively.

Our anticipated capital expenditures and
investments for our exploration and production segment for the
year ended December 31, 2002 amount to RMB 42,654
million. Approximately RMB 6,337 million is expected to be
used for exploration activities and approximately
RMB 32,300 million for development activities. We plan to
focus our natural gas exploration efforts in the Tarim basin and
our crude oil exploration efforts in the Erdos, Junggar and
Songliao basins.

Refining and
Marketing

Our capital expenditures and investments for our
refining and marketing segment for each of the three years ended
December 31, 1999, 2000 and 2001 were RMB 9,208
million, RMB 13,227 million and RMB 11,048 million
(US$1,335 million), respectively. The decrease in capital
expenditures in this segment from the year ended December 31,
2000 to the year ended December 31, 2001 was due primarily
to the relative decrease of capital expenditures in expanding
the retail network of refined products in 2001 and the transfer
of our pipeline operations from our refining and marketing
segment to our natural gas and pipeline segment in 2001.

Our anticipated capital expenditures and
investments for our refining and marketing segment for the year
ended December 31, 2002 amount to RMB 11,251 million,
which include:



| |   |                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | approximately RMB 6,300 million for the
    construction and expansion of refining facilities, including the
    expansion of our annual primary distillation capacity at Dalian
    Petrochemical and the improvement of refining facilities at
    Daqing Petrochemical; and
|
| |  | approximately RMB 4,951 million for the
    construction of service stations and storage facilities.                                                                                                                                                                          

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Chemicals and
Marketing

Our capital expenditures and investments for our
chemicals and marketing segment, excluding capital expenditures
for assets retained by CNPC, for each of the three years ended
December 31, 1999, 2000 and 2001 were RMB 5,011
million, RMB 4,104 million and RMB 4,062 million
(US$491 million), respectively. In the five years ended
December 31, 2001, we have significantly decreased our
capital expenditures and investments in our chemicals and
marketing segment as we moved to a more rigorous return-based
evaluation system for our capital expenditures and investments,
which led to a stricter control over and a decrease in capital
expenditure for the chemicals and marketing segment.

Our anticipated capital expenditures and
investments for our chemicals and marketing segment for the year
ended December 31, 2002 amount to RMB 4,090 million,
which include the capital expenditures and investments for
expanding the capacity and transforming the Daqing
Petrochemicals ethylene installations.

Natural Gas and
Pipeline

Our capital expenditures and investments for our
natural gas and pipeline segment for each of the three years
ended December 31, 1999, 2000 and 2001 were RMB 1,646
million, RMB 3,214 million and RMB 4,557 million
(US$551 million). The increase in our capital expenditures
in this segment from the year ended December 31, 2000 to
the year ended December 31, 2001 was due primarily to the
substantial progress made in the initial preparation phase for
the West to East natural gas pipeline project, and an increase
in capital expenditures resulting from the commencement of the
experimental phase of the West to East natural gas pipeline
project. In addition, the capital expenditures and investments
for our pipeline operations, which were transferred from our
refining and marketing segment to our natural gas and pipeline
segment in 2001, were RMB 618 million (US$75 million) for
the year ended December 31, 2000. Taking into account the
inclusion of the pipeline operations in this segment in 2000,
the capital expenditures and investments of our natural gas and
pipeline segment would have increased from RMB 3,832 million for
the year ended December 31, 2000 to RMB 4,557 million for
the year ended December 31, 2001.

Our anticipated capital expenditures and
investments for our natural gas and pipeline segment for the
year ended December 31, 2002 amount to RMB 7,392
million (US$893 million). Of this amount, approximately
RMB 6,051 million is expected to be invested in the West to
East natural gas pipeline project and the Zhong County to Wuhan
and Qinghai to Lanzhou natural gas pipelines. We currently
expect to invest approximately RMB 508 million in natural
gas storage infrastructure projects and other natural gas
pipelines, and approximately RMB 833 million will be
invested in the pipelines for the transmission of crude oil and
refined products. See Item 4  Information
on the Company  Natural Gas and Pipeline 
Expansion of Our Natural Gas Transmission and Marketing
Business for a more detailed discussion of the expansion
plans of our natural gas segment.

Corporate and
Other

Our non-segment-specific capital expenditures and
investments for each of the three years ended December 31,
1999, 2000 and 2001 were RMB 477 million, RMB 563
million and RMB 321 million (US$39 million),
respectively. Our non segment-specific capital expenditures and
investments related primarily to purchase of
non-segment-specific equipment and research and development
activities.

Our anticipated non-segment-specific capital
expenditures and investments for the year ended
December 31, 2002 amount to RMB 513 million. These
planned capital expenditures and investments relate primarily to
the construction of water and electricity supply systems, roads
and telecommunication systems which will also benefit our other
segments. Prior to the

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incorporation of PetroChina, we allocated similar
capital expenditures and investments directly to specific
business segments. Consistent with our move towards a
return-based business strategy, we have adopted more stringent
return criteria for determining segment-specific capital
expenditure plans. In order to better assess the return on
capital expenditures and investments in each individual business
segment, we have decided to bear at our headquarter level the
cost of expenditures and investments which benefit multiple
business segments. As a result, our non segment-specific capital
expenditures and investments are expected to continue to
increase for the period from 2002 to 2004, as compared to
historical levels.


Our anticipated non segment-specific capital
expenditures and investments for the year ended
December 31, 2002 include:



| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | approximately RMB 350 million for the
    construction of water and electricity supply systems, roads and
    telecommunication systems;                                            
|
| |  | approximately RMB 30 million for
    purchase of equipment and other capital expenditures and
    investments required by our non segment-specific research and
    development; and
|
| |  | approximately RMB 100 million for the
    improvement of our information technology systems.                                                                                        




Research and Development

We have a research and development department,
directly under which there are two research institutions. Except
for our subsidiaries and branch companies in our marketing
operation, each of our subsidiaries and branch companies has its
own research and development department and technology centers.
Our research and development department is responsible for
coordinating research and development activities conducted by
the research institutions and the relevant departments and
technology centers of our subsidiaries and branch companies.
These departments and technology centers of our subsidiaries and
branch companies focus on developing specific technology for
their respective subsidiaries or branch companies independently
or in cooperation with our research and development department.
As of December 31, 2001, we had 22,188 employees
engaged in research and development functions.

In each of the three years ended
December 31, 1999, 2000 and 2001, our total expenditures
for research and development were approximately
RMB 1,023 million, RMB 1,751 million and
RMB 1,896 million (US$229 million), respectively.

Exploration and Production

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



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

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Refining and Marketing

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



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

Chemicals

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




Trend Information

See  General 
Critical Accounting Policies and 
General  Factors Affecting Results of
Operations.




Other Information

Inflation

Inflation or deflation has not had a significant
impact on our results of operations in recent years.

Non-Exchange Traded Contracts

We did not engage for the year ended
December 31, 2001, and do not currently engage, to a
material extent, in any trading activities involving commodity
contracts that are accounted for at fair value but for which a
lack of market price quotations necessitates the use of fair
value estimation techniques.

Related Party Transactions

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

US GAAP Reconciliation

We prepared our consolidated financial statements
in accordance with IAS. 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.

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

(a) Revaluation
of property, plant and equipment



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As described in Note 16 to our consolidated
    financial statements, the property, plant and equipment,
    excluding oil and gas reserves, transferred to us by CNPC were
    appraised as of June 30, 1999, as required by the relevant
    PRC regulations, by China Enterprise Appraisal, a firm of
    independent valuers registered in the PRC. The revaluation of
    the property, plant and equipment transferred resulted in
    RMB 80,549 million in excess of the prior carrying value
    and a revaluation loss of RMB 1,122 million on certain
    property, plant and equipment items. The depreciation charge on
    the revaluation surplus from July 1, 1999 to
    December 31, 1999 was RMB 4,275 million, from
    January 1, 2000 to December 31, 2000 was
    RMB 8,483 million and from January 1, 2001 to
    December 31, 2001 was 8,305 million (US$1,004 million).
|
| | For purposes of reconciling to the US GAAP
    financial data, the effect of the revaluation and the related
    depreciation charges is reversed. A deferred tax asset relating
    to the reversal of the revaluation effect is established,
    together with a corresponding increase in the shareholders
    equity. Under a special approval granted by the Ministry of
    Finance, the effect of the revaluation will be available as
    additional depreciation base for purposes of determining taxable
    income.                                                                                                                                                                                                                                                                                                                                                                   

(b) Related
party transactions



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have disclosed in Note 29 to our
    consolidated financial statements transactions with significant
    customers and in Notes 13, 15, 19, 20 and 30 to our
    consolidated financial statements transactions and balances with
    our parent, CNPC, and related companies. CNPC is owned by the
    PRC government, which also owns a significant portion of the
    productive assets in the PRC. IAS exempts state controlled
    enterprises from disclosing transactions with other state
    controlled enterprises. IAS also excludes from related parties
    government departments and agencies to the extent that such
    dealings are in the normal course of business. US GAAP
    contains no similar exemptions but requires disclosure of
    material related party transactions. We believe that it has
    provided meaningful disclosures of related party transactions
    through the major customer disclosures in Note 29 to our
    consolidated financial statements and the transactions with CNPC
    disclosed in Note 30 to our consolidated financial
    statements. Although the majority of our activities are with PRC
    government authorities and affiliates and other state controlled
    enterprises, none individually constitutes a major customer or
    supplier other than those disclosed.

(c) One-time
remedial payments for staff housing



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As disclosed in Note 4 to our consolidated
    financial statements, our certain employees who joined the
    workforce prior to December 31, 1998 and have housing
    conditions below local standards are to be reimbursed for such
    differentials. These one-time remedial payments are to be borne
    by CNPC. Under IAS, such direct payments to employees or
    reimbursements will not be recorded in our consolidated income
    statement. US GAAP contains no such exemption but requires
    this principal shareholders action on behalf of the
    Company to be recorded in the consolidated income statement. To
    the extent that a reliable estimate can be established for such
    one-time remedial housing payments, the amount will be reflected
    in the consolidated income statement for purposes of reconciling
    to the US GAAP financial data.

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(d) Recent
accounting pronouncements

International
Accounting Standards (IAS)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The International Accounting Standards Committee
    (IASC) has issued IAS 41
    Agriculture, effective for financial statements
    covering periods beginning on or after January 1, 2003. We
    do not engage in agricultural activity, therefore IAS 41 is
    not currently applicable to us.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | IASCs Standing Interpretations Committee
    (SIC) has recently issued SIC-27 Evaluating
    the Substance of Transactions Involving the Legal Form of a
    Lease, SIC-28 Business Combinations 
    Date of Exchange and Fair Value of Equity
    Instruments, SIC-29 Disclosure-Service Concession
    Arrangements, and SIC-31 Revenue-Barter Transactions
    Involving Advertising Services, effective
    December 31, 2001, SIC-30 Reporting
    Currency-Translation from Measurement Currency to Presentation
    Currency and SIC-33 Consolidation and Equity
    Method-Potential Voting Rights and Allocation of Ownership
    Interests, effective for annual financial periods
    beginning on or after January 1, 2002, and SIC-32
    Intangible Assets-Web Site Costs, effective March
    25, 2002. We have implemented SIC-27 on December 31, 2001
    and the adoption of this new SIC-27 does not have a material
    impact on our financial position or results of operations.
    SIC-28, SIC-29, SIC-30, SIC-31, SIC-32 and SIC-33 are not
    currently applicable to us.

US
accounting pronouncements



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In July 2001, the Financial Accounting Standards
    Board (FASB) issued Statement of Financial Accounting
    Standards No. 141 (FAS 141), Business
    Combinations and Statement of Financial Accounting
    Standards No. 142 (FAS 142), Goodwill and Other
    intangible Assets. FAS 141 addresses financial
    accounting and reporting for business combinations and requires
    that all business combinations in the scope of this statement
    are to be accounted for using one method, the purchase method.
    The provisions of FAS 141 apply to all business
    combinations initiated after June 30, 2001. FAS 142
    addresses how intangible assets that are acquired individually
    or with a group of other assets should be accounted for in
    financial statements upon their acquisition, and how goodwill
    and other intangible assets should be accounted for after they
    have been initially recognized in the financial statements. The
    provisions of FAS 142 are effective for fiscal years
    beginning after December 15, 2001. We expect that the
    adoption of FAS 141 and FAS 142 will not have a
    material impact on our financial position or results of
    operations.
|
| | In August 2001, FASB issued Statement of
    Financial Accounting Standards No. 143 (FAS 143),
    Accounting for Asset Retirement Obligations.
    FAS 143 establishes accounting standards for recognition
    and measurement of a liability for an asset retirement
    obligation and the associated asset retirement cost.
    FAS 143 is effective for financial statements issued for
    fiscal years beginning after June 15, 2002. We expect that
    the adoption of FAS 143 will have a material impact on our
    financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | In October 2001, FASB issued Statement of
    Financial Accounting standards No. 144 (FAS 144),
    Accounting for the Impairment or Disposal of Long-Lived
    Assets. FAS 144 addresses financial accounting and
    reporting for the impairment of long-lived assets and for
    long-lived assets to be disposed of. FAS 144 is effective
    for financial statements issued for fiscal years beginning after
    December 15, 2001. We expect that the adoption of
    FAS 144 will not have a material impact on our financial
    position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

The effect of IAS and US GAAP is discussed
further in Note 33 to our financial statements included
elsewhere in this annual report.

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Information Technology Systems

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

In order to establish advanced information
technology systems, we retained PricewaterhouseCoopers
Consultants (Shanghai) Limited, an affiliate of
PricewaterhouseCoopers, our independent accountants, to assist
us in formulating our information technology system strategic
plan. This strategic plan covers development strategies in the
areas of the construction of our information technology
infrastructure and professional application system, enterprise
resource planning and the establishment of our electronic
business system.

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



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to implement stricter internal control processes,
    and to ensure the timeliness, completeness, and reliability of
    financial data on an IAS basis; and                                  
|
| |  | to produce relevant key performance indicator
    data, to give our management timely access to financial and
    non-financial information, and to improve our information
    sharing level.

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

Environmental Expenses and Capital
Expenditures

We paid pollutant discharge fees of approximately
RMB 124.5 million, RMB 84.5 million and
RMB 112.7 million (US$13.6 million), respectively, in
1999, 2000 and 2001. Our capital expenditures on environmental
programs in 1999, 2000 and 2001 were approximately
RMB 955 million, RMB 1,151 million and
RMB 1,205 million (US$146 million), respectively.
There were no material environmental liabilities accrued as of
December 31, 2001.

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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, renewable upon
re-election and re-appointment. The functions and duties
conferred on the board of directors include:



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

Six of the directors are currently affiliated
with CNPC or an affiliate of CNPC. Three of the remaining
directors resigned their affiliation with CNPC as of
November 5, 1999 in connection with their appointments to
executive positions at PetroChina.

Mr. Jiang Jinchu, one of our directors
elected on October 28, 1999, resigned from his directorship
effective from June 8, 2001. We have appointed
Mr. Chen Geng as an additional director. This appointment
was approved by our shareholders at the annual general meeting
on June 8, 2001. Mr. Shou Xuancheng resigned as the
secretary of the board of directors effective from
November 26, 2001. We appointed Mr. Li Huaiqi as the
secretary of the board of directors effective from
November 26, 2001.

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



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

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

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

|               |  |     |    |          |  |                                                            |  |  |                  | 
|-------------- |  | --- | -- | -------- |  | ---------------------------------------------------------- |  |  | ---------------- | 
|Name           |  | Age |    | Position |  | Date of election(1)                                       
|               |  |     |    |          |  |                                                           
|Ma Fucai       |  |     | 55 |          |  | Chairman of the board of directors                         |  |  | November 5, 1999 | 
|Yan Sanzhong   |  |     | 60 |          |  | Vice Chairman of the board of directors                    |  |  | November 5, 1999 | 
|Huang Yan      |  |     | 60 |          |  | Vice Chairman of the board of directors and
    President  |  |  | November 5, 1999 | 
|Wu Yaowen      |  |     | 58 |          |  | Director                                                   |  |  | November 5, 1999 | 
|Ren Chuanjun   |  |     | 57 |          |  | Director and Senior Vice President                         |  |  | November 5, 1999 | 
|Chen Geng      |  |     | 55 |          |  | Director                                                   |  |  | June 8, 2001     | 
|Zheng Hu       |  |     | 55 |          |  | Director                                                   |  |  | June 30, 2000    | 
|Gong Huazhang  |  |     | 55 |          |  | Director                                                   |  |  | November 5, 1999 | 
|Wang Fucheng   |  |     | 52 |          |  | Director and Vice President                                |  |  | June 30, 2000    | 
|Zou Haifeng    |  |     | 55 |          |  | Director                                                   |  |  | November 5, 1999 | 
|Chee-Chen Tung |  |     | 59 |          |  | Independent non-executive director                         |  |  | November 5, 1999 | 
|Wu Jinglian    |  |     | 72 |          |  | Independent non-executive director                         |  |  | November 5, 1999 | 
|Franco Bernabè |  |     | 53 |          |  | Independent non-executive director                         |  |  | June 30, 2000    | 
|Li Huaiqi      |  |     | 52 |          |  | Secretary to the board of directors                        |  |  |                  | 
|Su Shulin      |  |     | 39 |          |  | Vice President                                             |  |  |                  | 
|Wang Guoliang  |  |     | 49 |          |  | Chief Financial Officer                                    |  |  |                  | 
|Shi Xingquan   |  |     | 59 |          |  | Vice President in charge of natural gas and
    pipeline   |  |  |                  | 
|Liu Baohe      |  |     | 55 |          |  | Vice President in charge of exploration and
    production |  |  |                  | 
|Lin Qingshan   |  |     | 57 |          |  | Vice President in charge of refining and marketing         |  |  |                  | 
|Zhang Xinzhi   |  |     | 57 |          |  | Vice President in charge of chemicals and
    marketing    |  |  |                  | 
|Shen Pingping  |  |     | 61 |          |  | Vice President                                             |  |  |                  | 
|Jia Chengzao   |  |     | 53 |          |  | Chief Geologist                                            |  |  |                  | 
|Li Kecheng     |  |     | 58 |          |  | Chairman of Supervisory Committee                          |  |  |                  | 
|Lin Jingao     |  |     | 57 |          |  | Supervisor                                                 |  |  |                  | 
|Chen Weizhong  |  |     | 57 |          |  | Supervisor                                                 |  |  |                  | 
|Bai Xinhe      |  |     | 58 |          |  | Supervisor                                                 |  |  |                  | 
|Sun Chongren   |  |     | 51 |          |  | Supervisor                                                 |  |  |                  | 
|Liu Hongru     |  |     | 71 |          |  | Independent supervisor                                     |  |  |                  | 
|Wu Zhipan      |  |     | 45 |          |  | Independent supervisor                                     |  |  |                  | 




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

Directors

Ma Fucai,aged 55, is Chairman of the board
of directors of PetroChina. Mr. Ma is also President of
CNPC. Mr. Ma is a senior engineer. Mr. Ma graduated
from Beijing Petroleum Institute and has over
30 years experience in Chinas oil and gas
industry. From February 1990 to December 1996, Mr. Ma
worked as a Deputy Director, Standing Deputy Director and
Director of Shengli Petroleum Administration Bureau, a
subsidiary of CNPC. He worked as an Assistant President of CNPC
from November 1996 to December 1996 and Vice President of CNPC
from December 1996 to April 1998 as well as Director of
Daqing Petroleum Administration Bureau from June 1997 to
November 1998. Mr. Ma has been President of CNPC since
April 1998 and Chairman of the board of directors of
PetroChina since November 5, 1999.

Yan Sanzhong,aged 60, is a Vice Chairman of the
board of directors of PetroChina. Mr. Yan is also a Vice
President of CNPC. Mr. Yan is a senior engineer.
Mr. Yan graduated from the Science and Technology
University of China and has over 30 years experience
in Chinas oil industry and chemical industry. From 1983 to
1988, Mr. Yan was a senior executive of Lanzhou

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Refinery. From 1988 to 1998, Mr. Yan worked
as a Vice President of China Petrochemical Corporation. In
April 1998, Mr. Yan was appointed a Deputy Director of
the State Petroleum and Chemical Industry Bureau. Mr. Yan
has been a Vice President of CNPC since July 1999 and a
Vice Chairman of the board of directors of PetroChina since
November 5, 1999.


Huang Yan,aged 60, is a Vice Chairman of the
board of directors and President of PetroChina. Mr. Huang
is a senior engineer and graduated from Nanjing Industry
Institute. He has over 30 years experience in
Chinas oil and gas industry. From 1984 to 1993,
Mr. Huang worked as a Deputy Director and Director of
Huabei Petroleum Administration Bureau. He worked as Assistant
President of CNPC from 1993, and as a Vice President from 1996.
He was a Vice President of the CNPC from April 1998 until
November 5, 1999 when he was appointed President of
PetroChina. Mr. Huang has been Vice Chairman of the board
of directors of PetroChina since November 5, 1999.

Wu Yaowen,aged 58, is a director of
PetroChina. Mr. Wu is a Vice President of CNPC. Mr. Wu
is a senior engineer. Mr. Wu graduated from Beijing
Petroleum Institute, and has over 30 years experience
in Chinas oil and gas industry. From 1983 to 1986,
Mr. Wu worked as a Vice President of the Nanhuanghai Oil
Company under the Ministry of Petroleum Industry. From 1986 to
1988, Mr. Wu was the Director of Qinghai Petroleum
Administration Bureau. From 1988 to 1994, Mr. Wu worked as
a chief petroleum engineer of the Ministry of Energy, Head of
the Energy Industry Department and Vice Director of the
Preparatory Committee of the Communications and Energy
Department under the State Planning Committee. He was appointed
Director of International Cooperation Bureau of CNPC in May
1994, an Assistant President in March 1996 and a Vice
President in December 1996. He has been a Vice President of
CNPC since April 1998 and a Director of PetroChina since
November 5, 1999.

Ren Chuanjun,aged 57, is director and a Senior
Vice President of PetroChina. Mr. Ren is a senior
economist. Mr. Ren graduated from Hefei Industry University
and has over 30 years experience in Chinas oil
and gas and chemical fibers industries. Mr. Ren became a
Deputy General Manager and General Manager of China Yizheng
Fiber Industrial United Corporation in 1983. From 1994, he
worked as a Vice Minister of China National Textile Council as
well as a Vice Chairman of the board of directors of Yizheng
Fiber United Corporation and Yizheng Fiber Company Limited.
Mr. Ren acted as a Vice President of CNPC from
April 1998. Mr. Ren was appointed Senior Vice
President and Director of PetroChina on November 5, 1999.

Chen Geng,aged 55, is a director of
PetroChina. Mr. Chen is a Vice President of CNPC.
Mr. Chen is a senior economist. Mr. Chen graduated
from the Faculty of Labour Economics of Beijing Economics
Institute and has over 30 years experience in
Chinas oil and gas industry. From 1983 to 2001, Mr. Chen
was Deputy Director of Changqing Petroleum Exploration Bureau,
Deputy Director of the Labour Department under the Ministry of
Petroleum Industry, Director of the Labour Bureau of CNPC,
Assistant President of CNPC, Vice President of CNPC and Deputy
Director of the State Petroleum and Chemical Industry Bureau.
Mr. Chen is currently Vice President of the CNPC Group. He
has been a Director of the Company since June 8, 2001.

Zheng Hu,aged 55, is a director of PetroChina and a Vice President of
CNPC. Mr. Zheng is a senior engineer. He graduated from the
Beijing Petroleum Institute and has over 30 years
experience in Chinas oil and gas industry. From 1992 to
1999, Mr. Zheng worked as Deputy General Manager and
General Manager of China Petroleum Materials and Equipment
(Group) Corporation, and as Director of Personnel and Labour
Department of CNPC. Mr. Zheng is currently Vice President
of CNPC. He has acted as Director of PetroChina since
June 30, 2000.

Gong Huazhang,aged 55, is a director of
PetroChina. Mr. Gong is General Accountant of CNPC.
Mr. Gong is a senior accountant. Mr. Gong graduated
from Yangzhou Business School and has over 30 years
experience in Chinas oil and gas industry. Mr. Gong
worked as Chief Accountant, Deputy Director and Director of
Finance Bureau of CNPC from 1991. Mr. Gong has been
Director of Finance and Assets Department of CNPC since
October 1998 and has been

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General Accountant of CNPC since
February 1999. Mr. Gong was appointed Director of
PetroChina on November 5, 1999.


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

Zou Haifeng,aged 55,is a director of
PetroChina. Mr. Zou is a Deputy Manager of Jilin Chemical
Industrial Corporation and the Chairman of the Supervisory
Committee of Jilin Chemical Industrial Company Limited.
Mr. Zou is a senior engineer. Mr. Zou graduated from
Northeastern Industry Institute and has nearly
30 years experience in the petrochemical industry.
Since 1994, Mr. Zou has been a Deputy Manager of Jilin
Petrochemical Group Corporation and a Director and Deputy
Manager of Jilin Chemical Industrial Company Limited.
Mr. Zou has been a Deputy Manager of Jilin Chemical
Industrial Company Limited, a subsidiary of PetroChina since
1999 and a Director of PetroChina since November 5, 1999.

Independent Non-executive Director

Chee-Chen Tung,aged 59, is an independent
non-executive director of PetroChina. Mr. Tung is Chairman
and Chief Executive Officer of Orient Overseas (International)
Limited (OOIL). He was educated at the University of Liverpool,
England, where he received his Bachelor of Science degree. He
later acquired a Masters degree in Mechanical Engineering
at the Massachusetts Institute of Technology in the United
States. Mr. Tung served as Chairman of Hong Kong
Shipowners Association between 1993 and 1995. He currently
holds the positions of Chairman of the Hong Kong General Chamber
of Commerce, a Non-executive Director of Sing Tao Holdings
Limited and Zhejiang Expressway Company Limited, a member of the
Port Development Board, a Council member of Hong Kong Trade
Development Council and an International Councillor of Center
for Strategic & International Studies. Mr. Tung is also
Chairman of the Hong Kong-America Center, Chairman of the
Institute for Shipboard Education Foundation, Chairman of the
Court and a member of the Council of the Hong Kong Polytechnic
University, a member of the Board of Trustees of the University
of Pittsburgh, and a member of the Board of Visitors of the
School of Foreign Service, Georgetown University. Mr. Tung
has acted as Independent Non-executive Director at PetroChina
since November 5, 1999.

Wu Jinglian,aged 72, is an independent non-executive director of PetroChina.
Mr. Wu is a senior researcher at the Development Research
Center of the State Council and a professor at the Graduate
School of Chinese Academy of Social Sciences and Beijing
University. Mr. Wu is a committee member of the Currency
Reform Committee of the Peoples Bank of China. Mr. Wu
graduated from Fudan University, and was previously a Deputy
Director of the Programming Office for Economic Reform of the
State Council. Mr. Wu was an Honourable Doctor of the Hong
Kong Baptist University and was also a visiting scholar at Yale
University, a member of Appraisal Committee of St.
Anthonys College of the Oxford University, a visiting
professor at the Asia-Pacific Research Center of Stanford
University and a visiting researcher at the Massachusetts
Institute of Technology. Mr. Wu has acted as Independent
Non-executive Director of PetroChina since November 5, 1999.

Franco Bernabè,aged 53, is an independent
non-executive director of PetroChina. Mr. Bernabè is
the Chairman of the Franco Bernabè Group and Vice Chairman
of H3G, a mobile telephone company which owns a third generation
mobile licence in Italy. He is also Chairman of Kelyan, an
internet professional services company of the Franco
Bernabè Group. Mr. Bernabè is

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a member of the board of FIAT and the TNT Post
Group. He serves in the Executive Committee of Confindustria,
the Italian Confederation of Industry, in the Board of the Peres
Centre for Peace and in the International Board of the World
Economic Forum. He also serves as a special representative of
the Italian government for the reconstruction of the Balkan
region. Mr. Bernabè joined ENI in 1983 to become the
assistant to the chairman; in 1986 he became director for
development, planning and control; and between 1992 and 1998 was
the Chief Executive Officer of ENI. Mr. Bernabè led
the restructuring program of the ENI Group, making it one of the
worlds most profitable oil companies. Between 1998 and
1999, Mr. Bernabè was the Chief Executive Officer of
Telecom Italia. Prior to his joining ENI, Mr. Bernabè
was the head of economic studies at FIAT. He was also a senior
economist at the OECD Department of Economics and Statistics in
Paris. Earlier, he was a professor of economic politics at the
School of Industrial Administration, Turin University. Mr.
Bernabé has acted as Independent Non-executive Director of
PetroChina since June 30, 2000.


Secretary to the Board of Directors

Li Huaiqi,aged 52,is the secretary
to the board of directors of PetroChina. Mr. Li is a senior
economist. He has over 30 years experience in
Chinas oil and gas industry. From 1992 to 1996,
Mr. Li worked as Deputy Director of Foreign Affairs Bureau
and Chairman of the Foreign Service Company of CNPC and as
Director of Foreign Affairs Bureau of CNPC. In 1999, Mr. Li
was appointed as Director of the International Co-operation
Department (Foreign Affairs Bureau) of CNPC. Mr. Li was
appointed the secretary to the board of directors of PetroChina
on November 26, 2001.

Other Senior Management Personnel

Su Shulin,aged 39, is a Vice President of
PetroChina and General Manager of PetroChina Daqing Oilfield
Company. Mr. Su is a senior engineer. Mr. Su graduated
from Daqing Petroleum Institute and has many years
experience in Chinas oil and gas industry. Since 1996,
Mr. Su had worked as a Director Assistant, Director of the
First Oil and Natural Gas Development Department, a Standing
Deputy Director and Director of Daqing Petroleum Administration
Bureau until November 5, 1999 when he was appointed to a
Vice President of PetroChina.

Wang Guoliang,aged 49, is Chief Financial
Officer of PetroChina. Mr. Wang owns a master degree and is
a senior accountant. He graduated from Heilongjiang Business
College. He has 20 years experience in Chinas
oil and gas industry. Mr. Wang worked as a Vice President
of CNPC Finance Co. Ltd. from 1995 to 1997 and as a Deputy
General Manager and General Accountant of China National Oil
& Gas Exploration and Exploitation Corporation from 1998 to
1999, until his appointment as Chief Financial Officer of
PetroChina on November 5, 1999.

Shi Xingquan,aged 59, is a Vice President and
General Manager of PetroChina in charge of natural gas and
pipelines. Mr. Shi is a senior engineer. Mr. Shi
graduated from Northeastern Petroleum Institute and has over
30 years experience in Chinas oil and gas
industry. Since 1983 Mr. Shi had worked as a Director of
Sichuan Petroleum Administration and a Director of Changqing
Petroleum Exploration Bureau. Mr. Shi was an Assistant
President of CNPC from February 1999 until November 5, 1999
when he was appointed a Vice President of PetroChina.

Liu Baohe,aged 55, is a Vice President and
General Manager of PetroChina in charge of exploration and
production. Mr. Liu is a senior engineer of professor
grade. Mr. Liu graduated from Beijing Petroleum Institute
and has over 30 years experience in Chinas oil
and gas industry. Mr. Liu was Director of the Department of
Oil and Gas Exploitation of CNPC from 1996 to 1999. From 1999 to
September 2001, Mr. Liu worked as Deputy General
Manager of the exploration and production segment of PetroChina.
He has been a Vice President of PetroChina since
September 3, 2001.

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Lin Qingshan,aged 57, is a Vice President and
General Manager of PetroChina in charge of refining and
marketing. Mr. Lin is a senior economist. Mr. Lin
graduated from Beijing Petroleum Institute and has
30 years experience in Chinas oil and gas
industry. In 1990, Mr. Lin was appointed a Deputy Director
of Liaohe Petroleum Exploration Bureau. In 1996, Mr. Lin
became General Manager of the China United Petroleum
Corporation. Mr. Lin was appointed General Manager of the
Sales Department of CNPC in 1998. Mr. Lin has been a
General Manager of our refining and marketing branch company
since November 1999 and has been a Vice President of
Petrochina since July 2000.

Zhang Xinzhi,aged 57, is a Vice President and
General Manager of PetroChina in charge of chemicals.
Mr. Zhang is a senior engineer and has over
30 years experience in Chinas petrochemical
industry. Mr. Zhang graduated from China Science and
Technology University. Mr. Zhang was appointed a deputy
general engineer in 1990. Mr. Zhang worked as a Deputy
Manager in 1992 and served as Manager in 1995 of Fushun
Petrochemical Industrial Corporation. Mr. Zhang was
Director of the Refining and Chemical Department of CNPC in
1999. Mr. Zhang has been a General Manager of our chemicals
branch company since November 5, 1999 and has been a Vice
President of PetroChina since July 2000.

Shen Pingping,aged 61, is a Vice President of
PetroChina. Mr. Shen is also the Director of China Oil
Exploration and Exploitation Research Institute. Mr. Shen
is a senior engineer. He graduated from Shanghai Fudan
University and has 35 years experience in
Chinas oil and gas industry. From 1990, Mr. Shen
worked as a Vice Director, Managing Vice Director and Director
of the Oil Exploration and Exploitation Scientific Research
Institute of CNPC. Since 1999, Mr. Shen has been the
Director of China Oil Exploration and Exploitations Research
Institute. Mr. Shen has been a Vice President of PetroChina
since July 2000.

Jia Chengzao,aged 53, is Chief Geologist of
PetroChina. Mr. Jia is a doctor degree holder and a senior
engineer. He graduated from Nanjing University and has over
25 years experience in Chinas oil and
geological industry. From 1994 to 1999, Mr. Jia held
several senior management positions at Tarim Oil Exploration and
Exploitation Headquarters, including Deputy Chief Geologist,
Chief Geologist and Deputy Commander. Since 1998, he has been a
Vice Director of the Oil Exploration and Exploitation Scientific
Research Institute of CNPC. From 1999, Mr. Jia worked as a
Deputy General Manager of China Petroleum Tarim Oil Field Branch
Company and a Vice Director of China Oil Exploration and
Exploitation Research Institute. Mr. Jia was appointed
Chief Geologist of PetroChina in July 2000.

Supervisors

Li Kecheng,aged 58, is Chairman of
PetroChinas supervisory committee. Mr. Li is a senior
engineer. Mr. Li graduated from Beijing Science and
Technology University and has over 30 years
experience in Chinas oil and gas industry. From 1986 to
1992, Mr. Li was the head of the Petroleum Pipeline Bureau
and a senior executive of the Northeastern Oil Transmission
Administration Bureau. Prior to November 5, 1999,
Mr. Li held several senior administrative positions at
CNPC. Mr. Li has been Chairman of PetroChinas
supervisory committee since November 5, 1999.

Lin Jingao,aged 57, is a supervisor of
PetroChina. Mr. Lin is a senior accountant. Mr. Lin
graduated from Beijing Petroleum Institute and has over 30
years experience in Chinas oil and gas industry.
From 1994 to 1998, Mr. Lin was Chief Accountant and a
Deputy Director of the Finance Department of CNPC. Since October
1998, Mr. Lin has been a Deputy Director and Director of
the Finance and Assets Department of CNPC. Mr. Lin has been
a supervisor of PetroChina since November 5, 1999.

Chen Weizhong,aged 57, is a supervisor of
PetroChina. Mr. Chen is a senior auditor. Mr. Chen
graduated from Anhui Finance and Trade Institute and has over
30 years experience in Chinas oil and gas
industry. He was a Deputy Director of the Auditing Office of
CNPC from 1993

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to 1998 and a Deputy Director of the Auditing
Bureau of CNPC. Mr. Chen was a Deputy Director of the
Auditing Department of CNPC from October 1998 and has been
the Director of the Auditing Department since October 2000.
Mr. Chen has been a supervisor of PetroChina since
November 5, 1999.


Bai Xinhe,aged 58, is a supervisor and
director of the office of the supervisory committee of
PetroChina. Mr. Bai is a senior auditor. Mr. Bai
graduated from Central Finance Institute and has over
30 years experience in Chinas oil and gas
industry. Mr. Bai was Chief Auditor of the Auditing
Department of CNPC from 1988 to 1998. Mr. Bai worked as the
Deputy General Manager and General Manager of the Auditing
Department of PetroChina from 1999. Mr. Bai has ceased to
be the General Manager of the Auditing Department of PetroChina
since December 2001. Mr. Bai has been a supervisor and
director of the office of the supervisory committee of
PetroChina since November 5, 1999.

Sun Chongren,aged 51, is a supervisor of
PetroChina and an employee representative of PetroChinas
supervisory committee. Mr. Sun graduated from Huadong
Petroleum Institute and has 30 years experience in
Chinas oil and gas industry. Mr. Sun has been working
at Liaohe Petroleum Administration Bureau for 30 years.
Since 1996, he has been a senior executive of Liaohe Petroleum
Administration Bureau. Mr. Sun has been a supervisor of
PetroChina since November 5, 1999.

Liu Hongru,aged 71, is an independent
supervisor of PetroChina. Mr. Liu graduated from the
Economics Department of the University of Moscow in 1959 with an
associate doctors degree. Mr. Liu worked as President
of China Institute of Finance and Banking, a Vice Governor of
the Peoples Bank of China, a Deputy Director of the State
Economic Restructuring Committee, First Deputy Director of the
State Council Securities Commission and Chairman of China
Securities Regulatory Commission. Mr. Liu is currently a
Deputy Director of the Economic Committee under the Chinese
Peoples Political Consultative Conference, and
concurrently serves as a Vice President of China Finance and
Banking Society, a Vice President of China National Debt
Association and a Honorary Director of two Chinese insurance
companies. Mr. Liu was appointed as an independent
supervisor of PetroChina on December 3, 1999.

Wu Zhipan,aged 45, is an independent
supervisor of PetroChina. Mr. Wu acquired a Doctor in Laws
from Beijing University School of Law in 1988, and was a
visiting scholar at Harvard Law School from 1991 to 1992.
Mr. Wu is Dean of Beijing University School of Law and
Assistant to President of Beijing University. He is concurrently
an expert consultant of the Supreme Peoples Court, an
arbitrator on the Arbitrator Panel of the China International
Economic and Trade Arbitration Commission and a Deputy Director
of China Civil and Economic Law Society. Mr. Wu is the
author of a number of legal publications. Mr. Wu was
appointed as an independent supervisor of PetroChina on
December 3, 1999.




Compensation

Senior Management Compensation
System

Our senior management compensation system links
our senior management members financial interests,
including those of our executive directors and our supervisors,
with our results of operations and the performance of our
shares. Most of our senior management members have entered into
performance contracts with us. Under this system, the senior
management members compensation system has three
components, namely, basic salaries, performance bonuses and
stock appreciation rights. The variable components in their
compensation account for approximately 70% to 75% of our senior
management officers total potential compensation,
including up to 25% forming the performance bonus component and
approximately 50% to 60% 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

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reduction targets. The chart below sets forth the
components of the total potential compensation for key officers.


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

We have granted stock appreciation rights to
291 persons, including members of the board of directors
and the supervisory committee, president, vice presidents and
departmental managers, general managers and deputy general
managers of specialized companies and local subsidiaries. Upon
exercise of these stock appreciation rights, members of the
senior management will not receive any of our shares, but will,
by way of stock appreciation rights, receive a monetary sum
which is calculated on the basis of the price of our
H shares. In 2001, none of the directors and senior
management exercised any of the stock appreciation rights
granted to them. Since companies are not permitted to repurchase
and hold their own shares for offering stock options under
current PRC law, we expect to calculate our book gains and
losses on the basis of share prices and in accordance with stock
appreciation rights measures and make cash payment of such
compensations.

Directors and Supervisors
Compensation

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

The aggregate amount of salaries, housing
allowances, other allowances and benefits in kind paid by us to
the five highest paid individuals of PetroChina during the year
ended December 31, 2001 was RMB 1,044,801. We paid
RMB 22,740 as our contribution to the pension plans in
respect of those individuals in the year ended December 31,
2001.

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, 2001 was RMB 905,264.

Save as disclosed, no other payments have been
paid or are payable, in respect of the year ended
December 31, 2001, by us or any of our subsidiaries to our
directors. In addition, we have no obligation for the payment of
any benefits to our directors upon the termination of their
employment with us.

In 2001, we paid RMB 27,051 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, 2001 was RMB 322,733.

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Board Practices

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

Audit Committee

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



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

Evaluation and Remuneration
Committee

The members of our evaluation and remuneration
committee are Mr. Wu Jinglian, as chairman of the
committee, Mr. Chee-Chen Tung and Mr. Wu Yaowen. The
evaluation and remuneration committees major
responsibilities include:



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

Investment and Development Committee

The members of our investment and development
committee are Mr. Ren Chuanjun, as chairman of the
committee, Mr. Chen Geng and Mr. Zheng Hu. The
investment and development committees major
responsibilities include:



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

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Health, Safety and Environment
Committee

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



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




Employees

As of December 31, 1999, 2000 and 2001, we
had 480,012, 441,612 and 422,554 employees, respectively.
As part of our employee reduction plan, we laid off 19,800
employees with compensation in 2001. The table below sets forth
the number of our employees by business segment as of
December 31, 2000.

|                           |       |           |         |            |  |  |      |       | 
|-------------------------- | ----- | --------- | ------- | ---------- |  |  | ---- | ----- | 
|                           |       | Employees |         | % of total
|                           |       |           |         |           
|Exploration and production |       |           | 230,637 |            |  |  | 54.6 |      
|Refining and marketing     |       |           | 112,938 |            |  |  | 26.7 |      
|Chemicals                  |       |           | 66,264  |            |  |  | 15.7 |      
|Natural gas                |       |           | 10,309  |            |  |  | 2.4  |      
|Other(1)                   |       |           | 2,406   |            |  |  | 0.6  |      
|                           |       |           |         |            |  |  |      |      
|                           | Total |           |         | 422,554    |  |  |      | 100.0 | 
|                           |       |           |         |            |  |  |      |      




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

Our employees participate in various retirement
benefit plans organized by municipal and provincial governments
whereby we are required to make monthly insurance contributions
to these plans at rates ranging from 16% to 22% of the
employees salary. Expenses incurred by us in connection
with the retirement benefit plans were approximately
RMB 1,765 million, RMB 1,817 million and
RMB 1,805 million, respectively, for the three years
ended December 31, 1999, 2000 and 2001, respectively.

Between March and April of 2002, certain of our
ex-employees, who had been laid off in the past few years as
part of our employee reduction plan, participated in protests
organized by laid off workers in Daqing City to demand increases
in social insurance benefits. Our production activities were not
interrupted or affected in any way by these protests. We do not
have any additional legal, administrative or contractual
severance obligations to these ex-employees other than what were
voluntarily agreed upon between each of these ex-employees and
us in the severance agreements. Except for these protests, we
have not experienced any strikes, work stoppages, labour
disputes or actions which affected the operation of any of our
businesses. We consider our relationship with our employees to
be good.




Share Ownership

Our directors, senior officers and supervisors do
not have share ownership in PetroChina. However, we have granted
stock appreciation rights relating to our H shares to our
directors, senior officers and supervisors. Upon exercise of
these stock appreciation rights, members of

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the senior management will not receive any of our
shares, but will, by way of stock appreciation rights, receive a
momentary sum which is calculated on the basis of the price of
our H shares. Because the relevant PRC laws limit the
ownership of the H shares of a company incorporated under
the PRC laws to only non-PRC nationals, and companies are not
permitted to repurchase and hold their own shares for offering
stock appreciation rights under current PRC law, our directors,
senior officers and supervisors do not hold our H shares under
the stock options granted to them. Instead, we expect to
calculate the book gains and losses on the basis of share prices
and in accordance with our stock appreciation rights granting
criteria to be finalized, and make cash payments of such
compensation to our directors, senior officers and supervisors.


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ITEM 7  MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS






Major Shareholders


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

PetroChina was established on November 5,
1999 with CNPC as its sole promoter. As of December 31,
2001, CNPC owned 158,241,758,000 State-owned shares,
representing approximately 90% of the share capital of
PetroChina, and, accordingly, CNPC is our controlling
shareholder.

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




Related Party Transactions

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

Comprehensive Products and Services
Agreement

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

Products and Services Provided
by Us to the CNPC Group

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

Products and Services Provided
by the CNPC Group to Us

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



| |   |                                     
| | - | ------------------------------------
| |  | construction and technical services,
|
| |  | production services,                
|
| |  | supply of material services,        
|
| |  | social services,                    

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| |   |                        
| | - | -----------------------
| |  | ancillary services, and
|
| |  | financial services.    

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

Land Use Rights Leasing Contract

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

Buildings Leasing Contract

We entered into the Buildings Leasing Contract
with CNPC under which CNPC has leased a total of
192 buildings covering an aggregate area of
279,770 square meters located throughout the PRC to us.

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

Intellectual Property Licensing
Contracts

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

Contract for the Transfer of Rights Under
Production Sharing Contracts

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

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Guarantee of Debts Contract

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

We entered into a Guarantee of Debts Contract
with CNPC, under which CNPC has agreed to guarantee certain of
our debts totalling approximately RMB 63,889 million
(including principal and interest) as of September 30, 1999
at no cost to us. As of December 31, 2001, bank loans
guaranteed by CNPC and its subsidiaries were
RMB 1,697 million.

Contract for the Supervision of Certain Sales
Enterprises

CNPC entered into a Contract for the Supervision
of Certain Sales Enterprises with us, under which we have agreed
to supervise the operations of certain sales enterprises
primarily comprising service stations wholly-owned by CNPC. In
return, CNPC has undertaken that those sales enterprises will
only sell oil products supplied by us and use our brand and
logos.

Loans or Guarantees to Related
Parties

As of June 11, 2002, the aggregate outstanding
loans or guarantees made by PetroChina for the benefit of
related parties was RMB 1,049 million, the largest
outstanding amount of which was RMB 940 million. The
average interest rate on these loans is 5.229%.

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ITEM 8  FINANCIAL
INFORMATION






Financial Statements


See pages F1-F-52 following Item 19.




Dividend Policy

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

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



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

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



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

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

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



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

An interim dividend of RMB 0.069535
(US$0.0084014) per H share (inclusive of applicable tax)
for the six months ended June 30, 2001 was paid to our
shareholders on October 8, 2001. On June 6, 2002, our
shareholders approved the payment of a final dividend of
RMB 0.050272 (US$0.006074) per H share (inclusive of
applicable tax) for the year ended December 31, 2001.

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The final dividend was calculated on the basis of
45% of our net income for the year ended December 31, 2001.
The final dividend was paid to our shareholders on June 21,
2002.





Significant Changes

None.

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ITEM 9  OFFER AND
LISTING






Nature of the Trading Market and Market Price
Information


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

As of December 31, 2001, there were
17,582,418,000 H shares issued and outstanding. As of
December 31, 2001, there were 36 registered holders of
American depositary receipts evidencing 8,771,590 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 2000 (through June 11, 2001)
are set forth below.

|     |                              |           |  |           |  |      |  |      |  |  |  |       |  |  |  |       | 
|---- | ---------------------------- | --------- |  | --------- |  | ---- |  | ---- |  |  |  | ----- |  |  |  | ----- | 
|     |                              |           |  |          
|     |                              | Price per |  | Price per
|     |                              | H share   |  | ADS      
|     |                              |           |  |          
|     |                              | High      |  | Low       |  | High |  | Low 
|     |                              |           |  |           |  |      |  |     
|     |                              |           |  |          
|     |                              | (HK$)     |  | (US$)    
|2000 |                              |           |  |           |  |      |  |      |  |  |  |       |  |  |  |      
|     | Second quarter               |           |  | 1.78      |  |      |  | 1.11 |  |  |  | 22.56 |  |  |  | 14.25 | 
|     | Third quarter                |           |  | 2.05      |  |      |  | 1.49 |  |  |  | 26.19 |  |  |  | 19.38 | 
|     | Fourth quarter               |           |  | 1.75      |  |      |  | 1.30 |  |  |  | 23.00 |  |  |  | 15.94 | 
|2001 |                              |           |  |           |  |      |  |      |  |  |  |       |  |  |  |      
|     | First quarter                |           |  | 1.48      |  |      |  | 1.26 |  |  |  | 18.73 |  |  |  | 16.55 | 
|     | Second quarter               |           |  | 1.84      |  |      |  | 1.35 |  |  |  | 23.60 |  |  |  | 17.40 | 
|     | Third quarter                |           |  | 1.67      |  |      |  | 1.43 |  |  |  | 21.15 |  |  |  | 18.43 | 
|     | Fourth quarter               |           |  | 1.48      |  |      |  | 1.29 |  |  |  | 19.30 |  |  |  | 16.80 | 
|2002 |                              |           |  |           |  |      |  |      |  |  |  |       |  |  |  |      
|     | January                      |           |  | 1.45      |  |      |  | 1.39 |  |  |  | 18.63 |  |  |  | 18.03 | 
|     | February                     |           |  | 1.49      |  |      |  | 1.41 |  |  |  | 19.10 |  |  |  | 18.37 | 
|     | March                        |           |  | 1.62      |  |      |  | 1.45 |  |  |  | 21.07 |  |  |  | 18.92 | 
|     | April                        |           |  | 1.63      |  |      |  | 1.58 |  |  |  | 21.32 |  |  |  | 20.07 | 
|     | May                          |           |  | 1.62      |  |      |  | 1.52 |  |  |  | 20.98 |  |  |  | 19.23 | 
|     | June (through June 11, 2002) |           |  | 1.71      |  |      |  | 1.64 |  |  |  | 21.86 |  |  |  | 20.79 | 

The closing prices per H share and per ADS on
June 11, 2002 were HK$1.71 and US$21.86, respectively.




ITEM 10  ADDITIONAL
INFORMATION






Memorandum and Articles of
Association


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

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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) and
December 31, 2000 (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 Control

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



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

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

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

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

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




Taxation

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

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Dividends and Individual Investors

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

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

Dividends and Foreign Enterprises

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

Tax Treaties

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



| |   |                   
| | - | ------------------
| |  | the United States;
|
| |  | Australia;        
|
| |  | Canada;           
|
| |  | France;           
|
| |  | Germany;          
|
| |  | Japan;            
|
| |  | Malaysia;         
|
| |  | Singapore;        

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| |   |                        
| | - | -----------------------
| |  | 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 providing that
temporarily no capital gains tax will be imposed on gains from
the sale of shares by individuals. However, it is uncertain
whether the above exemption for foreign enterprises and foreign
individuals will continue to apply or be renewed in the future.
If such exemption does not apply or is not renewed, and the Tax
Notice is found not to apply, as a holder of H shares or
ADSs you may be subject to a 20% tax on capital gains, unless
reduced by an applicable double taxation treaty.

Additional PRC Tax Considerations

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




Documents on Display

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

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




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

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instruments for hedging or trading purposes. Such
activities are subject to policies approved by our senior
management. Substantially all of the financial instruments we
hold are for purposes other than trading. We regard an effective
market risk system as an important element of our treasury
function and are currently enhancing our systems. A primary
objective is to implement certain methodologies to better
measure and monitor risk exposures.


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

Interest Rate Risk

Our major market risk exposure arises from
changing interest rates. The tables below provide information
about our financial instruments including various debt
obligations that are sensitive to changes in interest rates. The
tables present principal cash flows and related weighted-average
interest rates at expected maturity dates. Weighted-average
variable rates are based on effective rates as of
December 31, 1999, 2000 and 2001. The information is
presented in Renminbi equivalents, our reporting currency.

Foreign Exchange Rate Risk

We conduct our business primarily in RMB.
However, a portion of our RMB revenues are converted into other
currencies to meet foreign currency financial instrument
obligations and to pay for imported equipment and materials.
Foreign currency payments for imported equipment represented
9.4%, 9.3% and 9.7% of our total payments for equipment in 1999,
2000 and 2001, respectively. Foreign currency payments for
imported materials represented 8.0%, 7.4% and 9.9% of our total
payments for materials in 1999, 2000 and 2001, 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, 1999, 2000 and
2001, respectively.

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December 31, 2001

|                             |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |  |       |   |  |        |        | 
|---------------------------- | --------------------- | ------------------------------------------------ | ----- | ----- | - | ---------- | ----- | ----- | - | ---- | ------ | ---------- | - | ----- | ------ | ----- | - | ----- | ----- | ----- | - |  | ------ | ----- | - |  | ------ | ------ |  |  |  | ----- | - |  | ------ | ------ | 
|                             |                       |                                                  |       |       |   | Percentage |       |      
|                             |                       | Expected maturity date                           |       |       |   | to total   |       |      
|                             |                       |                                                  |       |       |   | long-term  |       | Fair 
|Long term debt               |                       | 2002                                             |       | 2003  |   | 2004       |       | 2005  |   | 2006 |        | Thereafter |   | Total |        | debt  |   | value
|                             |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |      
|                             |                       |                                                  |       |       |   |           
|                             |                       | (RMB equivalent in millions, except percentages) |       | (%)   |   |           
|Loan in RMB                  |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |  |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 1,628 |   |            |       | 701   |   |      |        | 536        |   |       |        | 812   |   |       |       | 210   |   |  |        | 331   |   |  |        | 4,218  |  |  |  | 5.99  | % |  |        | 4,193  | 
|                             | Average interest rate |                                                  |       | 5.90  | % |            |       | 5.61  | % |      |        | 5.63       | % |       |        | 5.82  | % |       |       | 5.94  | % |  |        | 5.94  | % |  |        |        |  |  |  |       |   |  |        |        | 
|                             | Variable rate(1)      |                                                  |       | 1,389 |   |            |       | 3,220 |   |      |        | 18,136     |   |       |        | 9,768 |   |       |       | 6,366 |   |  |        | 7,742 |   |  |        | 46,621 |  |  |  | 66.21 | % |  |        | 46,621 | 
|                             | Average interest rate |                                                  |       | 5.70  | % |            |       | 5.94  | % |      |        | 5.50       | % |       |        | 5.72  | % |       |       | 5.70  | % |  |        | 5.63  | % |  |        |        |  |  |  |       |   |  |        |        | 
|                            
|Loan in Euro                 |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |  |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 119   |   |            |       | 79    |   |      |        | 22         |   |       |        | 17    |   |       |       | 71    |   |  |        | 446   |   |  |        | 754    |  |  |  | 1.07  | % |  |        | 724    | 
|                             | Average interest rate |                                                  |       | 3.94  | % |            |       | 3.81  | % |      |        | 7.18       | % |       |        | 6.70  | % |       |       | 3.34  | % |  |        | 4.92  | % |  |        |        |  |  |  |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       |       |   |            |       | 19    |   |      |        | 19         |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        | 38     |  |  |  | 0.05  | % |  |        | 38     | 
|                             | Average interest rate |                                                  |       |       |   |            |       | 5.31  | % |      |        | 5.31       | % |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |  |       |   |  |        |        | 
|                            
|Loan in United States Dollar |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |  |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 1,044 |   |            |       | 1,071 |   |      |        | 930        |   |       |        | 927   |   |       |       | 798   |   |  |        | 3,572 |   |  |        | 8,342  |  |  |  | 11.85 | % |  |        | 8,422  | 
|                             | Average interest rate |                                                  |       | 6.67  | % |            |       | 6.59  | % |      |        | 6.58       | % |       |        | 6.58  | % |       |       | 6.43  | % |  |        | 6.05  | % |  |        |        |  |  |  |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       | 535   |   |            |       | 398   |   |      |        | 2,078      |   |       |        | 1,998 |   |       |       | 169   |   |  |        | 1,308 |   |  |        | 6,486  |  |  |  | 9.21  | % |  |        | 6,486  | 
|                             | Average interest rate |                                                  |       | 4.20  | % |            |       | 4.51  | % |      |        | 2.16       | % |       |        | 2.09  | % |       |       | 6.08  | % |  |        | 5.83  | % |  |        |        |  |  |  |       |   |  |        |        | 
|                            
|Loan in British Pound        |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |  |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 195   |   |            |       | 195   |   |      |        | 195        |   |       |        | 195   |   |       |       | 179   |   |  |        | 432   |   |  |        | 1,391  |  |  |  | 1.98  | % |  |        | 1,320  | 
|                             | Average interest rate |                                                  |       | 3.79  | % |            |       | 3.79  | % |      |        | 3.79       | % |       |        | 3.79  | % |       |       | 3.87  | % |  |        | 4.97  | % |  |        |        |  |  |  |       |   |  |        |        | 
|                            
|Loan in Japanese Yen         |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |  |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 133   |   |            |       | 133   |   |      |        | 133        |   |       |        | 133   |   |       |       | 133   |   |  |        | 71    |   |  |        | 736    |  |  |  | 1.05  | % |  |        | 827    | 
|                             | Average interest rate |                                                  |       | 4.70  | % |            |       | 4.70  | % |      |        | 4.70       | % |       |        | 4.70  | % |       |       | 4.70  | % |  |        | 4.56  | % |  |        |        |  |  |  |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       | 12    |   |            |       | 15    |   |      |        | 15         |   |       |        | 14    |   |       |       |       |   |  |        | 125   |   |  |        | 181    |  |  |  | 0.26  | % |  |        | 181    | 
|                             | Average interest rate |                                                  |       | 5.17  | % |            |       | 1.88  | % |      |        | 1.88       | % |       |        | 1.88  | % |       |       |       |   |  |        | 5.17  | % |  |        |        |  |  |  |       |   |  |        |        | 
|                            
|Debenture in RMB             |                       |                                                  |       |       |   |            |       |       |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        |       |   |  |        |        |  |  |  |       |   |  |        |       
|                             | Fixed rate            |                                                  |       |       |   |            |       | 300   |   |      |        |            |   |       |        |       |   |       |       |       |   |  |        | 1,350 |   |  |        | 1,650  |  |  |  | 2.34  | % |  |        | 1,604  | 
|                             | Average interest rate |                                                  |       |       |   |            |       | 9.00  | % |      |        |            |   |       |        |       |   |       |       |       |   |  |        | 4.50  | % |  |        |        |  |  |  |       |   |  |        |        | 
|Total                        |                       |                                                  | 5,055 |       |   |            | 6,131 |       |   |      | 22,064 |            |   |       | 13,864 |       |   |       | 7,926 |       |   |  | 15,377 |       |   |  | 70,417 |        |  |  |  |       |   |  | 70,416 |       

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December 31, 2000

|                             |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |        | 
|---------------------------- | --------------------- | ------------------------------------------------ | ----- | ----- | - | ---------- | ----- | ----- | - | ---- | ----- | ---------- | - | ----- | ----- | ----- | - | ----- | ------ | ----- | - |  | ------ | ------ | - |  | ------ | ------ |  |  | --- | ----- | - |  | ------ | ------ | 
|                             |                       |                                                  |       |       |   | Percentage |       |      
|                             |                       | Expected maturity date                           |       |       |   | to total   |       |      
|                             |                       |                                                  |       |       |   | long-term  |       | Fair 
|Long term debt               |                       | 2001                                             |       | 2002  |   | 2003       |       | 2004  |   | 2005 |       | Thereafter |   | Total |       | debt  |   | value
|                             |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |      
|                             |                       |                                                  |       |       |   |           
|                             |                       | (RMB equivalent in millions, except percentages) |       | (%)   |   |           
|Loan in RMB                  |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 824   |   |            |       | 1,305 |   |      |       | 165        |   |       |       | 106   |   |       |        | 60    |   |  |        |       |   |  |        | 2,460  |  |  |     | 3.91  | % |  |        | 2,446  | 
|                             | Average interest rate |                                                  |       | 5.70  | % |            |       | 5.80  | % |      |       | 4.98       | % |       |       | 3.39  | % |       |        | 5.89  | % |  |        |       |   |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate(1)      |                                                  |       | 2,298 |   |            |       | 1,894 |   |      |       | 4,082      |   |       |       | 7,564 |   |       |        | 7,997 |   |  |        | 12,151 |   |  |        | 35,986 |  |  |     | 57.26 | % |  |        | 35,986 | 
|                             | Average interest rate |                                                  |       | 5.94  | % |            |       | 5.80  | % |      |       | 5.98       | % |       |       | 5.75  | % |       |        | 5.84  | % |  |        | 5.73   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in Deutsche Mark        |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 53    |   |            |       | 53    |   |      |       | 53         |   |       |       | 53    |   |       |        | 24    |   |  |        | 33     |   |  |        | 269    |  |  |     | 0.43  | % |  |        | 292    | 
|                             | Average interest rate |                                                  |       | 8.34  | % |            |       | 8.34  | % |      |       | 8.34       | % |       |       | 8.34  | % |       |        | 8.38  | % |  |        | 8.39   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in United States Dollar |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 852   |   |            |       | 723   |   |      |       | 716        |   |       |       | 587   |   |       |        | 724   |   |  |        | 3,695  |   |  |        | 7,297  |  |  |     | 11.61 | % |  |        | 7,109  | 
|                             | Average interest rate |                                                  |       | 6.92  | % |            |       | 6.73  | % |      |       | 6.92       | % |       |       | 6.89  | % |       |        | 7.22  | % |  |        | 6.09   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       | 4,518 |   |            |       | 579   |   |      |       | 556        |   |       |       | 1,174 |   |       |        | 1,158 |   |  |        | 2,783  |   |  |        | 10,768 |  |  |     | 17.13 | % |  |        | 10,768 | 
|                             | Average interest rate |                                                  |       | 6.69  | % |            |       | 6.63  | % |      |       | 6.98       | % |       |       | 6.35  | % |       |        | 6.34  | % |  |        | 6.58   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in French Franc         |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 46    |   |            |       | 17    |   |      |       | 17         |   |       |       | 11    |   |       |        | 5     |   |  |        | 521    |   |  |        | 617    |  |  |     | 0.98  | % |  |        | 578    | 
|                             | Average interest rate |                                                  |       | 5.65  | % |            |       | 6.76  | % |      |       | 6.76       | % |       |       | 5.79  | % |       |        | 2.30  | % |  |        | 4.65   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in British Pound        |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 201   |   |            |       | 201   |   |      |       | 201        |   |       |       | 201   |   |       |        | 201   |   |  |        | 629    |   |  |        | 1,634  |  |  |     | 2.60  | % |  |        | 1,465  | 
|                             | Average interest rate |                                                  |       | 3.79  | % |            |       | 3.79  | % |      |       | 3.79       | % |       |       | 3.79  | % |       |        | 3.79  | % |  |        | 4.65   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in Japanese Yen         |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 122   |   |            |       | 104   |   |      |       | 104        |   |       |       | 104   |   |       |        | 104   |   |  |        | 506    |   |  |        | 1,044  |  |  |     | 1.66  | % |  |        | 1,205  | 
|                             | Average interest rate |                                                  |       | 4.67  | % |            |       | 4.53  | % |      |       | 4.53       | % |       |       | 4.53  | % |       |        | 4.53  | % |  |        | 4.50   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                             | Variable rate         |                                                  |       | 12    |   |            |       |      |   |      |       | 8          |   |       |       | 8     |   |       |        | 16    |   |  |        | 145    |   |  |        | 189    |  |  |     | 0.30  | % |  |        | 189    | 
|                             | Average interest rate |                                                  |       | 5.17  | % |            |       |      |   |      |       | 2.38       | % |       |       | 2.38  | % |       |        | 2.38  | % |  |        | 5.17   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Loan in Spanish Peso         |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 79    |   |            |       | 67    |   |      |       | 56         |   |       |       |      |   |       |        |      |   |  |        |       |   |  |        | 202    |  |  |     | 0.32  | % |  |        | 193    | 
|                             | Average interest rate |                                                  |       | 3.31  | % |            |       | 2.57  | % |      |       | 1.50       | % |       |       |      |   |       |        |      |   |  |        |       |   |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Debenture in RMB             |                       |                                                  |       |       |   |            |       |       |   |      |       |            |   |       |       |       |   |       |        |       |   |  |        |        |   |  |        |        |  |  |     |       |   |  |        |       
|                             | Fixed rate            |                                                  |       | 735   |   |            |       |      |   |      |       | 300        |   |       |       |      |   |       |        |      |   |  |        | 1,350  |   |  |        | 2,385  |  |  |     | 3.80  | % |  |        | 2,388  | 
|                             | Average interest rate |                                                  |       | 7.81  | % |            |       |      |   |      |       | 9.00       | % |       |       |      |   |       |        |      |   |  |        | 4.50   | % |  |        |        |  |  |     |       |   |  |        |        | 
|                            
|Total                        |                       |                                                  | 9,740 |       |   |            | 4,943 |       |   |      | 6,258 |            |   |       | 9,808 |       |   |       | 10,289 |       |   |  | 21,813 |        |   |  | 62,851 |        |  |  | 100 | %     |   |  | 62,619 |       

103



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December 31, 1999

|                             |                       |                                                  |        |       |   |            |        |       |   |      |        |            |   |       |        |       |   |       |        |       |   |  |        |       |   |  |         |        |  |  |     |       |   |  |         |        | 
|---------------------------- | --------------------- | ------------------------------------------------ | ------ | ----- | - | ---------- | ------ | ----- | - | ---- | ------ | ---------- | - | ----- | ------ | ----- | - | ----- | ------ | ----- | - |  | ------ | ----- | - |  | ------- | ------ |  |  | --- | ----- | - |  | ------- | ------ | 
|                             |                       |                                                  |        |       |   | Percentage |        |      
|                             |                       | Expected maturity date                           |        |       |   | to total   |        |      
|                             |                       |                                                  |        |       |   | long-term  |        | Fair 
|Long term debt               |                       | 2000                                             |        | 2001  |   | 2002       |        | 2003  |   | 2004 |        | Thereafter |   | Total |        | debt  |   | value
|                             |                       |                                                  |        |       |   |            |        |       |   |      |        |            |   |       |        |       |   |      
|                             |                       |                                                  |        |       |   |           
|                             |                       | (RMB equivalent in millions, except percentages) |        | (%)   |   |           
|Loan in RMB                  |                       |                                                  |        |       |   |            |        |       |   |      |        |            |   |       |        |       |   |       |        |       |   |  |        |       |   |  |         |        |  |  |     |       |   |  |         |       
|                             | Fixed rate            |                                                  |        | 1,708 |   |            |        | 2,438 |   |      |        | 1,794      |   |       |        | 563   |   |       |        | 2,758 |   |  |        | 1,525 |   |  |         | 10,786 |  |  |     | 10.47 | % |  |         | 10,853 | 
|                             | Average interest rate |                                                  |        | 6.80  | % |            |        | 6.77  | % |      |        | 6.08       | % |       |        | 6.33  | % |       |        | 6.03  | % |  |        | 4.81  | % |  |         |        |  |  |     |       |   |  |         |        | 
|                             | Variable rate(1)      |                                                  |        | 7,892 |   |            |        | 7,017 |   |      |        | 7,383      |   |       |        | 4,845 |   |       |        | 7,722 |   |  |        | 7,230 |   |  |         | 42,089 |  |  |     | 40.82 | % |  |         | 42,089 | 
|                             | Average interest rate |                                                  |        | 7.18  | % |            |        | 7.95  | % |      |        | 7.84       | % |       |        | 7.64  | % |       |        | 7.94  | % |  |        | 7.00  | % |  |         |        |  |  |     |       |   |  |         |        | 
|                            
|Loan in Deutsche Mark        |                       |                                                  |        |       |   |            |        |       |   |      |        |            |   |       |        |       |   |       |        |       |   |  |        |       |   |  |         |        |  |  |     |       |   |  |         |       
|                             | Fixed rate            |                                                  |        | 45    |   |            |        | 45    |   |      |        | 43         |   |       |        | 64    |   |       |        | 64    |   |  |        | 71    |   |  |         | 332    |  |  |     | 0.32  | % |  |         | 360    | 
|                             | Average interest rate |                                                  |        | 8.23  | % |            |        | 8.23  | % |      |        | 8.23       | % |       |        | 8.23  | % |       |        | 8.23  | % |  |        | 8.22  | % |  |         |        |  |  |     |       |   |  |         |        | 
|                            
|Loan in United States Dollar |                       |                                                  |        |       |   |            |        |       |   |      |        |            |   |       |        |       |   |       |        |       |   |  |        |       |   |  |         |        |  |  |     |       |   |  |         |       
|                             | Fixed rate            |                                                  |        | 996   |   |            |        | 577   |   |      |        | 598        |   |       |        | 579   |   |       |        | 385   |   |  |        | 3,445 |   |  |         | 6,580  |  |  |     | 6.38  | % |  |         | 5,968  | 
|                             | Average interest rate |                                                  |        | 7.16  | % |            |        | 6.91  | % |      |        | 6.70       | % |       |        | 6.74  | % |       |        | 6.58  | % |  |        | 6.11  | % |  |         |        |  |  |     |       |   |  |         |        | 
|                             | Variable rate         |                                                  |        | 2,265 |   |            |        | 1,973 |   |      |        | 1,849      |   |       |        | 1,969 |   |       |        | 1,350 |   |  |        | 2,579 |   |  |         | 11,985 |  |  |     | 11.62 | % |  |         | 11,985 | 
|                             | Average interest rate |                                                  |        | 6.76  | % |            |        | 6.81  | % |      |        | 6.79       | % |       |        | 6.79  | % |       |        | 6.82  | % |  |        | 6.74  | % |  |         |        |  |  |     |       |   |  |         |        | 
|                            
|Loan in French Franc         |                       |                                                  |        |       |   |            |        |       |   |      |        |            |   |       |        |       |   |       |        |       |   |  |        |       |   |  |         |        |  |  |     |       |   |  |         |       
|                             | Fixed rate            |                                                  |        | 45    |   |            |        | 18    |   |      |        | 18         |   |       |        | 18    |   |       |        | 12    |   |  |        | 583   |   |  |         | 694    |  |  |     | 0.67  | % |  |         | 556    | 
|                             | Average interest rate |                                                  |        | 5.98  | % |            |        | 8.30  | % |      |        | 8.30       | % |       |        | 8.30  | % |       |        | 8.30  | % |  |        | 5.44  | % |  |         |        |  |  |     |       |   |  |         |        | 
|                            
|Loan in British Pound        |                       |                                                  |        |       |   |            |        |       |   |      |        |            |   |       |        |       |   |       |        |       |   |  |        |       |   |  |         |        |  |  |     |       |   |  |         |       
|                             | Fixed rate            |                                                  |        | 218   |   |            |        | 218   |   |      |        | 218        |   |       |        | 218   |   |       |        | 218   |   |  |        | 898   |   |  |         | 1,988  |  |  |     | 1.93  | % |  |         | 1,753  | 
|                             | Average interest rate |                                                  |        | 3.54  | % |            |        | 3.54  | % |      |        | 3.54       | % |       |        | 3.54  | % |       |        | 3.54  | % |  |        | 4.19  | % |  |         |        |  |  |     |       |   |  |         |        | 
|                            
|Loan in Japanese Yen         |                       |                                                  |        |       |   |            |        |       |   |      |        |            |   |       |        |       |   |       |        |       |   |  |        |       |   |  |         |        |  |  |     |       |   |  |         |       
|                             | Fixed rate            |                                                  |        | 2,373 |   |            |        | 2,375 |   |      |        | 2,346      |   |       |        | 2,365 |   |       |        | 2,364 |   |  |        | 8,587 |   |  |         | 20,410 |  |  |     | 19.79 | % |  |         | 22,378 | 
|                             | Average interest rate |                                                  |        | 4.02  | % |            |        | 4.02  | % |      |        | 4.00       | % |       |        | 4.01  | % |       |        | 4.01  | % |  |        | 3.85  | % |  |         |        |  |  |     |       |   |  |         |        | 
|                             | Variable rate         |                                                  |        | 911   |   |            |        | 855   |   |      |        | 737        |   |       |        | 623   |   |       |        |      |   |  |        |      |   |  |         | 3,126  |  |  |     | 3.03  | % |  |         | 3,126  | 
|                             | Average interest rate |                                                  |        | 1.92  | % |            |        | 2.03  | % |      |        | 2.03       | % |       |        | 2.03  | % |       |        |      |   |  |        |      |   |  |         |        |  |  |     |       |   |  |         |        | 
|                            
|Loan in Spanish Peso         |                       |                                                  |        |       |   |            |        |       |   |      |        |            |   |       |        |       |   |       |        |       |   |  |        |       |   |  |         |        |  |  |     |       |   |  |         |       
|                             | Fixed rate            |                                                  |        | 176   |   |            |        |      |   |      |        |           |   |       |        | 218   |   |       |        |      |   |  |        |      |   |  |         | 394    |  |  |     | 0.38  | % |  |         | 410    | 
|                             | Average interest rate |                                                  |        | 7.40  | % |            |        |      |   |      |        |           |   |       |        | 7.40  | % |       |        |      |   |  |        |      |   |  |         |        |  |  |     |       |   |  |         |        | 
|                            
|Debenture in RMB             |                       |                                                  |        |       |   |            |        |       |   |      |        |            |   |       |        |       |   |       |        |       |   |  |        |       |   |  |         |        |  |  |     |       |   |  |         |       
|                             | Fixed rate            |                                                  |        | 2,381 |   |            |        | 700   |   |      |        |           |   |       |        | 300   |   |       |        |      |   |  |        | 1,350 |   |  |         | 4,731  |  |  |     | 4.59  | % |  |         | 4,976  | 
|                             | Average interest rate |                                                  |        | 10.59 | % |            |        | 8.00  | % |      |        |           |   |       |        | 9.00  | % |       |        |      |   |  |        | 4.50  | % |  |         |        |  |  |     |       |   |  |         |        | 
|                            
|Total                        |                       |                                                  | 19,010 |       |   |            | 16,216 |       |   |      | 14,986 |            |   |       | 11,762 |       |   |       | 14,873 |       |   |  | 26,268 |       |   |  | 103,115 |        |  |  | 100 | %     |   |  | 104,454 |       




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Due to the declining interest rates in recent
    years in China, the government has implemented a program to
    adjust interest rates on certain fixed RMB loans periodically to
    reflect the market rates in effect published by the
    Peoples Bank of China (the central bank) from
    time to time. As a result, these previously fixed RMB loans are
    categorized as variable rate loans at December 31, 1999,
    2000 and 2001. The newly adjusted rates usually become effective
    one year after the announcement by the central bank. The average
    interest rates on these loans are calculated based on the then
    effective rates at December 31, 1999, 2000 and 2001,
    respectively.

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Commodity Price Risk

We are engaged in a broad range of petroleum
related activities. The hydrocarbon commodity markets are
influenced by global as well as regional supply and demand
conditions. The PRC government currently publishes prices for
onshore crude oil, gasoline and diesel according to
international benchmark prices. A decline in prices of crude oil
and refined products could adversely affect our financial
performance. We historically have not used commodity derivative
instruments to hedge the potential price fluctuations of crude
oil and other refined products. Therefore, during 1999, 2000 and
2001, we were exposed to the general price fluctuations of
broadly traded oil and gas commodities.




ITEM 12  DESCRIPTION OF
SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.




PART II






ITEM 13  DEFAULTS, DIVIDENDS
ARREARAGES AND DELINQUENCIES


None.




ITEM 14  MATERIAL
MODIFICATIONS TO THE RIGHTS

TO SECURITY HOLDERS AND USE OF
PROCEEDS


Material Modifications to the Rights to
Securities Holders

None.

Use of Proceeds

We completed a global offering of American
depositary shares underlying our H shares on April 7,
2000 and received approximately US$2,464 million of net
offering proceeds. As of December 31, 2000, we had used the
entire net proceeds from the global offering.




ITEM 15  [RESERVED]




ITEM 16  [RESERVED]




PART III




ITEM 17  FINANCIAL
STATEMENTS

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




ITEM 18  FINANCIAL
STATEMENTS

See page F-1 to F-52 following Item 19.

105



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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).                             
|        | 4.1  |                         |  | 2000 Performance Contract between Huang Yan and
    PetroChina (English translation).(1)    
|        | 4.2  |                         |  | 2000 Performance Contract between Ren Chuanjun
    and PetroChina (English translation).(1) 
|        | 4.3  |                         |  | 2000 Performance Contract between Luo Yingjun and
    PetroChina (English translation).(1)  
|        | 4.4  |                         |  | 2000 Performance Contract between Shi Xingquan
    and PetroChina (English translation).(1) 
|        | 4.5  |                         |  | 2000 Performance Contract between Su Shulin and
    PetroChina (English translation).(1)    
|        | 4.6  |                         |  | 2000 Performance Contract between Wang Guoliang
    and PetroChina (English translation).(1)
|        | 4.7  |                         |  | 2000 Performance Contract between Lin Qingshan
    and PetroChina (English translation).(1) 
|        | 4.8  |                         |  | 2000 Performance Contract between Zhang Xinzhi
    and PetroChina (English translation).(1) 
|        | 4.9  |                         |  | 2000 Performance Contract between Wang Fucheng
    and PetroChina (English translation).(1) 
|        | 4.10 |                         |  | 2001 Performance Contract between Huang Yan and
    PetroChina (English translation).       
|        | 4.11 |                         |  | 2001 Performance Contract between Ren Chuanjun
    and PetroChina (English translation).    
|        | 4.12 |                         |  | 2001 Performance Contract between Su Shulin and
    PetroChina (English translation).       
|        | 4.13 |                         |  | 2001 Performance Contract between Wang Fucheng
    and PetroChina (English translation).    
|        | 4.14 |                         |  | 2001 Performance Contract between Luo Yingjun and
    PetroChina (English translation).     
|        | 4.15 |                         |  | 2001 Performance Contract between Shi Xingquan
    and PetroChina (English translation).    
|        | 4.16 |                         |  | 2001 Performance Contract between Lin Qingshan
    and PetroChina (English translation).    
|        | 4.17 |                         |  | 2001 Performance Contract between Zhang Xinzhi
    and PetroChina (English translation).    
|        | 4.18 |                         |  | 2001 Performance Contract between Wang Guoliang
    and PetroChina (English translation).   
|        | 4.19 |                         |  | 2001 Performance Contract between Shen Pingping
    and PetroChina (English translation).   
|        | 4.20 |                         |  | 2001 Performance Contract between Jia Chengzao
    and PetroChina (English translation).    

106



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|        |      |                         |  |                                                                                                                                                     
|------- | ---- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Exhibits
|        |      |                        
|        | 4.21 |                         |  | Crude Oil Mutual Supply Framework Agreement,
    January 30, 2002, between China Petrochemical Corporation
    and PetroChina (English translation).
|        | 8.1  |                         |  | List of major subsidiaries.                                                                                                                         




|    |                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to our Annual Report on
    Form 20-F for the fiscal year ended December 31, 2000
    (File No. 1-15006) filed with the U.S. Securities and
    Exchange Commission on June 29, 2001.

107



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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 HUAIQI             
| |                           
| | Name: Li Huaiqi           
| | Title:   Secretary        

Date: June 28, 2002



---



##### Table of Contents






INDEX OF FINANCIAL STATEMENTS

|                                                    |                                                                                                                                      |      |  |      | 
|--------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ---- |  | ---- | 
|                                                    |                                                                                                                                      | Page
|                                                    |                                                                                                                                      |     
|PetroChina Company Limited and its
    Subsidiaries |                                                                                                                                      |      |  |     
|                                                    | Consolidated Financial Statements                                                                                                    |      |  |      | 
|                                                    | Report of Independent Accountants                                                                                                    |      |  | F-2  | 
|                                                    | Consolidated Statements of Income for each of the
    three years in the period ended December 31, 2001                              |      |  | F-3  | 
|                                                    | Consolidated Balance Sheets as of
    December 31, 2000 and 2001                                                                     |      |  | F-4  | 
|                                                    | Consolidated Statements of Cash Flows for each of
    the three years in the period ended December 31, 2001                          |      |  | F-5  | 
|                                                    | Consolidated Statements of Changes in
    Shareholders Equity for each of the three years in the
    period ended December 31, 2001 |      |  | F-7  | 
|                                                    | Notes to the Consolidated Financial Statements                                                                                       |      |  | F-8  | 
|                                                    | Supplementary Petroleum Data
    (unaudited)                                                                                         |      |  | F-52 | 

F-1



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##### Table of Contents






REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
income, of cash flows and of changes in equity present fairly,
in all material respects, the consolidated financial position of
PetroChina Company Limited (the Company) and its
subsidiaries (the Group) at December 31, 2000
and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2001, in conformity with International
Accounting 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 auditing standards generally
accepted in the United States of America which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.

International Accounting 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, 2001 and the determination of consolidated
shareholders equity at December 31, 2000 and 2001 to
the extent summarized in Note 33 to the consolidated financial
statements.



| |                             
| | ----------------------------
| | PricewaterhouseCoopers      
| | Certified Public Accountants
|
| | Hong Kong, April 15, 2002   

F-2



---



##### Table of Contents






PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 1999,
2000 and 2001


(Amounts in millions except for per share
data)


|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |        |  
|-------------------------------------------------- | ------------------------------------------------------------------- | ----- | - | ----------------------- |  | ---- | -------- | ------- | - | ---- | -------- | ------- | - |  | -------- | ------- | - |  | ------- | ------ | -
|                                                   |                                                                     |       |   |                        
|                                                   |                                                                     |       |   | Year Ended December 31,
|                                                   |                                                                     |       |   |                        
|                                                   |                                                                     | Notes |   | 1999                    |  | 2000 |          | 2001    |   | 2001
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |     
|                                                   |                                                                     |       |   | RMB                     |  | RMB  |          | RMB     |   | US$ 
|REVENUES                                           |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|                                                   | Sales and other operating revenues                                  |       |   |                         |  |      |          | 175,969 |   |      |          | 241,992 |   |  |          | 238,893 |   |  |         | 28,863 |  
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|OPERATING EXPENSES                                 |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|                                                   | Purchases, services and other                                       |       |   |                         |  |      |          | (61,470 | ) |      |          | (62,598 | ) |  |          | (76,859 | ) |  |         | (9,287 | )
|                                                   | Employee compensation costs                                         |       |   | 4                       |  |      |          | (11,064 | ) |      |          | (14,430 | ) |  |          | (13,992 | ) |  |         | (1,690 | )
|                                                   | Exploration expenses, including exploratory dry
    holes           |       |   |                         |  |      |          | (7,344  | ) |      |          | (8,680  | ) |  |          | (7,344  | ) |  |         | (887   | )
|                                                   | Depreciation, depletion and amortization                            |       |   |                         |  |      |          | (23,533 | ) |      |          | (33,760 | ) |  |          | (33,367 | ) |  |         | (4,031 | )
|                                                   | Selling, general and administrative expenses                        |       |   |                         |  |      |          | (12,596 | ) |      |          | (16,649 | ) |  |          | (20,837 | ) |  |         | (2,518 | )
|                                                   | Employee separation costs and shut down of
    manufacturing assets |       |   | 5                       |  |      |          |        |   |      |          | (6,579  | ) |  |          | (478    | ) |  |         | (58    | )
|                                                   | Revaluation loss                                                    |       |   |                         |  |      |          | (1,122  | ) |      |          |        |   |  |          |        |   |  |         |       |  
|                                                   | Impairment loss on assets retained by CNPC                          |       |   | 24                      |  |      |          | (2,007  | ) |      |          |        |   |  |          |        |   |  |         |       |  
|                                                   | Taxes other than income taxes                                       |       |   |                         |  |      |          | (10,278 | ) |      |          | (13,230 | ) |  |          | (13,916 | ) |  |         | (1,681 | )
|                                                   | Other income/(expense), net                                         |       |   |                         |  |      |          | 345     |   |      |          | (307    | ) |  |          | 117     |   |  |         | 14     |  
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|TOTAL OPERATING EXPENSES                           |                                                                     |       |   |                         |  |      | (129,069 | )       |   |      | (156,233 | )       |   |  | (166,676 | )       |   |  | (20,138 | )     
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|INCOME FROM OPERATIONS                             |                                                                     |       |   |                         |  |      | 46,900   |         |   |      | 85,759   |         |   |  | 72,217   |         |   |  | 8,725   |       
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|FINANCE COSTS                                      |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|                                                   | Exchange gain                                                       |       |   |                         |  |      |          | 129     |   |      |          | 1,406   |   |  |          | 390     |   |  |         | 47     |  
|                                                   | Exchange loss                                                       |       |   |                         |  |      |          | (2,362  | ) |      |          | (234    | ) |  |          | (140    | ) |  |         | (17    | )
|                                                   | Interest income                                                     |       |   |                         |  |      |          | 632     |   |      |          | 584     |   |  |          | 799     |   |  |         | 97     |  
|                                                   | Interest expense                                                    |       |   | 6                       |  |      |          | (8,896  | ) |      |          | (6,048  | ) |  |          | (4,149  | ) |  |         | (502   | )
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|TOTAL FINANCE COSTS                                |                                                                     |       |   |                         |  |      | (10,497  | )       |   |      | (4,292   | )       |   |  | (3,100   | )       |   |  | (375    | )     
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|INCOME FROM EQUITY AFFILIATES                      |                                                                     |       |   |                         |  |      | 128      |         |   |      | 584      |         |   |  | 341      |         |   |  | 41      |       
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|INCOME BEFORE INCOME TAXES                         |                                                                     |       |   |                         |  |      | 36,531   |         |   |      | 82,051   |         |   |  | 69,458   |         |   |  | 8,391   |       
|INCOME TAXES                                       |                                                                     |       | 7 |                         |  |      | (9,403   | )       |   |      | (26,985  | )       |   |  | (23,054  | )       |   |  | (2,785  | )     
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|INCOME BEFORE MINORITY INTERESTS                   |                                                                     |       |   |                         |  |      | 27,128   |         |   |      | 55,066   |         |   |  | 46,404   |         |   |  | 5,606   |       
|LOSS/(INCOME) APPLICABLE TO MINORITY
    INTERESTS |                                                                     |       |   |                         |  |      | (127     | )       |   |      | 165      |         |   |  | 404      |         |   |  | 49      |       
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|NET INCOME                                         |                                                                     |       |   |                         |  |      | 27,001   |         |   |      | 55,231   |         |   |  | 46,808   |         |   |  | 5,655   |       
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|BASIC AND DILUTED NET INCOME PER
    SHARE         |                                                                     |       | 8 |                         |  |      | 0.17     |         |   |      | 0.32     |         |   |  | 0.27     |         |   |  | 0.03    |       
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       
|NUMBER OF SHARES                                   |                                                                     |       | 8 |                         |  |      | 160,000  |         |   |      | 171,630  |         |   |  | 175,824  |         |   |  | 175,824 |       
|                                                   |                                                                     |       |   |                         |  |      |          |         |   |      |          |         |   |  |          |         |   |  |         |       

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

F-3



---



##### Table of Contents






PETROCHINA COMPANY LIMITED

CONSOLIDATED BALANCE SHEETS

As of December 31, 2000 and
2001


(Amounts in millions)


|                                                                                             |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |       | 
|-------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ----- | -- | --------------- |  | ---- | ------- | ------ |  |  | ------- | ------ |  |  | ------ | ----- | 
|                                                                                             |                                                               |       |    |                
|                                                                                             |                                                               |       |    | At December 31,
|                                                                                             |                                                               |       |    |                
|                                                                                             |                                                               | Notes |    | 2000            |  | 2001 |         | 2001  
|                                                                                             |                                                               |       |    |                 |  |      |         |       
|                                                                                             |                                                               |       |    | RMB             |  | RMB  |         | US$   
|ASSETS                                                                                       |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|Current assets                                                                               |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|                                                                                             | Cash and cash equivalents                                     |       |    | 10              |  |      |         | 18,060 |  |  |         | 11,117 |  |  |        | 1,343 | 
|                                                                                             | Time deposits with maturities over three months               |       |    |                 |  |      |         |       |  |  |         | 3,253  |  |  |        | 393   | 
|                                                                                             | Receivables under resale agreements                           |       |    | 11              |  |      |         | 5,815  |  |  |         | 11,505 |  |  |        | 1,390 | 
|                                                                                             | Notes receivable                                              |       |    | 12              |  |      |         | 2,464  |  |  |         | 2,359  |  |  |        | 285   | 
|                                                                                             | Accounts receivable, less allowance for doubtful
    accounts |       |    | 13              |  |      |         | 12,695 |  |  |         | 7,909  |  |  |        | 956   | 
|                                                                                             | Inventories                                                   |       |    | 14              |  |      |         | 31,514 |  |  |         | 27,961 |  |  |        | 3,378 | 
|                                                                                             | Prepaid expenses and other current assets                     |       |    | 15              |  |      |         | 8,933  |  |  |         | 22,308 |  |  |        | 2,695 | 
|                                                                                             |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|TOTAL CURRENT ASSETS                                                                         |                                                               |       |    |                 |  |      | 79,481  |        |  |  | 86,412  |        |  |  | 10,440 |      
|Property, plant and equipment, less accumulated
    depreciation, depletion and amortization |                                                               |       | 16 |                 |  |      | 341,229 |        |  |  | 365,063 |        |  |  | 44,108 |      
|Long term investments                                                                        |                                                               |       | 17 |                 |  |      | 4,784   |        |  |  | 5,436   |        |  |  | 657    |      
|Intangible and other assets                                                                  |                                                               |       | 18 |                 |  |      | 2,586   |        |  |  | 3,963   |        |  |  | 479    |      
|                                                                                             |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|TOTAL ASSETS                                                                                 |                                                               |       |    |                 |  |      | 428,080 |        |  |  | 460,874 |        |  |  | 55,684 |      
|                                                                                             |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                     |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|Current liabilities                                                                          |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|                                                                                             | Short-term debt                                               |       |    | 20              |  |      |         | 39,076 |  |  |         | 23,111 |  |  |        | 2,792 | 
|                                                                                             | Accounts payable and accrued liabilities                      |       |    | 19              |  |      |         | 36,802 |  |  |         | 51,214 |  |  |        | 6,189 | 
|                                                                                             | Income tax payable                                            |       |    |                 |  |      |         | 9,399  |  |  |         | 5,672  |  |  |        | 685   | 
|                                                                                             | Other taxes payable                                           |       |    |                 |  |      |         | 7,171  |  |  |         | 8,751  |  |  |        | 1,057 | 
|                                                                                             |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|TOTAL CURRENT LIABILITIES                                                                    |                                                               |       |    |                 |  |      | 92,448  |        |  |  | 88,748  |        |  |  | 10,723 |      
|Long-term debt                                                                               |                                                               |       | 20 |                 |  |      | 53,341  |        |  |  | 65,484  |        |  |  | 7,912  |      
|Deferred credits and other long-term obligations                                             |                                                               |       |    |                 |  |      | 1,176   |        |  |  | 1,354   |        |  |  | 164    |      
|Deferred income taxes                                                                        |                                                               |       | 21 |                 |  |      | 3,169   |        |  |  | 7,030   |        |  |  | 849    |      
|                                                                                             |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|TOTAL LIABILITIES                                                                            |                                                               |       |    |                 |  |      | 150,134 |        |  |  | 162,616 |        |  |  | 19,648 |      
|                                                                                             |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|MINORITY INTERESTS                                                                           |                                                               |       |    |                 |  |      | 4,989   |        |  |  | 5,136   |        |  |  | 621    |      
|                                                                                             |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|SHAREHOLDERS EQUITY                                                                         |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|State-owned shares                                                                           |                                                               |       | 22 |                 |  |      | 158,242 |        |  |  | 158,242 |        |  |  | 19,119 |      
|H shares and ADSs (each representing
    100 H shares)                                       |                                                               |       | 22 |                 |  |      | 17,582  |        |  |  | 17,582  |        |  |  | 2,124  |      
|                                                                                             |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|Share capital, issued and outstanding,
    RMB 1.00 par value                                |                                                               |       |    |                 |  |      | 175,824 |        |  |  | 175,824 |        |  |  | 21,243 |      
|Retained earnings                                                                            |                                                               |       |    |                 |  |      | 33,057  |        |  |  | 40,724  |        |  |  | 4,920  |      
|Capital reserve                                                                              |                                                               |       | 23 |                 |  |      | (31,224 | )      |  |  | (31,168 | )      |  |  | (3,766 | )    
|Revaluation reserve                                                                          |                                                               |       | 23 |                 |  |      | 79,945  |        |  |  | 79,945  |        |  |  | 9,659  |      
|Statutory common reserve fund                                                                |                                                               |       | 23 |                 |  |      | 8,948   |        |  |  | 16,219  |        |  |  | 1,960  |      
|Statutory common welfare fund                                                                |                                                               |       | 23 |                 |  |      | 6,407   |        |  |  | 11,578  |        |  |  | 1,399  |      
|                                                                                             |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|SHAREHOLDERS EQUITY                                                                         |                                                               |       |    |                 |  |      | 272,957 |        |  |  | 293,122 |        |  |  | 35,415 |      
|                                                                                             |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      
|TOTAL LIABILITIES AND SHAREHOLDERS
    EQUITY                                               |                                                               |       |    |                 |  |      | 428,080 |        |  |  | 460,874 |        |  |  | 55,684 |      
|                                                                                             |                                                               |       |    |                 |  |      |         |        |  |  |         |        |  |  |        |      

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

F-4



---



##### Table of Contents






PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended December 31, 1999,
2000 and 2001


(Amounts in millions)


|                                              |                             |                                                                        |        |         |        |      |         |         |         |   |         |         |        |   |        |        |        |  
|--------------------------------------------- | --------------------------- | ---------------------------------------------------------------------- | ------ | ------- | ------ | ---- | ------- | ------- | ------- | - | ------- | ------- | ------ | - | ------ | ------ | ------ | -
|                                              |                             |                                                                       
|                                              |                             | Year Ended December 31,                                               
|                                              |                             |                                                                       
|                                              |                             | 1999                                                                   |        | 2000    |        | 2001 |         | 2001   
|                                              |                             |                                                                        |        |         |        |      |         |        
|                                              |                             | RMB                                                                    |        | RMB     |        | RMB  |         | US$    
|CASH FLOWS FROM OPERATING ACTIVITIES          |                             |                                                                        |        |         |        |      |         |         |         |   |         |         |        |   |        |       
|                                              | Income before income taxes  |                                                                        |        | 36,531  |        |      |         | 82,051  |         |   |         | 69,458  |        |   |        | 8,392  |       
|                                              | Adjustments for:            |                                                                        |        |         |        |      |         |         |         |   |         |         |        |   |        |        |       
|                                              |                             | Depreciation, depletion and amortization                               |        |         | 23,188 |      |         |         | 33,760  |   |         |         | 33,367 |   |        |        | 4,032  |  
|                                              |                             | Provision for shut down of manufacturing assets                        |        |         |       |      |         |         | 2,364   |   |         |         |       |   |        |        |       |  
|                                              |                             | Dry hole cost                                                          |        |         | 4,162  |      |         |         | 4,367   |   |         |         | 3,422  |   |        |        | 413    |  
|                                              |                             | Provision for doubtful accounts                                        |        |         | 751    |      |         |         | 1,577   |   |         |         | 1,317  |   |        |        | 160    |  
|                                              |                             | Provision for diminution in value of inventories                       |        |         | 19     |      |         |         | 1,236   |   |         |         | (586   | ) |        |        | (71    | )
|                                              |                             | Provision for diminution in value of investments                       |        |         | 133    |      |         |         | 23      |   |         |         | 34     |   |        |        | 4      |  
|                                              |                             | Revaluation loss                                                       |        |         | 1,122  |      |         |         |        |   |         |         |       |   |        |        |       |  
|                                              |                             | Loss on disposal of property, plant and equipment                      |        |         | 331    |      |         |         | 368     |   |         |         | 165    |   |        |        | 20     |  
|                                              |                             | Loss on disposal of available-for-sale investments                     |        |         |       |      |         |         |        |   |         |         | 20     |   |        |        | 3      |  
|                                              |                             | Loss on disposal of intangible and other assets                        |        |         |       |      |         |         |        |   |         |         | 13     |   |        |        | 2      |  
|                                              |                             | Dividend income                                                        |        |         | (46    | )    |         |         | (33     | ) |         |         | (123   | ) |        |        | (15    | )
|                                              |                             | Interest income                                                        |        |         | (632   | )    |         |         | (584    | ) |         |         | (799   | ) |        |        | (97    | )
|                                              |                             | Interest expense                                                       |        |         | 8,896  |      |         |         | 6,048   |   |         |         | 4,149  |   |        |        | 501    |  
|                                              |                             | Net loss from assets retained by CNPC                                  |        |         | 2,302  |      |         |         |        |   |         |         |       |   |        |        |       |  
|                                              | Changes in working capital: |                                                                        |        |         |        |      |         |         |         |   |         |         |        |   |        |        |       
|                                              |                             |  accounts receivable and prepaid
    expense and other current assets |        |         | (4,675 | )    |         |         | 18,002  |   |         |         | (9,801 | ) |        |        | (1,184 | )
|                                              |                             |  inventories                                                          |        |         | (128   | )    |         |         | (15,148 | ) |         |         | 4,139  |   |        |        | 500    |  
|                                              |                             |  payables and accrued liabilities                                     |        |         | 1,061  |      |         |         | (5,182  | ) |         |         | 6,260  |   |        |        | 756    |  
|                                              |                             |                                                                        |        |         |        |      |         |         |         |   |         |         |        |   |        |       
|CASH GENERATED FROM OPERATIONS                |                             |                                                                        | 73,015 |         |        |      | 128,849 |         |         |   | 111,035 |         |        |   | 13,416 |       
|                                              | Interest received           |                                                                        |        | 632     |        |      |         | 584     |         |   |         | 799     |        |   |        | 97     |       
|                                              | Interest paid               |                                                                        |        | (9,167  | )      |      |         | (8,692  | )       |   |         | (4,461  | )      |   |        | (539   | )     
|                                              | Income taxes paid           |                                                                        |        | (10,427 | )      |      |         | (16,572 | )       |   |         | (22,881 | )      |   |        | (2,765 | )     
|                                              |                             |                                                                        |        |         |        |      |         |         |         |   |         |         |        |   |        |       
|NET CASH PROVIDED BY OPERATING
    ACTIVITIES |                             |                                                                        | 54,053 |         |        |      | 104,169 |         |         |   | 84,492  |         |        |   | 10,209 |       
|                                              |                             |                                                                        |        |         |        |      |         |         |         |   |         |         |        |   |        |       

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

F-5



---



##### Table of Contents



PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

For the Years Ended December 31, 1999,
2000 and 2001


(Amounts in millions)


|                                                 |                                                                 |                         |         |         |   |      |         |         |   |  |         |         |   |  |        |        |  
|------------------------------------------------ | --------------------------------------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------- | - |  | ------- | ------- | - |  | ------ | ------ | -
|                                                 |                                                                 |                        
|                                                 |                                                                 | Year Ended December 31,
|                                                 |                                                                 |                        
|                                                 |                                                                 | 1999                    |         | 2000    |   | 2001 |         | 2001   
|                                                 |                                                                 |                         |         |         |   |      |         |        
|                                                 |                                                                 | RMB                     |         | RMB     |   | RMB  |         | US$    
|CASH FLOWS FROM INVESTING ACTIVITIES             |                                                                 |                         |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|                                                 | Capital expenditures                                            |                         |         | (42,870 | ) |      |         | (56,759 | ) |  |         | (51,118 | ) |  |        | (6,176 | )
|                                                 | Capital expenditures for assets retained by CNPC                |                         |         | (111    | ) |      |         |        |   |  |         |        |   |  |        |       |  
|                                                 | Acquisition of equity affiliates                                |                         |         | (73     | ) |      |         | (380    | ) |  |         | (942    | ) |  |        | (114   | )
|                                                 | Income from equity affiliates                                   |                         |         | (128    | ) |      |         | (584    | ) |  |         | (341    | ) |  |        | (41    | )
|                                                 | Repayment of capital by equity affiliates                       |                         |         |        |   |      |         | 278     |   |  |         | 275     |   |  |        | 33     |  
|                                                 | Acquisition of available-for-sale investments                   |                         |         | (287    | ) |      |         | (947    | ) |  |         | (176    | ) |  |        | (21    | )
|                                                 | Acquisition of receivables under resale agreements              |                         |         | (1,434  | ) |      |         | (4,328  | ) |  |         | (5,690  | ) |  |        | (688   | )
|                                                 | Acquisition of intangible assets                                |                         |         | (452    | ) |      |         | (249    | ) |  |         | (412    | ) |  |        | (50    | )
|                                                 | Acquisition of other non-current assets                         |                         |         | (138    | ) |      |         | (934    | ) |  |         | (1,492  | ) |  |        | (180   | )
|                                                 | Proceeds from disposal of property, plant and
    equipment     |                         |         | 4,986   |   |      |         | 3,149   |   |  |         | 907     |   |  |        | 110    |  
|                                                 | Proceeds from disposal of equity affiliates                     |                         |         |        |   |      |         |        |   |  |         | 225     |   |  |        | 27     |  
|                                                 | Proceeds from disposal of available-for-sale
    investments    |                         |         |        |   |      |         |        |   |  |         | 99      |   |  |        | 12     |  
|                                                 | Dividends received                                              |                         |         | 89      |   |      |         | 353     |   |  |         | 294     |   |  |        | 35     |  
|                                                 | Increase in time deposits with maturities over
    three months |                         |         |        |   |      |         |        |   |  |         | (3,253  | ) |  |        | (393   | )
|                                                 |                                                                 |                         |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|NET CASH USED FOR INVESTING
    ACTIVITIES       |                                                                 |                         | (40,418 | )       |   |      | (60,401 | )       |   |  | (61,624 | )       |   |  | (7,446 | )     
|                                                 |                                                                 |                         |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES             |                                                                 |                         |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|                                                 | New short-term debt                                             |                         |         | 53,166  |   |      |         | 26,136  |   |  |         | 23,913  |   |  |        | 2,889  |  
|                                                 | Repayments of short-term debt                                   |                         |         | (57,497 | ) |      |         | (37,731 | ) |  |         | (35,134 | ) |  |        | (4,245 | )
|                                                 | New long-term debt                                              |                         |         | 34,341  |   |      |         | 45,198  |   |  |         | 21,255  |   |  |        | 2,568  |  
|                                                 | Repayments of long-term debt                                    |                         |         | (54,280 | ) |      |         | (85,462 | ) |  |         | (13,689 | ) |  |        | (1,654 | )
|                                                 | Principal payment on capital lease obligations                  |                         |         | (141    | ) |      |         | (141    | ) |  |         | (167    | ) |  |        | (20    | )
|                                                 | Dividends paid to minority interests                            |                         |         | (18     | ) |      |         | (33     | ) |  |         | (60     | ) |  |        | (7     | )
|                                                 | Capital contribution from minority interests                    |                         |         | 128     |   |      |         | 1,132   |   |  |         | 592     |   |  |        | 72     |  
|                                                 | Cash proceeds on issue of shares                                |                         |         |        |   |      |         | 20,336  |   |  |         |        |   |  |        |       |  
|                                                 | Contribution from (distribution to) CNPC                        |                         |         | 14,267  |   |      |         | (2,640  | ) |  |         |        |   |  |        |       |  
|                                                 | Dividends paid                                                  |                         |         |        |   |      |         | (10,381 | ) |  |         | (26,699 | ) |  |        | (3,226 | )
|                                                 | Contributions from CNPC for assets retained by
    CNPC         |                         |         | 111     |   |      |         |        |   |  |         |        |   |  |        |       |  
|                                                 | Change in deferred credits and other long-term
    Obligations  |                         |         | (973    | ) |      |         | 30      |   |  |         | 178     |   |  |        | 21     |  
|                                                 |                                                                 |                         |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|NET CASH USED FOR FINANCING
    ACTIVITIES       |                                                                 |                         | (10,896 | )       |   |      | (43,556 | )       |   |  | (29,811 | )       |   |  | (3,602 | )     
|                                                 |                                                                 |                         |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|(Decrease)/increase in cash and cash equivalents |                                                                 |                         | 2,739   |         |   |      | 212     |         |   |  | (6,943  | )       |   |  | (839   | )     
|Cash and cash equivalents at beginning of year   |                                                                 |                         | 15,109  |         |   |      | 17,848  |         |   |  | 18,060  |         |   |  | 2,182  |       
|                                                 |                                                                 |                         |         |         |   |      |         |         |   |  |         |         |   |  |        |       
|Cash and cash equivalents at end of year         |                                                                 |                         | 17,848  |         |   |      | 18,060  |         |   |  | 11,117  |         |   |  | 1,343  |       
|                                                 |                                                                 |                         |         |         |   |      |         |         |   |  |         |         |   |  |        |       

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

F-6



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##### Table of Contents






PETROCHINA COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

For the Years Ended December 31, 1999,
2000 and 2001


(Amounts in millions)


|                                                                |  |           |         |               |  |          |          |           |  |       |         |   |  |  |         |   |  |  |         |  
|--------------------------------------------------------------- |  | --------- | ------- | ------------- |  | -------- | -------- | --------- |  | ----- | ------- | - |  |  | ------- | - |  |  | ------- | -
|                                                                |  | Share     |         | Capital and   |  |          |          |           |  |      
|                                                                |  | Capital   |         | Undistributed |  | Retained |          | Reserves  |  |      
|                                                                |  | (Note 22) |         | Earnings      |  | Earnings |          | (Note 23) |  | Total
|                                                                |  |           |         |               |  |          |          |           |  |      
|                                                                |  | RMB       |         | RMB           |  | RMB      |          | RMB       |  | RMB  
|Balance at January 1, 1999                                      |  |           |        |               |  |          | 78,133   |           |  |       |        |   |  |  |        |   |  |  | 78,133  |  
|Revaluation surplus                                             |  |           |        |               |  |          |         |           |  |       |        |   |  |  | 79,945  |   |  |  | 79,945  |  
|Net income from January 1, 1999 to
    November 4, 1999         |  |           |        |               |  |          | 23,439   |           |  |       |        |   |  |  |        |   |  |  | 23,439  |  
|Net contribution by owner                                       |  |           |        |               |  |          | 16,631   |           |  |       |        |   |  |  |        |   |  |  | 16,631  |  
|Deferred tax transferred to capital reserve (Note
    21)       |  |           |        |               |  |          |         |           |  |       |        |   |  |  | 8,701   |   |  |  | 8,701   |  
|Capitalization upon establishment of the Company
    (Note 1)   |  |           | 160,000 |               |  |          | (118,203 | )         |  |       |        |   |  |  | (41,797 | ) |  |  |        |  
|                                                                |  |           |         |               |  |          |          |           |  |       |         |   |  |  |         |   |  |  |         |  
|Balance at November 4, 1999                                     |  |           | 160,000 |               |  |          |         |           |  |       |        |   |  |  | 46,849  |   |  |  | 206,849 |  
|Net income from November 5, 1999 to
    December 31, 1999       |  |           |        |               |  |          |         |           |  |       | 3,562   |   |  |  |        |   |  |  | 3,562   |  
|Transfer from retained earnings to reserves                     |  |           |        |               |  |          |         |           |  |       | (236    | ) |  |  | 236     |   |  |  |        |  
|                                                                |  |           |         |               |  |          |          |           |  |       |         |   |  |  |         |   |  |  |         |  
|Balance at December 31, 1999                                    |  |           | 160,000 |               |  |          |         |           |  |       | 3,326   |   |  |  | 47,085  |   |  |  | 210,411 |  
|Net income for the year ended December 31,
    2000             |  |           |        |               |  |          |         |           |  |       | 55,231  |   |  |  |        |   |  |  | 55,231  |  
|Issue of shares (Notes 22 and 23)                               |  |           | 15,824  |               |  |          |         |           |  |       |        |   |  |  | 4,512   |   |  |  | 20,336  |  
|Transfer to reserves (Note 23)                                  |  |           |        |               |  |          |         |           |  |       | (8,925  | ) |  |  | 8,925   |   |  |  |        |  
|Transfer to reserves by subsidiaries
    (Note 23)              |  |           |        |               |  |          |         |           |  |       | (6,194  | ) |  |  | 6,194   |   |  |  |        |  
|Distribution to CNPC (Note 9)                                   |  |           |        |               |  |          |         |           |  |       |        |   |  |  | (2,640  | ) |  |  | (2,640  | )
|Interim dividend (Note 9)                                       |  |           |        |               |  |          |         |           |  |       | (10,381 | ) |  |  |        |   |  |  | (10,381 | )
|                                                                |  |           |         |               |  |          |          |           |  |       |         |   |  |  |         |   |  |  |         |  
|Balance at December 31, 2000                                    |  |           | 175,824 |               |  |          |         |           |  |       | 33,057  |   |  |  | 64,076  |   |  |  | 272,957 |  
|Net income for the year ended December 31,
    2001             |  |           |        |               |  |          |         |           |  |       | 46,808  |   |  |  |        |   |  |  | 46,808  |  
|Premium arising from issue of shares by an equity
    affiliate |  |           |        |               |  |          |         |           |  |       |        |   |  |  | 56      |   |  |  | 56      |  
|Transfer to reserves (Note 23)                                  |  |           |        |               |  |          |         |           |  |       | (7,536  | ) |  |  | 7,536   |   |  |  |        |  
|Transfer to reserves by subsidiaries
    (Note 23)              |  |           |        |               |  |          |         |           |  |       | (4,906  | ) |  |  | 4,906   |   |  |  |        |  
|Final dividend for 2000 (Note 9)                                |  |           |        |               |  |          |         |           |  |       | (14,473 | ) |  |  |        |   |  |  | (14,473 | )
|Interim dividend for 2001 (Note 9)                              |  |           |        |               |  |          |         |           |  |       | (12,226 | ) |  |  |        |   |  |  | (12,226 | )
|                                                                |  |           |         |               |  |          |          |           |  |       |         |   |  |  |         |   |  |  |         |  
|Balance at December 31, 2001                                    |  |           | 175,824 |               |  |          |         |           |  |       | 40,724  |   |  |  | 76,574  |   |  |  | 293,122 |  
|                                                                |  |           |         |               |  |          |          |           |  |       |         |   |  |  |         |   |  |  |         |  
|Balance at December 31, 2001 in US$                             |  |           | 21,243  |               |  |          |         |           |  |       | 4,920   |   |  |  | 9,252   |   |  |  | 35,415  |  
|                                                                |  |           |         |               |  |          |          |           |  |       |         |   |  |  |         |   |  |  |         |  

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

F-7



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##### Table of Contents






PETROCHINA COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS

(Amounts in millions unless otherwise
stated)


1     ORGANIZATION
AND PRINCIPAL ACTIVITIES

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

China National Petroleum Company (the predecessor
of CNPC) was established in 1988 to take over the onshore oil
and gas exploration and production entities formerly under the
administration of the Ministry of Petroleum Industry. In 1998,
in accordance with the decisions made at the Ninth Session of
the National Peoples Congress, the State Council approved
a comprehensive restructuring plan for Chinas oil and gas
industry to form CNPC. The principal goal of this restructuring
was to eventually create two nationwide vertically integrated
oil and gas companies. As part of the restructuring, which
became effective on June 1, 1998, CNPC transferred to China
Petrochemical Corporation (Sinopec) certain crude
oil and natural gas production enterprises located in the
eastern and coastal regions of China, and Sinopec transferred to
CNPC certain refineries and petrochemical plants located in the
north-eastern, northern and western regions of China.

In accordance with the restructuring agreement
between CNPC and the Company effective as of November 5,
1999, the Company issued 160,000 shares in exchange for the
assets and liabilities transferred to the Company by CNPC. The
160,000 shares were the initial registered capital of the
Company with a par value of RMB 1.00 per share.

CNPC transferred to the Company certain assets,
liabilities and interests in China related to (i) the
exploration, development and production of crude oil and natural
gas, (ii) the refining, transportation, storage and
marketing of crude oil and petroleum products, (iii) the
production and sale of chemicals, and (iv) the
transmission, marketing and sale of natural gas. The assets,
liabilities and interests transferred by CNPC to the Company
include (i) 13 crude oil and natural gas exploration and
production enterprises and one exploration unit, (ii) 15
refining and petrochemical production enterprises, (iii) 21
marketing companies, (iv) one pipeline transmission
company, (v) two research institutions, and
(vi) production sharing contracts (collectively the
Core Units). CNPC retained five chemical production
facilities (Note 24) and certain other assets, liabilities and
interests relating to its remaining business and operations, as
well as certain domestic and all foreign subsidiaries and joint
ventures.

2     BASIS OF
PREPARATION

The financial statements are presented on the
consolidated basis beginning November 5, 1999 (date of
formation of the Company) and on a carve-out combined basis for
the periods prior to November 5, 1999. The carve-out
combined basis presents the results of the Company and its
subsidiaries (the Group) as if the Group had been in
existence throughout all periods prior to November 5, 1999
and as if the predecessor operations and businesses of the Core
Units and the five chemical production facilities retained by
CNPC (Note 24) were transferred to the Company from CNPC as of
the earliest period presented. In this context, no direct
ownership existed in the historical periods among all the Core
Units and accordingly, owners equity is shown in lieu of
stockholders equity in the combined financial statements
until November 5, 1999.

F-8



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


The Restructuring has been accounted for as a
reorganization of business under common control and the Group is
regarded as a continuing entity.

The consolidated financial statements reflect
assets, liabilities, revenues and expenses that were directly
applicable to the businesses and operations transferred to the
Group by CNPC including those for which the management may
restructure or close although no specific plans have been
approved. Management believes that all historical costs of
operations, including those that were and are expected to be
disposed of or eliminated, have been included in the
consolidated financial statements.

Expenses that could be specifically identified
include the following:



| |   |                                         
| | - | ----------------------------------------
| |  | purchases, services and other           
|
| |  | field employee compensation costs       
|
| |  | exploration expenses                    
|
| |  | depreciation, depletion and amortization
|
| |  | taxes other than income taxes           
|
| |  | exchange gain and loss                  
|
| |  | interest expense                        

For the periods prior to November 5, 1999,
for those expenses for which a specific identification method
was not practical, the allocation was made for each business
segment as a percentage of the historical employee numbers,
revenues or respective assets which existed during the period
for which they are being used to allocate costs. Costs allocated
to the Group from CNPC include two expense categories, employee
compensation costs and selling, general and administrative
expenses. Employee compensation costs related to housing
subsidies and wages, salaries and social security costs of
administration departments were allocated to the Group based on
the percentage of number of employees of the Group to the total
historical number of employees of CNPC. Selling, general and
administrative expenses not specifically identifiable to the
carved-out operations were allocated to the Group based on the
total historical revenues, assets or employee numbers as
follows: (i) transportation expenses were allocated to the
Group based on the percentage of revenues of the Group to total
historical revenues of CNPC, (ii) land use fees, property
taxes and vehicle taxes were allocated to the Group based on the
percentage of respective assets of the Group to total historical
respective assets of CNPC, (iii) other selling, general and
administrative expenses primarily including advertising, water,
power, travel and office expenses were allocated to the Group
based on the percentage of number of employees of the Group to
the total historical number of employees of CNPC. The allocation
methodology used for each business segment is the same as that
used to allocate costs from CNPC to the Group. Management
believes that the foregoing presents a reasonable basis of
estimating what the Groups expenses would have been on a
historical basis. Subsequent to the formation of the Company,
these costs are specifically identified and certain products and
services are billed directly under the Comprehensive Products
and Services Agreement.

The Group is part of a larger group of companies
under CNPC and has conducted a portion of its operations through
arrangements with related parties. In accordance with the terms
of the Comprehensive Products and Services Agreement, the Land
Use Rights Leasing Contract and the Buildings Leasing Contract
entered into between the Company and CNPC upon the formation

F-9



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


of the Company, the Group incurred additional
operating expenses of approximately RMB 429 for the period
from November 5, 1999 to December 31, 1999.

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

The consolidated financial statements are
expressed in Renminbi (RMB), the national currency
of the PRC. Solely for the convenience of the reader, the
December 31, 2001 financial statements have been translated
into United States dollars at the noon buying rate in
New York City on December 31, 2001 for cable transfers
in Renminbi as certified for customs purposes by the Federal
Reserve Bank of New York of
US$1.00 = RMB 8.2766. No representation is made
that the Renminbi amounts could have been, or could be,
converted into United States dollars at that rate or at any
other certain rate on December 31, 2001, or at any other
date.

The preparation of financial statements in
accordance with IAS requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. Actual results could differ
from these estimates.

3     SUMMARY OF
PRINCIPAL ACCOUNTING POLICIES

(a) Basis
of consolidation

The consolidated financial statements include the
financial statements of the Company and the subsidiaries in
which the Company directly or indirectly owns more than
50 percent voting interest or otherwise has the power to
exercise control over their operations. The results of
operations of subsidiaries are included in the consolidated
statement of income, and the share attributable to minority
interests is excluded from the consolidated net income.
Intercompany balances and transactions have been eliminated.

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

(b) Investments
in equity affiliates

Equity companies are entities in which the Group
holds between 20% and 50% of the voting rights, or over which
the Group has significant influence, but which it does not
control and are accounted for using the equity method. Such
equity interests are carried in the balance sheet at amounts
that reflect its share of the net assets of the equity
affiliates and include goodwill on acquisition. Equity
accounting involves recognizing in the consolidated income
statement the Groups share of the income or loss for the
year of the equity affiliates.

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

(c) Foreign
currencies

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

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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


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

(d) Financial
instruments

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

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

(e) Investments

On January 1, 2001 the Group adopted IAS 39
and classified its investments into the following categories:
trading, held-to-maturity and available-for-sale. Investments
that are acquired principally for the purpose of generating a
profit from short-term fluctuations in price are classified as
trading investments and included in current assets; during the
year the Group did not hold any investments in this category.
Investments with fixed maturity that the management has the
intent and ability to hold to maturity are classified as
held-to-maturity and are included in current assets if their
respective maturity dates are twelve months or less from balance
sheet date, or in non-current assets if their respective
maturity dates are more than twelve months from balance sheet
date; during the year the Group did not hold any investments in
this category. Investments intended to be held for an indefinite
period of time, which may be sold in response to needs for
liquidity or changes in interest rates, are classified as
available-for-sale; these are included in non-current assets
unless management has the express intention of holding the
investment for less than 12 months from the balance sheet
date or unless they will need to be sold to raise operating
capital, in which case they are included in current assets.
Management determines the appropriate classification of its
investments at the time of the purchase and re-evaluates such
designation on a regular basis.

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

(f) Property,
plant and equipment

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

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

F-11



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


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

|                             |  |                                              
|---------------------------- |  | ---------------------------------------------
|Land use rights              |  | over the land use right period of 30-50 years
|Buildings                    |  | 25-40 years                                  
|Plant and machinery          |  | 10-15 years                                  
|Equipment and motor vehicles |  | 3-16 years                                   

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

The Group adopted IAS 36, Impairment of
Assets, effective January 1, 2000. Property, plant
and equipment are reviewed for possible impairment by evaluating
whether the carrying amount of an individual asset exceeds the
higher of its net selling price and its value in use, which is
the estimated net present value of future cash flows to be
derived from the continuing use of the asset and from its
ultimate disposal. Prior to adoption of IAS 36, review for
possible impairment was based on the criteria in Statement of
Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of. Adoption of IAS 36 did not
have a material effect on the financial statements of the Group.

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

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

Interest and other costs on borrowings to finance
the construction of property, plant and equipment are
capitalized during the period of time that is required to
complete and prepare the property for its intended use.

Costs for planned major maintenance activities,
primarily related to refinery turnarounds, are expensed as
incurred except for costs of components that result in
improvements and betterments which are capitalized as part of
property, plant and equipment and depreciated over their useful
lives, which is generally the period until the next scheduled
major maintenance.

(g) Oil
and gas properties

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

The Ministry of Land and Resources in China
issues production licenses to applicants on the basis of the
reserve reports approved by relevant authorities. Administrative
rules issued by the

F-12



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


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

(h) Intangible
assets

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

(i) Leases

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

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

(j) Related
parties

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

F-13



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


(k) Inventories

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

(l) Trade
receivables

Trade receivables are carried at original invoice
amount less provision made for impairment of these receivables.
Such provision for impairment of trade receivables is
established if there is objective evidence that the Group will
not be able to collect all amounts due according to the original
terms of receivables. The amount of the provision is the
difference between the carrying amount and the recoverable
amount, being the present value of expected cash flows,
discounted at the market rate of interest for similar borrowers.

(m) Cash
and cash equivalents

Cash equivalents comprise cash in hand and
investments with maturities of three months or less from the
time of purchase.

(n) Debts

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

(o) Taxation

Approval was obtained from the State
Administration for Taxation to report taxable income on a
consolidated basis commencing from the formation of the Company.
Prior to the formation of Company, income tax was provided on
the taxable income of each of the individual Core Units, which
file separate tax returns for the year in which they were
chargeable to tax.

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

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

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

F-14



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


(p) Revenue
recognition

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

(q) Provisions

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

(r) Research
and development expenses

Research expenditure incurred is recognized as an
expense. Costs incurred on development projects are recognized
as intangible assets to the extent that such expenditure is
expected to generate future economic benefits. Research and
development expenses were RMB 1,023, RMB 1,751 and
RMB 1,896 for the years ended December 31, 1999, 2000
and 2001, respectively.

(s) Retirement
benefit plans

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

(t) New
accounting developments

The International Accounting Standards Committee
(IASC) has issued IAS 41
Agriculture, effective for financial statements
covering periods beginning on or after January 1, 2003. The
Group does not engage in agricultural activity, therefore IAS 41
is not currently applicable to the Group.

IASCs Standing Interpretations Committee
(SIC) has recently issued SIC-27 Evaluating
the Substance of Transactions Involving the Legal Form of a
Lease, SIC-28 Business
Combinations  Date of Exchange and Fair
Value of Equity Instruments, SIC-29
Disclosure  Service Concession
Arrangements, and SIC-31 Revenue  Barter
Transactions Involving Advertising Services, effective
December 31, 2001, SIC-30 Reporting
Currency  Translation from Measurement Currency to
Presentation Currency and SIC-33 Consolidation and
Equity Method  Potential Voting Rights and Allocation
of Ownership Interests, effective for annual financial
periods beginning on or after January 1, 2002, and SIC-32
Intangible Assets  Web Site Costs,
effective March 25, 2002. The Group has implemented SIC-27
on December 31, 2001 and the adoption of this new SIC-27
did not have a material impact on the reported financial
position or results of the Group. SIC-28, SIC-29, SIC-30,
SIC-31, SIC-32 and SIC-33 are not currently applicable to the
Group.

F-15



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


4     EMPLOYEE
COMPENSATION COSTS

|                      |  |                         |        |      |  |      |        |  |  |  |        | 
|--------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                      |  |                        
|                      |  | Year Ended December 31,
|                      |  |                        
|                      |  | 1999                    |        | 2000 |  | 2001
|                      |  |                         |        |      |  |     
|                      |  | RMB                     |        | RMB  |  | RMB 
|Wages and salaries    |  |                         | 7,807  |      |  |      | 9,082  |  |  |  | 9,244  | 
|Social security costs |  |                         | 3,257  |      |  |      | 5,348  |  |  |  | 4,748  | 
|                      |  |                         |        |      |  |      |        |  |  |  |        | 
|                      |  |                         | 11,064 |      |  |      | 14,430 |  |  |  | 13,992 | 
|                      |  |                         |        |      |  |      |        |  |  |  |        | 

(i) Social
security costs

The amounts represent contributions to funds for
staff welfare organized by the municipal and provincial
governments including contributions to the retirement benefit
plans (Note 25).

(ii) One-time
remedial payments for staff housing

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

As described in Note 1, 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 employee of the Group are to be
borne by the state shareholder of the Group and will not have a
material adverse effect on the results of operations of the
Group or its financial position. The Group is evaluating
available information and pending additional local standards and
guidelines of a number of locations in which it has operations
in order to determine a reliable estimate of the amounts payable
to the qualifying employees and reimbursable by the state
shareholder of the Group.



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

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

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

The remaining charge of RMB 2,364 related to
the write-down of certain less efficient operating facilities in
the refining (RMB 945) and chemical (RMB 1,419)
manufacturing plants. The charge of RMB 2,364 represented
the net book value of the facilities. Both the amounts of

F-16



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


estimated dismantlement and removal costs and
estimated proceeds from the sale of equipment and scrap are not
expected to be significant.

During the year ended December 31, 2001, in
addition to the above-mentioned employee separation program for
2000, the Group recorded another direct charge of RMB 478
for the separation of 5,900 employees.

6     INTEREST
EXPENSE

|                          |                  |                         |       |       |  |      |       |       |  |  |       |       | 
|------------------------- | ---------------- | ----------------------- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- | 
|                          |                  |                        
|                          |                  | Year Ended December 31,
|                          |                  |                        
|                          |                  | 1999                    |       | 2000  |  | 2001
|                          |                  |                         |       |       |  |     
|                          |                  | RMB                     |       | RMB   |  | RMB 
|Interest on               |                  |                         |       |       |  |      |       |       |  |  |       |      
|                          |  loans          |                         |       | 9,445 |  |      |       | 6,529 |  |  |       | 4,775 | 
|                          |  capital leases |                         |       | 62    |  |      |       | 27    |  |  |       | 27    | 
|Less: amounts capitalized |                  |                         | (611  | )     |  |      | (508  | )     |  |  | (653  | )    
|                          |                  |                         |       |       |  |      |       |       |  |  |       |      
|                          |                  |                         | 8,896 |       |  |      | 6,048 |       |  |  | 4,149 |      
|                          |                  |                         |       |       |  |      |       |       |  |  |       |      

Amounts capitalized are borrowing costs related
to funds borrowed specifically for the purpose of acquiring
qualifying assets. Interest rate on such capitalized borrowings
was 5.43% (2000: ranged from 5.54% to 7.94%).

7     INCOME
TAXES

|                                  |  |                         |       |      |  |      |        |  |  |  |        | 
|--------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                  |  |                        
|                                  |  | Year Ended December 31,
|                                  |  |                        
|                                  |  | 1999                    |       | 2000 |  | 2001
|                                  |  |                         |       |      |  |     
|                                  |  | RMB                     |       | RMB  |  | RMB 
|PRC current tax                   |  |                         | 9,870 |      |  |      | 24,837 |  |  |  | 19,154 | 
|Deferred tax (Note 21)            |  |                         | (498  | )    |  |      | 1,987  |  |  |  | 3,861  | 
|Share of tax of equity affiliates |  |                         | 31    |      |  |      | 161    |  |  |  | 39     | 
|                                  |  |                         |       |      |  |      |        |  |  |  |        | 
|                                  |  |                         | 9,403 |      |  |      | 26,985 |  |  |  | 23,054 | 
|                                  |  |                         |       |      |  |      |        |  |  |  |        | 

In accordance with the relevant PRC income tax
rules and regulations, the enacted PRC income tax rate
applicable to the Group is 33% (2000: 33%).

F-17



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions 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,
|                                                                                                                                    |  |                        
|                                                                                                                                    |  | 1999                    |        | 2000 |  | 2001
|                                                                                                                                    |  |                         |        |      |  |     
|                                                                                                                                    |  | RMB                     |        | RMB  |  | RMB 
|Income before income taxes                                                                                                          |  |                         | 36,531 |      |  |      | 82,051 |   |  |  | 69,458 |  
|Tax calculated at a tax rate of 33%                                                                                                 |  |                         | 12,055 |      |  |      | 27,077 |   |  |  | 22,921 |  
|Special deductions relating to exploration and
    production activities (Note (i))                                                 |  |                         | (4,111 | )    |  |      |       |   |  |  |       |  
|Unrecognized deferred tax benefit arising from
    tax losses of Core Units no longer available for use after the
    Restructuring |  |                         | 2,001  |      |  |      |       |   |  |  |       |  
|Income not subject to tax                                                                                                           |  |                         | (56    | )    |  |      |       |   |  |  | (140   | )
|Expenses not deductible for tax purposes                                                                                            |  |                         | 392    |      |  |      |       |   |  |  | 273    |  
|Other (Note (ii))                                                                                                                   |  |                         | (878   | )    |  |      | (92    | ) |  |  |       |  
|                                                                                                                                    |  |                         |        |      |  |      |        |   |  |  |        |  
|Tax charge                                                                                                                          |  |                         | 9,403  |      |  |      | 26,985 |   |  |  | 23,054 |  
|                                                                                                                                    |  |                         |        |      |  |      |        |   |  |  |        |  



---



|     |                                                                                                                                                                                                                                                                                                                                                                                                
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | Special deductions relating to exploration and
    production activities represented tax deductions in excess of
    the actual expenses with respect to exploration and production
    activities. Accordingly, these deductions represented permanent
    differences between the tax and accounting bases. Such special
    deductions ceased to be available upon formation of the Company.
|    
|(ii) | Other primarily represents depreciation on asset
    base adjustment under PRC accounting regulations not recognized
    in the IAS financial statements but deductible for tax purposes.                                                                                                                                                                                                      

8     BASIC AND
DILUTED NET INCOME PER SHARE

Basic and diluted net income per share for the
years ended December 31, 1999 have been computed by
dividing net income by the 160,000 state-owned shares issued and
outstanding upon the establishment of the Company on
November 5, 1999 as if such shares had been outstanding
during the year.

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

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

There are no dilutive potential ordinary shares.

F-18



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


9     DIVIDENDS

|                                      |  |                         |   |      |  |      |        |  |  |  |        | 
|------------------------------------- |  | ----------------------- | - | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                      |  |                        
|                                      |  | Year Ended December 31,
|                                      |  |                        
|                                      |  | 1999                    |   | 2000 |  | 2001
|                                      |  |                         |   |      |  |     
|                                      |  | RMB                     |   | RMB  |  | RMB 
|Distribution to CNPC (Note (i))       |  |                         |  |      |  |      | 2,640  |  |  |  |       | 
|Interim dividend for 2000 (Note (ii)) |  |                         |  |      |  |      | 10,381 |  |  |  |       | 
|Final dividend for 2000 (Note (iii))  |  |                         |  |      |  |      |       |  |  |  | 14,473 | 
|Interim dividend for 2001 (Note (iv)) |  |                         |  |      |  |      |       |  |  |  | 12,226 | 
|                                      |  |                         |   |      |  |      |        |  |  |  |        | 
|                                      |  |                         |  |      |  |      | 13,021 |  |  |  | 26,699 | 
|                                      |  |                         |   |      |  |      |        |  |  |  |        | 



---



|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | In accordance with the restructuring agreement
    entered into between the Company and CNPC, during the year ended
    December 31, 2000 the Company paid a distribution to CNPC
    of RMB 2,640, which represents the net income for the
    period from October 1, 1999 to November 4, 1999
    determined in accordance with the PRC accounting regulations.
    Accordingly, this distribution was recorded as a reduction to
    capital reserve (Note 23).                                                                                                                       
|     
|(ii)  | An interim dividend of RMB 0.059042 per
    share, totaling RMB 10,381 was paid on October 5, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     
|(iii) | At the meeting on April 23, 2001, the Board
    of Directors proposed a final dividend in respect of 2000 of
    RMB 0.082315 per share amounting to a total of
    RMB 14,473. The dividend payment was approved by the
    shareholders in the annual general meeting on June 8, 2001.
    This dividend payable was not accounted for in the
    Companys financial statements for the year ended
    December 31, 2000. It was paid on June 22, 2001, and
    was accounted for in shareholders equity as a deduction of
    retained earnings in the year ended December 31, 2001.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(iv) | As authorized by shareholders in the annual
    general meeting on June 8, 2001, the Board of Directors, in
    a meeting held on August 30, 2001, resolved to distribute
    an interim dividend in respect of 2001 of RMB 0.069535 per
    share amounting to RMB 12,226. This dividend was paid on
    October 8, 2001, and was accounted for in the
    shareholders equity as a deduction of retained earnings in
    the year ended December 31, 2001.
|    
|(v)  | At the meeting on April 15, 2002, the Board
    of Directors proposed a final dividend in respect of 2001 of
    RMB 0.050272 per share amounting to a total of
    RMB 8,839. These financial statements do not reflect this
    dividend payable, which will be accounted for in
    shareholders equity as a reduction of retained earnings in
    the year ending December 31, 2002.                                                                    



|   |                          
|-- | -------------------------
|10 | CASH AND CASH EQUIVALENTS

|                         |  |                 |        |      |  |  |        | 
|------------------------ |  | --------------- | ------ | ---- |  |  | ------ | 
|                         |  |                
|                         |  | At December 31,
|                         |  |                
|                         |  | 2000            |        | 2001
|                         |  |                 |        |     
|                         |  | RMB             |        | RMB 
|Cash at bank and in hand |  |                 | 18,060 |      |  |  | 11,117 | 
|                         |  |                 |        |      |  |  |        | 

The weighted average effective interest rates on
short-term bank deposits were 2.96% and 2.88% for the years
ended December 31, 2000 and 2001, respectively.

F-19



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)




|   |                                    
|-- | -----------------------------------
|11 | RECEIVABLES UNDER RESALE AGREEMENTS

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

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

12     NOTES
RECEIVABLE

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

13     ACCOUNTS
RECEIVABLE

|                                             |                       |                 |        |      |  |  |        |       | 
|-------------------------------------------- | --------------------- | --------------- | ------ | ---- |  |  | ------ | ----- | 
|                                             |                       |                
|                                             |                       | At December 31,
|                                             |                       |                
|                                             |                       | 2000            |        | 2001
|                                             |                       |                 |        |     
|                                             |                       | RMB             |        | RMB 
|Accounts receivable due from third parties   |                       |                 | 17,589 |      |  |  | 12,319 |      
|Less: Allowance for doubtful accounts        |                       |                 | (5,516 | )    |  |  | (6,207 | )    
|                                             |                       |                 |        |      |  |  |        |      
|                                             |                       |                 | 12,073 |      |  |  | 6,112  |      
|Accounts receivable due from related parties |                       |                 |        |      |  |  |        |      
|                                             |  Fellow subsidiaries |                 |        |     |  |  |        | 1,740 | 
|                                             |  Equity affiliates   |                 |        | 622  |  |  |        | 57    | 
|                                             |                       |                 |        |      |  |  |        |      
|                                             |                       |                 | 12,695 |      |  |  | 7,909  |      
|                                             |                       |                 |        |      |  |  |        |      

|                                     |  |                         |       |      |  |      |       |   |  |  |       |  
|------------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 1999                    |       | 2000 |  | 2001
|                                     |  |                         |       |      |  |     
|                                     |  | RMB                     |       | RMB  |  | RMB 
|Balance at beginning of year         |  |                         | 5,176 |      |  |      | 5,119 |   |  |  | 5,516 |  
|Provision                            |  |                         | 384   |      |  |      | 772   |   |  |  | 1,261 |  
|Amount written off against provision |  |                         | (441  | )    |  |      | (375  | ) |  |  | (570  | )
|                                     |  |                         |       |      |  |      |       |   |  |  |       |  
|Balance at end of year               |  |                         | 5,119 |      |  |      | 5,516 |   |  |  | 6,207 |  
|                                     |  |                         |       |      |  |      |       |   |  |  |       |  

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

F-20



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


14     INVENTORIES

|                                                           |  |                 |        |      |  |  |        |  
|---------------------------------------------------------- |  | --------------- | ------ | ---- |  |  | ------ | -
|                                                           |  |                
|                                                           |  | At December 31,
|                                                           |  |                
|                                                           |  | 2000            |        | 2001
|                                                           |  |                 |        |     
|                                                           |  | RMB             |        | RMB 
|Crude oil and other raw materials                          |  |                 | 8,018  |      |  |  | 7,774  |  
|Work in progress                                           |  |                 | 4,031  |      |  |  | 4,043  |  
|Finished goods                                             |  |                 | 20,817 |      |  |  | 16,829 |  
|Spare parts and consumables                                |  |                 | 107    |      |  |  | 81     |  
|                                                           |  |                 |        |      |  |  |        |  
|                                                           |  |                 | 32,973 |      |  |  | 28,727 |  
|Less: Allowance for diminution in value of
    inventories |  |                 | (1,459 | )    |  |  | (766   | )
|                                                           |  |                 |        |      |  |  |        |  
|                                                           |  |                 | 31,514 |      |  |  | 27,961 |  
|                                                           |  |                 |        |      |  |  |        |  

Movements in allowance for diminution in value of
inventories, which relate primarily to oil and chemical
products, are as follows:

|                                     |  |                         |      |      |  |      |       |   |  |  |       |  
|------------------------------------ |  | ----------------------- | ---- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 1999                    |      | 2000 |  | 2001
|                                     |  |                         |      |      |  |     
|                                     |  | RMB                     |      | RMB  |  | RMB 
|Balance at beginning of year         |  |                         | 653  |      |  |      | 454   |   |  |  | 1,459 |  
|Provision (Write back)               |  |                         | 19   |      |  |      | 1,236 |   |  |  | (586  | )
|Amount written off against provision |  |                         | (218 | )    |  |      | (231  | ) |  |  | (107  | )
|                                     |  |                         |      |      |  |      |       |   |  |  |       |  
|Balance at end of year               |  |                         | 454  |      |  |      | 1,459 |   |  |  | 766   |  
|                                     |  |                         |      |      |  |      |       |   |  |  |       |  

Cost of inventory recognized as expense
(approximates cost of goods sold) amounted to RMB 93,795,
RMB 113,055 and RMB 123,890 for the years ended
December 31, 1999, 2000 and 2001, respectively.

Inventories of the Group carried at net
realizable value amounted to RMB 14,378 and RMB 2,228
at December 31, 2000 and 2001, respectively.

No inventories were pledged at December 31,
2000 and 2001.

15     PREPAID
EXPENSES AND OTHER CURRENT ASSETS

|                                      |  |                 |        |      |  |  |        |  
|------------------------------------- |  | --------------- | ------ | ---- |  |  | ------ | -
|                                      |  |                
|                                      |  | At December 31,
|                                      |  |                
|                                      |  | 2000            |        | 2001
|                                      |  |                 |        |     
|                                      |  | RMB             |        | RMB 
|Other receivables                     |  |                 | 11,599 |      |  |  | 11,774 |  
|Less: Allowance for doubtful accounts |  |                 | (4,926 | )    |  |  | (4,551 | )
|                                      |  |                 |        |      |  |  |        |  
|                                      |  |                 | 6,673  |      |  |  | 7,223  |  
|Amounts due from CNPC                 |  |                 |       |      |  |  | 4,536  |  
|Amounts due from fellow subsidiaries  |  |                 |       |      |  |  | 8,418  |  
|Advances to suppliers                 |  |                 | 1,881  |      |  |  | 1,536  |  
|Prepaid expenses                      |  |                 | 246    |      |  |  | 260    |  
|Other current assets                  |  |                 | 133    |      |  |  | 335    |  
|                                      |  |                 |        |      |  |  |        |  
|                                      |  |                 | 8,933  |      |  |  | 22,308 |  
|                                      |  |                 |        |      |  |  |        |  

F-21



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


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

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

Movements in allowance for doubtful accounts are
as follows:

|                                     |  |                         |       |      |  |      |       |   |  |  |       |  
|------------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 1999                    |       | 2000 |  | 2001
|                                     |  |                         |       |      |  |     
|                                     |  | RMB                     |       | RMB  |  | RMB 
|Balance at beginning of year         |  |                         | 4,267 |      |  |      | 4,281 |   |  |  | 4,926 |  
|Provision                            |  |                         | 367   |      |  |      | 805   |   |  |  | 56    |  
|Amount written off against provision |  |                         | (353  | )    |  |      | (160  | ) |  |  | (431  | )
|                                     |  |                         |       |      |  |      |       |   |  |  |       |  
|Balance at end of year               |  |                         | 4,281 |      |  |      | 4,926 |   |  |  | 4,551 |  
|                                     |  |                         |       |      |  |      |       |   |  |  |       |  



|   |                              
|-- | -----------------------------
|16 | PROPERTY, PLANT AND EQUIPMENT

|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|---------------------------------------------------------------------------------------------------------------------- |  | --------- | ------ | ----------- |  | --------- | -------- | -------- |  | ----- | ------- | ------------ |  | ----- | ------ | - |  |  | ------ | - |  |  | ------- | - |  |  | -------- | -
|Year Ended                                                                                                             |  | Land and  |        | Oil and Gas |  | Plant and |          | Motor    |  |       |         | Construction |  |      
|December 31, 2000                                                                                                      |  | Buildings |        | Property    |  | Equipment |          | Vehicles |  | Other |         | in Progress  |  | Total
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |      
|                                                                                                                       |  | RMB       |        | RMB         |  | RMB       |          | RMB      |  | RMB   |         | RMB          |  | RMB  
|Cost or valuation                                                                                                      |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At beginning of the year                                                                                               |  |           | 33,654 |             |  |           | 259,370  |          |  |       | 186,796 |              |  |       | 6,865  |   |  |  | 6,112  |   |  |  | 20,722  |   |  |  | 513,519  |  
|Additions                                                                                                              |  |           | 1,938  |             |  |           | 42       |          |  |       | 2,784   |              |  |       | 328    |   |  |  | 141    |   |  |  | 54,529  |   |  |  | 59,762   |  
|Transfers                                                                                                              |  |           | 1,716  |             |  |           | 44,142   |          |  |       | 4,420   |              |  |       | 444    |   |  |  | 422    |   |  |  | (51,144 | ) |  |  |         |  
|Disposals and write off                                                                                                |  |           | (606   | )           |  |           | (18,480  | )        |  |       | (11,395 | )            |  |       | (1,583 | ) |  |  | (2,951 | ) |  |  |        |   |  |  | (35,015  | )
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At end of the year                                                                                                     |  |           | 36,702 |             |  |           | 285,074  |          |  |       | 182,605 |              |  |       | 6,054  |   |  |  | 3,724  |   |  |  | 24,107  |   |  |  | 538,266  |  
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|Accumulated depreciation                                                                                               |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At beginning of the year                                                                                               |  |           | (5,734 | )           |  |           | (113,105 | )        |  |       | (65,480 | )            |  |       | (2,387 | ) |  |  | (1,823 | ) |  |  |        |   |  |  | (188,529 | )
|Charge for the year                                                                                                    |  |           | (2,384 | )           |  |           | (17,716  | )        |  |       | (10,839 | )            |  |       | (1,591 | ) |  |  | (745   | ) |  |  |        |   |  |  | (33,275  | )
|Disposals and write off                                                                                                |  |           | 398    |             |  |           | 13,896   |          |  |       | 7,397   |              |  |       | 1,376  |   |  |  | 1,700  |   |  |  |        |   |  |  | 24,767   |  
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At end of the year                                                                                                     |  |           | (7,720 | )           |  |           | (116,925 | )        |  |       | (68,922 | )            |  |       | (2,602 | ) |  |  | (868   | ) |  |  |        |   |  |  | (197,037 | )
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|Net book value                                                                                                         |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At end of the year                                                                                                     |  |           | 28,982 |             |  |           | 168,149  |          |  |       | 113,683 |              |  |       | 3,452  |   |  |  | 2,856  |   |  |  | 24,107  |   |  |  | 341,229  |  
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|Carrying value of the property, plant and
    equipment had they been stated at cost less accumulated
    depreciation |  |           | 23,807 |             |  |           | 139,629  |          |  |       | 82,664  |              |  |       | 2,386  |   |  |  | 2,031  |   |  |  | 24,107  |   |  |  | 274,624  |  
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  

F-22



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|---------------------------------------------------------------------------------------------------------------------- |  | --------- | ------ | ----------- |  | --------- | -------- | -------- |  | ----- | ------- | ------------ |  | ----- | ------ | - |  |  | ------ | - |  |  | ------- | - |  |  | -------- | -
|Year Ended                                                                                                             |  | Land and  |        | Oil and Gas |  | Plant and |          | Motor    |  |       |         | Construction |  |      
|December 31, 2001                                                                                                      |  | Buildings |        | Property    |  | Equipment |          | Vehicles |  | Other |         | in Progress  |  | Total
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |      
|                                                                                                                       |  | RMB       |        | RMB         |  | RMB       |          | RMB      |  | RMB   |         | RMB          |  | RMB  
|Cost or valuation                                                                                                      |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At beginning of the year                                                                                               |  |           | 36,702 |             |  |           | 285,074  |          |  |       | 182,605 |              |  |       | 6,054  |   |  |  | 3,724  |   |  |  | 24,107  |   |  |  | 538,266  |  
|Additions                                                                                                              |  |           | 1,242  |             |  |           | 733      |          |  |       | 370     |              |  |       | 160    |   |  |  | 168    |   |  |  | 58,508  |   |  |  | 61,181   |  
|Transfers                                                                                                              |  |           | 10,521 |             |  |           | 33,500   |          |  |       | 10,192  |              |  |       | 646    |   |  |  | 1,212  |   |  |  | (56,071 | ) |  |  |         |  
|Disposals                                                                                                              |  |           | (632   | )           |  |           | (14,208  | )        |  |       | (616    | )            |  |       | (561   | ) |  |  | (175   | ) |  |  |        |   |  |  | (16,192  | )
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At end of the year                                                                                                     |  |           | 47,833 |             |  |           | 305,099  |          |  |       | 192,551 |              |  |       | 6,299  |   |  |  | 4,929  |   |  |  | 26,544  |   |  |  | 583,255  |  
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|Accumulated depreciation                                                                                               |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At beginning of the year                                                                                               |  |           | (7,720 | )           |  |           | (116,925 | )        |  |       | (68,922 | )            |  |       | (2,602 | ) |  |  | (868   | ) |  |  |        |   |  |  | (197,037 | )
|Charge for the year                                                                                                    |  |           | (1,888 | )           |  |           | (18,423  | )        |  |       | (11,415 | )            |  |       | (564   | ) |  |  | (563   | ) |  |  |        |   |  |  | (32,853  | )
|Disposals                                                                                                              |  |           | 334    |             |  |           | 10,736   |          |  |       | 279     |              |  |       | 247    |   |  |  | 102    |   |  |  |        |   |  |  | 11,698   |  
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At end of the year                                                                                                     |  |           | (9,274 | )           |  |           | (124,612 | )        |  |       | (80,058 | )            |  |       | (2,919 | ) |  |  | (1,329 | ) |  |  |        |   |  |  | (218,192 | )
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|Net book value                                                                                                         |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|At end of the year                                                                                                     |  |           | 38,559 |             |  |           | 180,487  |          |  |       | 112,493 |              |  |       | 3,380  |   |  |  | 3,600  |   |  |  | 26,544  |   |  |  | 365,063  |  
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  
|Carrying value of the property, plant and
    equipment had they been stated at cost less accumulated
    depreciation |  |           | 33,333 |             |  |           | 156,018  |          |  |       | 85,246  |              |  |       | 2,652  |   |  |  | 2,798  |   |  |  | 26,544  |   |  |  | 306,591  |  
|                                                                                                                       |  |           |        |             |  |           |          |          |  |       |         |              |  |       |        |   |  |  |        |   |  |  |         |   |  |  |          |  

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

|                         |  |                 |     |      |  |  |     |  
|------------------------ |  | --------------- | --- | ---- |  |  | --- | -
|                         |  |                
|                         |  | At December 31,
|                         |  |                
|                         |  | 2000            |     | 2001
|                         |  |                 |     |     
|                         |  | RMB             |     | RMB 
|Refining and marketing   |  |                 | 245 |      |  |  | 88  |  
|Chemicals                |  |                 | 433 |      |  |  | 433 |  
|Accumulated amortization |  |                 | (71 | )    |  |  | (93 | )
|                         |  |                 |     |      |  |  |     |  
|                         |  |                 | 607 |      |  |  | 428 |  
|                         |  |                 |     |      |  |  |     |  

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

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

|                           |  |                        |        |      |  |      |        |  |  |  |        | 
|-------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                           |  |                       
|                           |  | Year Ended December 31
|                           |  |                       
|                           |  | 1999                   |        | 2000 |  | 2001
|                           |  |                        |        |      |  |     
|                           |  | RMB                    |        | RMB  |  | RMB 
|Owned assets               |  |                        | 22,853 |      |  |      | 33,249 |  |  |  | 32,831 | 
|Assets under capital lease |  |                        | 35     |      |  |      | 26     |  |  |  | 22     | 

Repair and maintenance costs were RMB 4,376,
RMB 4,883 and RMB 4,235 for the years ended
December 31, 1999, 2000 and 2001, respectively.

Bank borrowings are secured on properties at net
book value of RMB 786 and RMB 539 at December 31,
2000 and 2001, respectively.

F-23



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


As part of the Restructuring and as required by
the relevant PRC regulations, a valuation of the contributed
property, plant and equipment on the asset class level by
business segment, excluding oil and gas reserves, was carried
out as of June 30, 1999 by China Enterprise Appraisal, a
firm of independent valuers registered in the PRC. The valuation
was performed in order to determine the fair value of such
contributed property, plant and equipment and establish amounts
for share capital and capital reserve. The valuation was based
on depreciated replacement costs, which will be carried out
periodically in the future.

The value of the above-contributed property,
plant and equipment was determined at RMB 309,254, which
resulted in RMB 80,549 in excess of the prior carrying
value of the property, plant and equipment as of June 30,
1999. The amount of revaluation reserve of RMB 79,945
appearing in the consolidated statement of changes in
shareholders equity represents this excess amount, net of
RMB 604 allocated to minority interests. The total increase
in the carrying value of property, plant and equipment was
recorded as an increase in the carrying value of gross property,
plant and equipment of RMB 144,452 and an increase in
accumulated depreciation of RMB 63,903 at June 30,
1999. The revaluation also identified certain property, plant
and equipment with a net carrying value in excess of the
appraised value of RMB 1,122, which was recorded as an
expense for the year ended December 31, 1999. In connection
with the application for listing of the Companys shares on
The Stock Exchange of Hong Kong Limited, the Company
engaged Chesterton Petty Limited, independent valuers in
Hong Kong, to value certain of the Groups properties
as of September 30, 1999. The valuation of such assets is
not materially different from that arrived at by China
Enterprise Appraisal as of June 30, 1999. For the purpose
of the preparation of the financial statements, the above
revaluation was recognized in the consolidated financial
statements as of June 30, 1999.

17     INVESTMENTS

|                                                           |                                    |              |       |       |  |  |       |       | 
|---------------------------------------------------------- | ---------------------------------- | ------------ | ----- | ----- |  |  | ----- | ----- | 
|                                                           |                                    |             
|                                                           |                                    | At          
|                                                           |                                    | December 31,
|                                                           |                                    |             
|                                                           |                                    | 2000         |       | 2001 
|                                                           |                                    |              |       |      
|                                                           |                                    | RMB          |       | RMB  
|Investments in equity affiliates                           |                                    |              |       |       |  |  |       |      
|                                                           | Share of net assets at end of year |              |       | 3,003 |  |  |       | 3,992 | 
|Unlisted available-for-sale investments                    |                                    |              | 2,153 |       |  |  | 1,850 |      
|                                                           |                                    |              |       |       |  |  |       |      
|                                                           |                                    |              | 5,156 |       |  |  | 5,842 |      
|Less: Allowance for diminution in value of
    investments |                                    |              | (372  | )     |  |  | (406  | )    
|                                                           |                                    |              |       |       |  |  |       |      
|Total                                                      |                                    |              | 4,784 |       |  |  | 5,436 |      
|                                                           |                                    |              |       |       |  |  |       |      

Movements in allowance for diminution in value of
investments are as follows:

|                             |  |                         |     |      |  |      |     |  |  |  |     | 
|---------------------------- |  | ----------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                             |  |                        
|                             |  | Year Ended December 31,
|                             |  |                        
|                             |  | 1999                    |     | 2000 |  | 2001
|                             |  |                         |     |      |  |     
|                             |  | RMB                     |     | RMB  |  | RMB 
|Balance at beginning of year |  |                         | 216 |      |  |      | 349 |  |  |  | 372 | 
|Provision                    |  |                         | 133 |      |  |      | 23  |  |  |  | 34  | 
|                             |  |                         |     |      |  |      |     |  |  |  |     | 
|Balance at end of year       |  |                         | 349 |      |  |      | 372 |  |  |  | 406 | 
|                             |  |                         |     |      |  |      |     |  |  |  |     | 

F-24



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


Principal affiliates accounted for under equity
method are:

|                                            |  |                |     |            |  |          |         |                      |  |  |      |  |  |                                                                                  
|------------------------------------------- |  | -------------- | --- | ---------- |  | -------- | ------- | -------------------- |  |  | ---- |  |  | ---------------------------------------------------------------------------------
|                                            |  | Country of     |     | Paid-up/   |  | Equity   |         |                     
|                                            |  | Establishment  |     | Registered |  | Interest |         |                     
|Company Name                                |  | and operations |     | Capital    |  | Held (%) |         | Principal Activities
|                                            |  |                |     |            |  |          |         |                     
|Petroleum Long Champ (Group) Co., Ltd.      |  |                | PRC |            |  |          | RMB 240 |                      |  |  | 35.9 |  |  | Design and construction of oil pipelines and
    provision of consulting services
|Dalian West Pacific Petrochemical Co., Ltd. |  |                | PRC |            |  |          | US$258  |                      |  |  | 22.9 |  |  | Production and sale of refined and petrochemical
    products                    

Share of net loss of equity affiliates included
in retained earnings of the Group was RMB 260
(2000: RMB 391) at December 31, 2001. Dividends
received and receivable from equity affiliates were RMB 171
(2000: RMB 320) in 2001.

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

Dividend income from other unlisted investments
was RMB 41 and RMB 33 and RMB 123 for the years
ended December 31, 1999, 2000 and 2001, respectively.

18     INTANGIBLE AND
OTHER ASSETS

Intangible and other assets consist of the
following:

|                   |  |                 |       |              |  |     |        |      |  |              |       |     |  |  |       |  |  |  |        |   |  |  |       | 
|------------------ |  | --------------- | ----- | ------------ |  | --- | ------ | ---- |  | ------------ | ----- | --- |  |  | ----- |  |  |  | ------ | - |  |  | ----- | 
|                   |  |                
|                   |  | At December 31,
|                   |  |                
|                   |  |                 |       |             
|                   |  | 2000            |       | 2001        
|                   |  |                 |       |             
|                   |  |                 |       | Accumulated  |  |     |        |      |  | Accumulated  |       |    
|                   |  | Cost            |       | Amortization |  | Net |        | Cost |  | Amortization |       | Net
|                   |  |                 |       |              |  |     |        |      |  |              |       |    
|                   |  | RMB             |       | RMB          |  | RMB |        | RMB  |  | RMB          |       | RMB
|Patents            |  |                 | 1,776 |              |  |     | (610   | )    |  |              | 1,166 |     |  |  | 2,063 |  |  |  | (758   | ) |  |  | 1,305 | 
|Technical know-how |  |                 | 383   |              |  |     | (97    | )    |  |              | 286   |     |  |  | 507   |  |  |  | (175   | ) |  |  | 332   | 
|                   |  |                 |       |              |  |     |        |      |  |              |       |     |  |  |       |  |  |  |        |   |  |  |       | 
|Intangible assets  |  |                 | 2,159 |              |  |     | (707   | )    |  |              | 1,452 |     |  |  | 2,570 |  |  |  | (933   | ) |  |  | 1,637 | 
|Other assets       |  |                 | 1,471 |              |  |     | (337   | )    |  |              | 1,134 |     |  |  | 2,951 |  |  |  | (625   | ) |  |  | 2,326 | 
|                   |  |                 |       |              |  |     |        |      |  |              |       |     |  |  |       |  |  |  |        |   |  |  |       | 
|                   |  |                 | 3,630 |              |  |     | (1,044 | )    |  |              | 2,586 |     |  |  | 5,521 |  |  |  | (1,558 | ) |  |  | 3,963 | 
|                   |  |                 |       |              |  |     |        |      |  |              |       |     |  |  |       |  |  |  |        |   |  |  |       | 

Amortization on intangible assets was RMB 300,
RMB 485 and RMB 514 for the years ended December 31, 1999,
2000 and 2001, respectively.

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

Other assets primarily consisted of long-term
prepaid expenses to service providers.

F-25



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


19     ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES

|                                                               |                       |                 |        |       |  |  |        |        | 
|-------------------------------------------------------------- | --------------------- | --------------- | ------ | ----- |  |  | ------ | ------ | 
|                                                               |                       |                
|                                                               |                       | At December 31,
|                                                               |                       |                
|                                                               |                       | 2000            |        | 2001 
|                                                               |                       |                 |        |      
|                                                               |                       | RMB             |        | RMB  
|Trade payables                                                 |                       |                 | 4,697  |       |  |  | 4,439  |       
|Advances from customers                                        |                       |                 | 2,445  |       |  |  | 2,826  |       
|Salaries and welfare payable                                   |                       |                 | 3,008  |       |  |  | 3,418  |       
|Accrued expenses                                               |                       |                 | 33     |       |  |  | 28     |       
|Dividends payable by subsidiaries to minority
    shareholders |                       |                 | 69     |       |  |  | 50     |       
|Interest payable                                               |                       |                 | 44     |       |  |  | 385    |       
|Construction fee and equipment cost payables                   |                       |                 | 13,110 |       |  |  | 13,520 |       
|Payable to Sinopec                                             |                       |                 | 849    |       |  |  | 1,710  |       
|Advances from Sinopec                                          |                       |                 | 65     |       |  |  | 128    |       
|Other payables                                                 |                       |                 | 8,520  |       |  |  | 8,917  |       
|Amounts due to related parties                                 |                       |                 |        |       |  |  |        |       
|                                                               |  CNPC                |                 |        | 17    |  |  |        | 87     | 
|                                                               |  Fellow subsidiaries |                 |        | 2,830 |  |  |        | 15,178 | 
|                                                               |  Equity affiliates   |                 |        | 1,115 |  |  |        | 528    | 
|                                                               |                       |                 |        |       |  |  |        |       
|                                                               |                       |                 | 36,802 |       |  |  | 51,214 |       
|                                                               |                       |                 |        |       |  |  |        |       

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



20     DEBT

(a) Short-term
debt

|                                  |             |                 |        |        |  |  |        |        | 
|--------------------------------- | ----------- | --------------- | ------ | ------ |  |  | ------ | ------ | 
|                                  |             |                
|                                  |             | At December 31,
|                                  |             |                
|                                  |             | 2000            |        | 2001  
|                                  |             |                 |        |       
|                                  |             | RMB             |        | RMB   
|Bank loans                        |             |                 |        |        |  |  |        |       
|                                  |  secured   |                 |        | 80     |  |  |        | 56     | 
|                                  |  unsecured |                 |        | 14,814 |  |  |        | 16,615 | 
|Loans from fellow subsidiaries    |             |                 | 14,269 |        |  |  | 1,268  |       
|Other                             |             |                 | 10     |        |  |  | 13     |       
|                                  |             |                 |        |        |  |  |        |       
|                                  |             |                 | 29,173 |        |  |  | 17,952 |       
|Current portion of long-term debt |             |                 | 9,903  |        |  |  | 5,159  |       
|                                  |             |                 |        |        |  |  |        |       
|                                  |             |                 | 39,076 |        |  |  | 23,111 |       
|                                  |             |                 |        |        |  |  |        |       

F-26



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


(b) Long-term
debt

|                                                                                                     |  |                                                                                                                                                                                                 |  |                 |  |       
|---------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- |  | ------
|                                                                                                     |  |                                                                                                                                                                                                 |  |                
|                                                                                                     |  |                                                                                                                                                                                                 |  | At December 31,
|                                                                                                     |  |                                                                                                                                                                                                 |  |                
|                                                                                                     |  | Interest Rate and Final Maturity                                                                                                                                                                |  | 2000            |  | 2001  
|                                                                                                     |  |                                                                                                                                                                                                 |  |                 |  |       
|                                                                                                     |  |                                                                                                                                                                                                 |  | RMB             |  | RMB   
|Renminbi-denominated loans:                                                                          |  |                                                                                                                                                                                                 |  |                
|Bank loans for the development of oil fields and
    construction of refining plants                 |  | Majority variable interest rates ranging from
    interest free to 8.60% per annum as of December 31, 2001,
    with maturities through 2010                                                    |  | 29,816          |  | 27,073
|Bank loans for working capital                                                                       |  | Majority variable interest rates ranging from
    interest free to 6.44% per annum as of December 31, 2001,
    with maturities through 2004                                                    |  | 136             |  | 6,333 
|Loans from related parties for the development of
    oil fields and construction of refining plants |  | Majority variable interest rates ranging from
    5.43% to 5.59% per annum as of December 31, 2001, with
    maturities through 2008                                                            |  | 7,819           |  | 13,120
|Working capital loans from related parties                                                           |  | Floating interest rate at 5.35% per annum as of
    December 31, 2001, with maturity through 2004                                                                                               |  | 360             |  | 4,000 
|Working capital loans                                                                                |  | Majority variable interest rates ranging from
    interest free to 6.44% per annum as of December 31, 2001,
    with maturities through 2002, including a loan with no fixed
    repayment term |  | 315             |  | 313   
|US Dollar-denominated loans:                                                                         |  |                                                                                                                                                                                                 |  |                 |  |       
|Bank loans for the development of oil fields and
    construction of refining plants                 |  | Fixed interest rates ranging from 2.30% to 8.66%
    per annum as of December 31, 2001, with maturities through
    2038                                                                        |  | 6,633           |  | 7,688 
|                                                                                                     |  | Floating interest rates ranging from 1.98% to
    7.60% per annum as of December 31, 2001, with maturities
    through 2015                                                                     |  | 9,295           |  | 2,853 
|Loans from related parties for the development of
    oil fields and construction of refining plants |  | Floating interest rate at LIBOR minus 0.25% per
    annum as of December 31, 2001, with maturities through 2005                                                                                 |  | 1,473           |  | 3,633 
|Loans for the development of oil fields and
    construction of refining plants                      |  | Fixed interest rates ranging from interest free
    to 1.55% per annum as of December 31, 2001, with maturities
    through 2022                                                                |  | 664             |  | 654   
|Japanese Yen-denominated loans:                                                                      |  |                                                                                                                                                                                                 |  |                 |  |       
|Bank loans for the development of oil fields and
    construction of refining plants                 |  | Majority fixed interest rates ranging from 1.88%
    to 5.30% per annum as of December 31, 2001, with maturities
    through 2022                                                               |  | 1,233           |  | 917   

F-27



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


|                                                                                     |           |                                                                                                                                   |  |                 |         |        |        
|------------------------------------------------------------------------------------ | --------- | --------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | ------ | -------
|                                                                                     |           |                                                                                                                                   |  |                
|                                                                                     |           |                                                                                                                                   |  | At December 31,
|                                                                                     |           |                                                                                                                                   |  |                
|                                                                                     |           | Interest Rate and Final Maturity                                                                                                  |  | 2000            |         | 2001  
|                                                                                     |           |                                                                                                                                   |  |                 |         |       
|                                                                                     |           |                                                                                                                                   |  | RMB             |         | RMB   
|Euro-denominated loans:                                                              |           |                                                                                                                                   |  |                 |         |       
|Bank loans for the development of oil fields and
    construction of refining plants |           | Majority fixed interest rates ranging from 1.80%
    to 8.50% per annum as of December 31, 2001, with maturities
    through 2023 |  | 1,088           |         | 792   
|British Pound-denominated loans:                                                     |           |                                                                                                                                   |  |                 |         |       
|Bank loans for the development of oil fields and
    construction of refining plants |           | Fixed interest rate at 2.85% per annum as of
    December 31, 2001, with maturities through 2007                                  |  | 741             |         | 603   
|Loans for the development of oil fields and
    construction of refining plants      |           | Fixed interest rate at 5.17% per annum as of
    December 31, 2001, with maturities through 2011                                  |  | 893             |         | 788   
|                                                                                     |           |                                                                                                                                   |  |                 |         |       
|                                                                                     |           |                                                                                                                                   |  | 60,466          |         | 68,767
|Debentures                                                                           |           |                                                                                                                                   |  | 2,385           |         | 1,650 
|Capital lease obligations                                                            |           |                                                                                                                                   |  | 393             |         | 226   
|                                                                                     |           |                                                                                                                                   |  |                 |         |       
|Total long-term debt                                                                 |           |                                                                                                                                   |  | 63,244          |         | 70,643
|Less: current portion of long-                                                       |           |                                                                                                                                   |  |                 |         |       
|                                                                                     | term debt |                                                                                                                                   |  |                 | (9,903) |        | (5,159)
|                                                                                     |           |                                                                                                                                   |  |                 |         |       
|                                                                                     |           |                                                                                                                                   |  | 53,341          |         | 65,484
|                                                                                     |           |                                                                                                                                   |  |                 |         |       

Debentures were issued at fixed interest rates
ranging from 4.50% to 9.00% with maturities through 2007. Other
loans represent loans from independent third parties other than
banks with fixed interest rates ranging from interest free to
6.44%. Interest free loans amounted to RMB 868 and
RMB 726 at December 31, 2000 and 2001, respectively.
Interest free loans were treated as government assistance and no
imputation of interest expense on such loans was recognized in
the Groups consolidated financial statements.

In connection with the Restructuring, CNPC
assumed approximately RMB 30,500 of the Groups debt on
June 30, 1999, the effect of which is included in the net
contribution by owner in the consolidated statement of changes
in shareholders equity.

Bank borrowings of RMB 17,712 and
RMB 1,697 were guaranteed by CNPC and its subsidiaries at
December 31, 2000 and 2001, respectively.

The Groups borrowings include secured
liabilities (leases and bank borrowings) totalling RMB 474 and
RMB 284, respectively, at December 31, 2000, and 2001. Bank
borrowings are secured over certain of the Groups
property, plant and equipment (see Note 16). Lease
liabilities are effectively secured as the rights to the leased
assets revert to the lessor in the event of default.

As part of the Restructuring, the Company and
CNPC agreed to the transfer of related debts from CNPC to the
Company. Outstanding balances of the debts transferred from CNPC
to the Company have been included in the Companys
financial statements as at December 31, 2000 and 2001.

F-28



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


|                                           |                              |                 |        |        |   |  |        |        |  
|------------------------------------------ | ---------------------------- | --------------- | ------ | ------ | - |  | ------ | ------ | -
|                                           |                              |                
|                                           |                              | At December 31,
|                                           |                              |                
|                                           |                              | 2000            |        | 2001  
|                                           |                              |                 |        |       
|                                           |                              | RMB             |        | RMB   
|Total debt:                                |                              |                 |        |        |   |  |        |       
|                                           |  at fixed rates             |                 |        | 45,080 |   |  |        | 35,045 |  
|                                           |  at variable rates          |                 |        | 47,337 |   |  |        | 53,550 |  
|                                           |                              |                 |        |        |   |  |        |       
|                                           |                              |                 | 92,417 |        |   |  | 88,595 |       
|                                           |                              |                 |        |        |   |  |        |       
|Weighted average effective interest rates: |                              |                 |        |        |   |  |        |       
|                                           |  bank loans                 |                 |        | 5.94   | % |  |        | 5.65   | %
|                                           |  loans from related parties |                 |        | 5.33   | % |  |        | 4.82   | %
|                                           |  loans from third parties   |                 |        | 3.07   | % |  |        | 2.95   | %
|                                           |  debentures                 |                 |        | 6.09   | % |  |        | 5.32   | %
|                                           |  capital lease obligations  |                 |        | 8.08   | % |  |        | 3.98   | %

The carrying amounts and fair values of long-term
debt (excluding capital lease obligations) are as follows:

|                           |  |                  |        |      |  |  |        | 
|-------------------------- |  | ---------------- | ------ | ---- |  |  | ------ | 
|                           |  |                 
|                           |  | Carrying Amounts
|                           |  | at December 31, 
|                           |  |                 
|                           |  | 2000             |        | 2001
|                           |  |                  |        |     
|                           |  | RMB              |        | RMB 
|Bank loans                 |  |                  | 48,942 |      |  |  | 46,259 | 
|Loans from related parties |  |                  | 9,652  |      |  |  | 20,753 | 
|Debentures                 |  |                  | 2,385  |      |  |  | 1,650  | 
|Other                      |  |                  | 1,872  |      |  |  | 1,755  | 
|                           |  |                  |        |      |  |  |        | 
|                           |  |                  | 62,851 |      |  |  | 70,417 | 
|                           |  |                  |        |      |  |  |        | 

|                           |  |                |        |      |  |  |        | 
|-------------------------- |  | -------------- | ------ | ---- |  |  | ------ | 
|                           |  |               
|                           |  | Fair Values at
|                           |  | December 31,  
|                           |  |               
|                           |  | 2000           |        | 2001
|                           |  |                |        |     
|                           |  | RMB            |        | RMB 
|Bank loans                 |  |                | 49,074 |      |  |  | 46,487 | 
|Loans from related parties |  |                | 9,652  |      |  |  | 20,752 | 
|Debentures                 |  |                | 2,388  |      |  |  | 1,604  | 
|Other                      |  |                | 1,505  |      |  |  | 1,573  | 
|                           |  |                |        |      |  |  |        | 
|                           |  |                | 62,619 |      |  |  | 70,416 | 
|                           |  |                |        |      |  |  |        | 

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 0.62% to 6.60% as of December 31, 2001
depending on the type of the debt. The carrying amounts of
short-term borrowings and capital lease obligations approximate
their fair value.

F-29



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


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

|            |  |                 |        |      |  |  |        | 
|----------- |  | --------------- | ------ | ---- |  |  | ------ | 
|            |  |                
|            |  | At December 31,
|            |  |                
|            |  | 2000            |        | 2001
|            |  |                 |        |     
|            |  | RMB             |        | RMB 
|First year  |  |                 | 9,740  |      |  |  | 5,055  | 
|Second year |  |                 | 4,943  |      |  |  | 6,131  | 
|Third year  |  |                 | 6,258  |      |  |  | 22,064 | 
|Fourth year |  |                 | 9,808  |      |  |  | 13,864 | 
|Fifth year  |  |                 | 10,289 |      |  |  | 7,926  | 
|Thereafter  |  |                 | 21,813 |      |  |  | 15,377 | 
|            |  |                 |        |      |  |  |        | 
|            |  |                 | 62,851 |      |  |  | 70,417 | 
|            |  |                 |        |      |  |  |        | 

Future minimum payments on capital lease
obligations at the dates indicated below are as follows:

|                                                                               |  |                 |     |      |  |  |     |  
|------------------------------------------------------------------------------ |  | --------------- | --- | ---- |  |  | --- | -
|                                                                               |  |                
|                                                                               |  | At December 31,
|                                                                               |  |                
|                                                                               |  | 2000            |     | 2001
|                                                                               |  |                 |     |     
|                                                                               |  | RMB             |     | RMB 
|First year                                                                     |  |                 | 192 |      |  |  | 112 |  
|Second year                                                                    |  |                 | 121 |      |  |  | 70  |  
|Third year                                                                     |  |                 | 74  |      |  |  | 41  |  
|Fourth year                                                                    |  |                 | 43  |      |  |  | 17  |  
|Fifth year                                                                     |  |                 | 22  |      |  |  |    |  
|                                                                               |  |                 |     |      |  |  |     |  
|                                                                               |  |                 | 452 |      |  |  | 240 |  
|Future finance charges on capital lease
    obligations                        |  |                 | (59 | )    |  |  | (14 | )
|                                                                               |  |                 |     |      |  |  |     |  
|Present value of capital lease obligations                                     |  |                 | 393 |      |  |  | 226 |  
|                                                                               |  |                 |     |      |  |  |     |  
|The present value of capital lease obligations
    can be analyzed as follows: |  |                 |     |      |  |  |     |  
|First year                                                                     |  |                 | 163 |      |  |  | 104 |  
|Second year                                                                    |  |                 | 104 |      |  |  | 66  |  
|Third year                                                                     |  |                 | 66  |      |  |  | 39  |  
|Fourth year                                                                    |  |                 | 39  |      |  |  | 17  |  
|Fifth year                                                                     |  |                 | 21  |      |  |  |    |  
|                                                                               |  |                 |     |      |  |  |     |  
|                                                                               |  |                 | 393 |      |  |  | 226 |  
|                                                                               |  |                 |     |      |  |  |     |  

21     DEFERRED
INCOME TAXES

Deferred income taxes are calculated on temporary
differences under the liability method using a principal tax
rate of 33%.

F-30



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


The movements in the deferred income tax account
are as follows:

|                                          |  |                        |        |      |  |      |       |  |  |  |       | 
|----------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                          |  |                       
|                                          |  | Year Ended December 31
|                                          |  |                       
|                                          |  | 1999                   |        | 2000 |  | 2001
|                                          |  |                        |        |      |  |     
|                                          |  | RMB                    |        | RMB  |  | RMB 
|At beginning of year                      |  |                        | 10,381 |      |  |      | 1,182 |  |  |  | 3,169 | 
|Transfer to capital reserve (note i)      |  |                        | (8,701 | )    |  |      |      |  |  |  |      | 
|Income statement charge (credit) (Note 7) |  |                        | (498   | )    |  |      | 1,987 |  |  |  | 3,861 | 
|                                          |  |                        |        |      |  |      |       |  |  |  |       | 
|At end of year                            |  |                        | 1,182  |      |  |      | 3,169 |  |  |  | 7,030 | 
|                                          |  |                        |        |      |  |      |       |  |  |  |       | 

Deferred tax balances are attributable to the
following items:

|                               |             |                                                           |        |      |        |   |        |   |        |  
|------------------------------ | ----------- | --------------------------------------------------------- | ------ | ---- | ------ | - | ------ | - | ------ | -
|                               |             |                                                          
|                               |             | At December 31,                                          
|                               |             |                                                          
|                               |             | 2000                                                      |        | 2001
|                               |             |                                                           |        |     
|                               |             | RMB                                                       |        | RMB 
|Deferred tax assets:           |             |                                                           |        |      |        |   |        |  
|                               | Current     |                                                           |        |      |        |   |        |   |       
|                               |             | Provisions, primarily for receivables and
    inventories |        |      | (3,948 | ) |        |   | (3,471 | )
|                               |             | Tax losses of subsidiaries                                |        |      | (116   | ) |        |   | (111   | )
|                               | Non current |                                                           |        |      |        |   |        |   |       
|                               |             | Shut down of manufacturing assets                         |        |      | (759   | ) |        |   |       |  
|                               |             | Other                                                     |        |      | (120   | ) |        |   | (643   | )
|                               |             |                                                           |        |      |        |   |        |  
|Total deferred tax assets      |             |                                                           | (4,943 | )    |        |   | (4,407 | )
|                               |             |                                                           |        |      |        |   |        |  
|Deferred tax liabilities       |             |                                                           |        |      |        |   |        |  
|                               | Current     |                                                           |        |      |        |   |        |   |       
|                               |             | Sales (note ii)                                           |        |      | 4,401  |   |        |   | 4,401  |  
|                               | Non current |                                                           |        |      |        |   |        |   |       
|                               |             | Accelerated depreciation                                  |        |      | 3,711  |   |        |   | 7,036  |  
|                               |             |                                                           |        |      |        |   |        |  
|Total deferred tax liabilities |             |                                                           | 8,112  |      |        |   | 11,437 |  
|                               |             |                                                           |        |      |        |   |        |  
|Net deferred tax liabilities   |             |                                                           | 3,169  |      |        |   | 7,030  |  
|                               |             |                                                           |        |      |        |   |        |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Under a special approval granted by the Ministry
    of Finance, the effect of the revaluation is available as
    additional depreciation base for the purposes of determining
    taxable income. Accordingly, no deferred tax liability is
    generated as a result of the revaluation. In addition, temporary
    differences arising from accelerated depreciation accumulated up
    to the formation of the Company were eliminated and the related
    deferred tax liability brought forward was transferred to
    capital reserve.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | Prior to the formation of the Company in November
    1999, Core units in the Exploration and Production segment were
    required to remit to the headquarters a portion of the proceeds
    arising from crude oil sales. These remittances were deductible
    for income tax purposes. The amounts received by the
    headquarters were taxable to the extent recorded as income. A
    portion of the remittances received by the headquarters may be
    deferred for determination of income tax, thus generating
    temporary differences between the tax and accounting bases. Such
    deferral ceased to be available upon the formation of the
    Company.

F-31



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)




|      |                                                                                                                                
|----- | -------------------------------------------------------------------------------------------------------------------------------
|(iii) | No valuation allowances were recognized on
    deferred tax assets as the Company anticipated to fully realize
    such assets.

22     SHARE
CAPITAL

|                                   |                                                    |                 |         |         |  |  |         |         | 
|---------------------------------- | -------------------------------------------------- | --------------- | ------- | ------- |  |  | ------- | ------- | 
|                                   |                                                    |                
|                                   |                                                    | At December 31,
|                                   |                                                    |                
|                                   |                                                    | 2000            |         | 2001   
|                                   |                                                    |                 |         |        
|                                   |                                                    | RMB             |         | RMB    
|Registered, issued and fully paid: |                                                    |                 |         |         |  |  |         |        
|                                   | State-owned shares                                 |                 |         | 158,242 |  |  |         | 158,242 | 
|                                   | H shares and ADSs (each representing 100 H shares) |                 |         | 17,582  |  |  |         | 17,582  | 
|                                   |                                                    |                 |         |         |  |  |         |        
|                                   |                                                    |                 | 175,824 |         |  |  | 175,824 |        
|                                   |                                                    |                 |         |         |  |  |         |        

As at December 31, 1999, the registered
capital of the Company was RMB 160,000 consisting of
160 billion state-owned shares of RMB 1.00 each. Such
shares were issued to CNPC, credited as fully paid in
consideration for the transfer of the relevant assets and
liabilities by CNPC. The details of the Restructuring are set
out in Note 1.

On April 7, 2000, the Company completed a
global initial public offering (Global Offering)
pursuant to which 17,582,418,000 shares of RMB 1.00
each, representing 13,447,897,000 H shares and
41,345,210 American Depositary Shares (ADSs, each
representing 100 H shares), were issued at prices of
HK$1.28 per H share and US$16.44 per ADS, respectively, for
which the net proceeds to the Company were approximately
RMB 20 billion. The shares issued pursuant to the
Global Offering rank equally with existing shares. The H shares
and ADSs were listed on The Stock Exchange of Hong Kong Limited
and the New York Stock Exchange on April 7, 2000 and
April 6, 2000, respectively.

The 17,582,418,000 H shares issued by the Company
comprise 15,824,176,000 shares offered by the Company, and
1,758,242,000 shares offered by CNPC pursuant to an
approval from China Securities Regulatory Commission to convert
the state-owned shares owned by CNPC.

Shareholders rights are governed by the PRC
Company Law that requires an increase in registered capital to
be approved by the shareholders in general meeting and the
relevant PRC Government and regulatory authorities.

F-32



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


23     RESERVES

|                                                                |  |         |         |             |  |           |        |           |  |       |        |  |  |  |        |  |  |  |        |  
|--------------------------------------------------------------- |  | ------- | ------- | ----------- |  | --------- | ------ | --------- |  | ----- | ------ |  |  |  | ------ |  |  |  | ------ | -
|                                                                |  |         |         |             |  | Statutory |        | Statutory |  |      
|                                                                |  |         |         |             |  | Common    |        | Common    |  |      
|                                                                |  |         |         |             |  | Reserve   |        | Welfare   |  |      
|                                                                |  | Capital |         | Revaluation |  | Fund      |        | Fund      |  |      
|                                                                |  | Reserve |         | Reserve     |  | (note a)  |        | (note b)  |  | Total
|                                                                |  |         |         |             |  |           |        |           |  |      
|                                                                |  | RMB     |         | RMB         |  | RMB       |        | RMB       |  | RMB  
|Balance at January 1, 2000                                      |  |         | (33,096 | )           |  |           | 79,945 |           |  |       | 124    |  |  |  | 112    |  |  |  | 47,085 |  
|Issue of shares                                                 |  |         | 4,512   |             |  |           |       |           |  |       |       |  |  |  |       |  |  |  | 4,512  |  
|Transfer from retained earnings to reserves                     |  |         |        |             |  |           |       |           |  |       | 4,694  |  |  |  | 4,231  |  |  |  | 8,925  |  
|Transfer from retained earnings to reserves by
    subsidiaries |  |         |         |             |  |           |        |           |  |       | 4,130  |  |  |  | 2,064  |  |  |  | 6,194  |  
|Distribution to CNPC (Note 9(i))                                |  |         | (2,640  | )           |  |           |       |           |  |       |       |  |  |  |       |  |  |  | (2,640 | )
|                                                                |  |         |         |             |  |           |        |           |  |       |        |  |  |  |        |  |  |  |        |  
|Balance at December 31, 2000                                    |  |         | (31,224 | )           |  |           | 79,945 |           |  |       | 8,948  |  |  |  | 6,407  |  |  |  | 64,076 |  
|Premium arising from issue of shares by an equity
    affiliate |  |         | 56      |             |  |           |       |           |  |       |       |  |  |  |       |  |  |  | 56     |  
|Transfer from retained earnings to reserves                     |  |         |        |             |  |           |       |           |  |       | 3,966  |  |  |  | 3,570  |  |  |  | 7,536  |  
|Transfer from retained earnings to reserves by
    subsidiaries |  |         |        |             |  |           |       |           |  |       | 3,305  |  |  |  | 1,601  |  |  |  | 4,906  |  
|                                                                |  |         |         |             |  |           |        |           |  |       |        |  |  |  |        |  |  |  |        |  
|Balance at December 31, 2001                                    |  |         | (31,168 | )           |  |           | 79,945 |           |  |       | 16,219 |  |  |  | 11,578 |  |  |  | 76,574 |  
|                                                                |  |         |         |             |  |           |        |           |  |       |        |  |  |  |        |  |  |  |        |  



---



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Pursuant to PRC regulations and the
    Companys Articles of Association, the Company is required
    to transfer 10% of its net income, as determined under the PRC
    accounting regulations, to statutory common reserve fund until
    the fund aggregates to 50% of the Companys registered
    capital. The transfer to this reserve must be made before
    distribution of dividends to shareholders.                                                                                                                                                                                                                                                        
|   
|    |  | The statutory common reserve fund shall only be
    used to make good previous years losses, to expand the
    Companys production operations, or to increase the capital
    of the Company. Upon approval by a resolution of
    shareholders general meeting, the Company may convert its
    statutory common reserve fund into share capital and issue bonus
    shares to existing shareholders in proportion to their original
    shareholdings or to increase the nominal value of each share
    currently held by them, provided that the balance of the reserve
    fund after such issue is not less than 25% of the registered
    capital.            
|   
|(b) |  | Pursuant to the PRC regulations and the
    Companys Articles of Association, the Company is required
    to transfer 5% to 10% of its net income, as determined under the
    PRC accounting regulations, to the statutory common welfare
    fund. This fund can only be used to provide staff welfare
    facilities and other collective benefits to the Companys
    employees. This fund is non-distributable other than in
    liquidation. The directors have proposed to transfer 9% (2000:
    9%) of the net income, as determined under the PRC accounting
    regulations, for the year ended December 31, 2001 to the
    statutory common welfare fund.
|   
|(c) |  | The Companys distributable reserve is the
    retained earnings computed under the PRC accounting regulations,
    which amounted to RMB 25,258 (2000: RMB 14,197) as of
    December 31, 2001. The distributable reserve computed under
    the PRC accounting regulations at December 31, 2001 had
    been arrived at after the accrual for the proposed final
    dividend in respect of year 2001 of RMB 8,839 (Note 9(v)).                                                                                                                                                                                                                                       
|   
|(d) |  | As of December 31, 2001, revaluation
    surpluses relating to depreciation and disposals amounted to
    approximately RMB 21,179 (2000: RMB 12,821).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-33



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


24     NET ASSETS
RETAINED BY CNPC

Prior to November 5, 1999, the date of
formation of the Company, the consolidated financial statements
include the financial position and results of operations of five
chemical production facilities. These chemical production
facilities are retained by CNPC and the assets and related
operations are not included in the Groups operations after
November 5, 1999. The table below reflects the consolidated
results of operations of the five chemical production units.

|                                   |  |              |        |  
|---------------------------------- |  | ------------ | ------ | -
|                                   |  | Year Ended  
|                                   |  | December 31,
|                                   |  | 1999        
|                                   |  |             
|Sales and other operating revenues |  |              | 311    |  
|Loss from operations               |  |              | (2,289 | )
|Net loss                           |  |              | (2,302 | )

Loss from operations and net loss for the years
ended December 31, 1999 include impairment charges of RMB
2,007. The impairment charges relate to the plant and equipment
related to the butadiene rubber and high carbon alcohol
facilities. At each balance sheet date, CNPC management
identified impairment indicators at these two facilities and in
accordance with SFAS 121, compared the carrying amount of each
facility to the estimated undiscounted future cash flows for
each facility based on the best available evidence. CNPC
management determined that after a relatively short period of
operations that the facilities would not generate sufficient
positive cash flows in the future to recover their related
carrying values primarily due to low utilization at the
butadiene rubber facility, the low price of high carbon alcohol
and high operating cost of both facilities. These facilities are
assets held for use since in the PRC, assets cannot be disposed
of without the approval of the central government and CNPC
continues to operate these facilities. Accordingly, the carrying
values of these facilities were written down to fair value based
on the asset held for use model using the present value of
estimated future cash flows. For the other three facilities,
CNPC management determined, at each balance sheet date, that
based on the best available evidence, the estimated undiscounted
future cash flows for each of such facilities were in excess of
each of such facilitys carrying amount and, consequently,
no impairment was necessary under SFAS 121.

The depreciation charges on these facilities
amounted to RMB 218 for the year ended December 31, 1999.

25     PENSIONS

The Group participates in various retirement
benefit plans organized by municipal and provincial governments
under which it is required to make monthly contributions to
these plans at rates ranging from 16% to 22% of the
employees basic salary for the relevant periods. The Group
currently has no additional cost for the payment of retirement
and other post-retirement benefits of employees other than the
monthly contributions described above. Expenses incurred by the
Group in connection with the retirement benefit plans were
RMB 1,765, RMB 1,817 and RMB 1,805 respectively,
for the years ended December 31, 1999, 2000 and 2001.

26     FINANCIAL
INSTRUMENTS

The Group holds or issues various financial
instruments which expose it to credit, interest rate and foreign
exchange rate risks. In addition, the Groups operations
are affected by certain commodity price movements. The Group
historically has not used derivative instruments for

F-34



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


hedging or trading purposes. Such activities are
subject to policies approved by the Groups senior
management. Substantially all of the financial instruments the
Group holds is for purposes other than trading. The Group
regards an effective market risk system as an important element
of the Groups treasury function and is currently enhancing
its systems. A primary objective is to implement certain
methodologies to better measure and monitor risk exposures.

(a) Credit
risk

The carrying amounts of accounts receivable
included in the balance sheet represent the Groups maximum
exposure to credit risk in relation to its financial assets. No
other financial assets carry a significant exposure to credit
risk.

The Group has no significant concentration of
credit risk. Cash is placed with state-owned banks and financial
institutions.

(b) Interest
rate risk

The Group is exposed to the risk arising from
changing interest rates. A detail analysis of the Groups
borrowings, together with their respective interest rates and
maturity dates, are included in Note 20.

(c) Foreign
exchange rate risk

The Renminbi is not freely convertible and its
value is subject to changes in the PRC Governments
policies and depends to a large extent on Chinas domestic
and international economic and political developments, as well
as supply and demand in the local market. The official exchange
rate for the conversion of Renminbi to US dollars has
generally been stable recently. Because prices for the
Groups crude oil and refined products are set generally
with reference to US dollar-denominated international prices, a
devaluation of the Renminbi may not have a negative impact on
the Groups overall operations. Results of operations and
the financial condition of the Group may also be affected by
changes in the value of certain currencies other than the
Renminbi in which the Groups earnings and obligations are
denominated. In particular, a devaluation of the Renminbi is
likely to increase the portion of the Groups cash flow
required to satisfy its foreign currency-denominated
obligations. On the other hand, an appreciation of the Renminbi
against the US dollar may decrease the Groups revenues
without a corresponding decrease in the Groups operating
expenses.

(d) Commodity
price risk

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

F-35



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


(e) Fair
values

The carrying amounts of the following financial
assets and financial liabilities approximate their fair value:
cash, short-term investments, trade receivables and payables,
other receivables and payables, lease obligations, short-term
debt and floating rate long-term debt.

27     CONTINGENT
LIABILITIES

(a) Bank
and other guarantees

At December 31, 2001, the Group had
contingent liabilities in respect of bank and other guarantees
and other matters arising in the ordinary course of business
from which it is anticipated that no material liabilities will
arise.

(b) Environmental
liabilities

CNPC and the Group have operated in China for
many years and certain environmental problems have developed.
China has adopted extensive environmental laws and regulations
that affect the operation of the oil and gas industry. The
outcome of environmental liabilities under proposed or future
environmental legislation cannot reasonably be estimated at
present, and could be material. Under existing legislation,
however, management believes that there are no probable
liabilities that are in addition to amounts, which have already
been reflected, in the financial statements that will have a
materially adverse effect on the financial position of the Group.

(c) Legal
contingencies

The Group is the named defendant in certain
insignificant lawsuits as well as the named party in other
proceedings arising in the ordinary course of business. While
the outcomes of such contingencies, lawsuits or other
proceedings cannot be determined at present, management believes
that any resulting liabilities will not have a materially
adverse effect on the financial position of the Group.

(d) Leasing
of roads, land and buildings

According to the Restructuring Agreement entered
into between the Company and CNPC, CNPC has undertaken to the
Company the following:



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

As at December 31, 2001, CNPC has obtained
formal land use right certificates in related to 12,417 out
of the above-mentioned 28,649 parcels of land, some
building ownership certificates

F-36



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


for the above-mentioned buildings, but has
completed none of the necessary governmental procedures for the
above-mentioned service stations located on collectively-owned
land. The Directors of the Company confirm that the use of and
the conduct of relevant activities at the above-mentioned
parcels of land, service stations and buildings are not affected
by the fact that the relevant land use right certificates or
individual building ownership certificates have not been
obtained or the fact that the relevant governmental procedures
have not been completed. In managements opinion, the
outcome of the above events will not have a material adverse
effect on the results of operations or the financial position of
the Group.

(e) Group
insurance

Except for limited insurance coverage for
vehicles and certain assets subject to significant operating
risks, the Group does not carry any other insurance for
property, facilities or equipment with respect to its business
operations. In addition, the Group does not carry any
third-party liability insurance against claims relating to
personal injury, property and environmental damages or business
interruption insurance since such insurance coverage is not
customary in China. While the effect of under-insurance cannot
be reasonably estimated at present, management believes it could
have a material impact on the operating results or financial
position of the Group.

(f) Cost
reduction measures

In addition to the employee separation program
and shut down of certain manufacturing facilities disclosed in
Note 5, the Company is currently evaluating options to
further streamline production facilities and implement other
cost cutting measures within the next several years to further
improve the operating efficiency and competitiveness of the
Group. Management has not approved all significant actions to be
taken to complete such plan. Management does not believe it will
have a material adverse impact on the Groups financial
position, but it could have a material adverse effect on the
Groups results of operations.

28     COMMITMENTS

(a) Operating
lease commitments

Operating lease commitments of the Group are
mainly for leasing of 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, 2000 and
2001 under non-cancelable operating leases are as follows:

|            |  |                 |        |      |  |  |        | 
|----------- |  | --------------- | ------ | ---- |  |  | ------ | 
|            |  |                
|            |  | At December 31,
|            |  |                
|            |  | 2000            |        | 2001
|            |  |                 |        |     
|            |  | RMB             |        | RMB 
|First year  |  |                 | 2,118  |      |  |  | 2,421  | 
|Second year |  |                 | 2,115  |      |  |  | 2,139  | 
|Third year  |  |                 | 2,109  |      |  |  | 2,083  | 
|Fourth year |  |                 | 2,098  |      |  |  | 2,077  | 
|Fifth year  |  |                 | 2,113  |      |  |  | 2,093  | 
|Thereafter  |  |                 | 88,734 |      |  |  | 86,793 | 
|            |  |                 |        |      |  |  |        | 
|            |  |                 | 99,287 |      |  |  | 97,606 | 
|            |  |                 |        |      |  |  |        | 

F-37



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


Operating lease expenses for land and buildings
were RMB 347, RMB 2,536 and RMB 2,996 for the years ended
December 31, 1999, 2000 and 2001 respectively.

(b) Capital
commitments

|                                                                                                                                   |                        |                 |     |      |  |  |     |     | 
|---------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | --------------- | --- | ---- |  |  | --- | --- | 
|                                                                                                                                   |                        |                
|                                                                                                                                   |                        | At December 31,
|                                                                                                                                   |                        |                
|                                                                                                                                   |                        | 2000            |     | 2001
|                                                                                                                                   |                        |                 |     |     
|                                                                                                                                   |                        | RMB             |     | RMB 
|Capital expenditure contracted for at the balance
    sheet date but not recognized in the financial statements is as
    follows: |                        |                 |     |      |  |  |     |    
|                                                                                                                                   | Oil and gas properties |                 |     | 193  |  |  |     | 539 | 
|                                                                                                                                   | Plant and equipment    |                 |     | 228  |  |  |     | 54  | 
|                                                                                                                                   | Other                  |                 |     | 124  |  |  |     | 89  | 
|                                                                                                                                   |                        |                 |     |      |  |  |     |    
|                                                                                                                                   |                        |                 | 545 |      |  |  | 682 |    
|                                                                                                                                   |                        |                 |     |      |  |  |     |    

(c) Exploration
and production licenses

The Company is obligated to make annual payments
with respect to its exploration and production licenses to the
Ministry of Land and Resources. Payments incurred were
approximately RMB 73, RMB 126 and RMB 130 for the years ended
December 31, 1999, 2000 and 2001 respectively.

Estimated annual payments in the future are as
follows:

|                    |  |     |     | 
|------------------- |  | --- | --- | 
|                    |  | RMB
|                    |  |    
|2002                |  |     | 280 | 
|2003                |  |     | 382 | 
|2004                |  |     | 515 | 
|2005                |  |     | 618 | 
|2006 and thereafter |  |     | 681 | 

(d) Dividends

Dividends received from the Company are likely to
be one of the principal sources of funding for CNPC. Subject to
the relevant provisions of the PRC Company Law and the Articles
of Association of the Company, CNPC, as the major shareholder of
the Company, may seek to influence the determination of the
amount of dividends paid by the Company with a view to
satisfying its cash flow requirements including those relating
to its obligations to provide supplementary social services to
its employees and a limited number of third parties. The
Ministry of Finance has committed to provide subsidies to enable
CNPC to fund a portion of future operating shortfalls arising
out of CNPCs obligations to provide social services. The
directors believe that these subsidies will substantially reduce
CNPCs reliance on dividends from the Company.

F-38



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


29     MAJOR
CUSTOMERS

The Groups major customers are as follows:

|        |  |                         |        |         |  |         |    |         |  |         |        |         |  |  |    |  |  |  |        |  |  |  |    | 
|------- |  | ----------------------- | ------ | ------- |  | ------- | -- | ------- |  | ------- | ------ | ------- |  |  | -- |  |  |  | ------ |  |  |  | -- | 
|        |  |                        
|        |  | Year Ended December 31,
|        |  |                        
|        |  |                         |        |         |  |        
|        |  | 1999                    |        | 2000    |  | 2001   
|        |  |                         |        |         |  |        
|        |  |                         |        | % to    |  |         |    | % to    |  |         |        | % to   
|        |  |                         |        | Total   |  |         |    | Total   |  |         |        | Total  
|        |  | Revenue                 |        | Revenue |  | Revenue |    | Revenue |  | Revenue |        | Revenue
|        |  |                         |        |         |  |         |    |         |  |         |        |        
|        |  | RMB                     |        | %       |  | RMB     |    | %       |  | RMB     |        |        
|Sinopec |  |                         | 35,382 |         |  |         | 20 |         |  |         | 36,587 |         |  |  | 15 |  |  |  | 26,046 |  |  |  | 11 | 
|CNPC    |  |                         | 13,795 |         |  |         | 8  |         |  |         | 23,422 |         |  |  | 10 |  |  |  | 18,628 |  |  |  | 8  | 
|        |  |                         |        |         |  |         |    |         |  |         |        |         |  |  |    |  |  |  |        |  |  |  |    | 
|        |  |                         | 49,177 |         |  |         | 28 |         |  |         | 60,009 |         |  |  | 25 |  |  |  | 44,674 |  |  |  | 19 | 
|        |  |                         |        |         |  |         |    |         |  |         |        |         |  |  |    |  |  |  |        |  |  |  |    | 

30     RELATED PARTY
TRANSACTIONS

The Group is part of a larger group of companies
under CNPC and has extensive transactions and relationships with
members of the CNPC group. Because of these relationships, it is
possible that the terms of these transactions are not the same
as those that would result from transactions among wholly
unrelated parties. Related parties refer to corporations in
which CNPC is a major shareholder and is able to exercise
significant influence.

CNPC itself is a state-owned enterprise. In
accordance with a specific exemption in IAS 24, the Group
does not accumulate or disclose transactions with other
state-owned enterprises as related party transactions, other
than those with other CNPC group companies and significant
customers as described in Note 29.

The majority of the Groups business
activities are conducted with state-owned enterprises. Sale of
certain products to these state-owned enterprises are at
state-prescribed prices. The Group considers that these sales
are activities in the ordinary course of business and has not
accumulated or disclosed such related party transactions.

As a result of the Restructuring, the Company and
CNPC entered into a Comprehensive Products and Services
Agreement for a range of products and services which may be
required and requested by either party; a Land Use Rights
Leasing Contract (Note 27(d)) under which CNPC leases
42,476 parcels of land located throughout the PRC to the
Company; and a Buildings Leasing Contract under which CNPC
leases 191 buildings, together with the headquarters,
located throughout the PRC to the Company.

The term of the Comprehensive Products and
Services Agreement is 10 years commencing November 5,
1999. The products and services to be provided by the CNPC group
to the Company under the Comprehensive Products and Services
Agreement include construction and technical services,
production services, supply of material services, social
services, ancillary services, and financial services. The
products and services are provided in accordance with
(1) state-prescribed prices; or (2) where there is no
state-prescribed price, relevant market prices; or
(3) where neither (1) nor (2) is applicable,
actual cost incurred; or the agreed contractual price, being the
actual cost plus a margin of no more than 15% for certain
construction and technical services, and 3% for all other types
of services.

The Land Use Rights Contract provides for the
lease of an aggregate area of approximately 1,145 million
square meters of land located throughout the PRC to members of
the Company for a term of 50 years at an annual fee of RMB
2,000. The total fee payable for the lease of all such

F-39



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


property may, after the expiration of
10 years, be adjusted by agreement between the Company and
CNPC.

Under the Buildings Leasing Contract,
191 buildings covering an aggregate area of 269,770 square
meters located throughout the PRC are leased at an aggregate
annual fee of RMB 39 for a term of 20 years.

Prior to the establishment of the Company,
allocation of costs from companies and operating units retained
by CNPC primarily represented direct costs of exploration,
drilling, production, construction, maintenance, procurement and
other services. Following the establishment of the Company,
costs are based on the terms of the agreements entered into with
CNPC as described above.

In addition to the related party information
shown elsewhere in the financial statements, the following is a
summary of significant related party transactions entered into
in the ordinary course of business between the Group and
entities controlled by CNPC during the periods indicated below:

|                                                  |                                                 |       |    |                         |   |      |        |        |  |  |        |        |  |  |        |        | 
|------------------------------------------------- | ----------------------------------------------- | ----- | -- | ----------------------- | - | ---- | ------ | ------ |  |  | ------ | ------ |  |  | ------ | ------ | 
|                                                  |                                                 |       |    |                        
|                                                  |                                                 | Notes |    | Year Ended December 31,
|                                                  |                                                 |       |    |                        
|                                                  |                                                 |       |    | 1999                    |   | 2000 |        | 2001  
|                                                  |                                                 |       |    |                         |   |      |        |       
|                                                  |                                                 |       |    | RMB                     |   | RMB  |        | RMB   
|Sale of goods                                     |                                                 |       | (a | )                       |   |      | 13,795 |        |  |  | 23,422 |        |  |  | 18,628 |       
|Fees paid for construction and technical services |                                                 |       | (b | )                       |   |      |        |        |  |  |        |        |  |  |        |       
|                                                  |  Exploration and development services          |       |    | (c                      | ) |      |        | 18,579 |  |  |        | 21,007 |  |  |        | 20,570 | 
|                                                  |  Other construction and technical
    services |       |    | (d                      | ) |      |        | 13,043 |  |  |        | 15,453 |  |  |        | 14,592 | 
|Fees for production services                      |                                                 |       | (e | )                       |   |      | 13,094 |        |  |  | 15,007 |        |  |  | 15,581 |       
|Purchase of materials                             |                                                 |       | (f | )                       |   |      | 9,056  |        |  |  |       |        |  |  |       |       
|Social services charge                            |                                                 |       | (g | )                       |   |      | 2,709  |        |  |  | 1,352  |        |  |  | 1,261  |       
|Ancillary service charges                         |                                                 |       | (h | )                       |   |      | 2,282  |        |  |  | 2,145  |        |  |  | 2,087  |       
|Interest income                                   |                                                 |       | (i | )                       |   |      | 45     |        |  |  | 42     |        |  |  | 26     |       
|Interest expense                                  |                                                 |       | (j | )                       |   |      | 870    |        |  |  | 940    |        |  |  | 1,112  |       
|Rental expense                                    |                                                 |       | (k | )                       |   |      | 341    |        |  |  | 2,048  |        |  |  | 2,036  |       
|Commission expense and other charges              |                                                 |       | (l | )                       |   |      | 359    |        |  |  | 1,087  |        |  |  | 977    |       




Notes:


|    |                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Represents sale of crude oil, refined and
    chemical products at various prices including market prices,
    rates fixed by the government or prices determined by CNPC.
    Since November 5, 1999, sales were conducted principally at
    market prices.                                                                                                            
|   
|(b) | Under the Comprehensive Products and Services
    Agreement entered into between CNPC and the Company, certain
    construction and technical services provided by CNPC are charged
    at cost plus an additional margin of no more than 15%, including
    exploration and development services and oilfield construction
    services, starting from November 5, 1999.
|   
|(c) | Direct costs for exploration and development
    services, comprise geophysical survey, drilling, well cementing,
    logging, and well testing.                                                                                                                                                                                                                         
|   
|(d) | The fees paid for other construction and
    technical services, comprise fees for construction of refineries
    and chemical plants and technical services in connection with
    oil and gas                                                                                                                                                                          

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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)




|    |                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | exploration and production activities such as
    oilfield construction, technology research, engineering and
    design, etc.                                                                                                                                                                                                                                                                                        
|   
|(e) | The fees paid for production services comprise
    fees for the repair of machinery, supply of water, electricity
    and gas, provision of services such as communications,
    transportation, fire fighting, asset leasing, environmental
    protection and sanitation, maintenance of roads, manufacture of
    replacement parts and machinery.                                                                 
|   
|(f) | These transactions represent procurement of
    materials and related services for operations directly related
    to the Group. Such transactions ceased since November 5,
    1999, and were replaced by procurement on behalf of the Group.
    See note (l) below.                                                                                                                                                
|   
|(g) | These represent expenditures for social welfare
    and support services which are charged at cost.                                                                                                                                                                                                                                                                                                                   
|   
|(h) | Ancillary service charges represent mainly fees
    for property management, the provision of training centers,
    guesthouses, canteens, public shower rooms, etc.                                                                                                                                                                                                                                                  
|   
|(i) | The Group had deposits placed with China
    Petroleum Finance Company Limited (CP Finance), a
    subsidiary of CNPC and a non-bank financial institution approved
    by the Peoples Bank of China, amounting to RMB 3,956, RMB
    1,018 and RMB 1,239 as of December 31, 1999, 2000 and 2001
    respectively. The deposits yield interest at prevailing saving
    deposit rates.                             
|   
|(j) | The Group had short-term and long-term loans from
    CP Finance amounting to RMB 25,683, RMB 23,896 and RMB 22,021 as
    of December 31, 1999, 2000 and 2001 respectively, included
    under loans from related parties. The loans were secured by
    inventories at a net book value of RMB 3,820, nil and nil as of
    December 31, 1999, 2000 and 2001 respectively, and interest
    bearing at market rates.
|   
|(k) | Rental expenses are calculated in accordance with
    the lease agreements entered into between the Company and CNPC.                                                                                                                                                                                                                                                                                                 
|   
|(l) | With effect from November 5, 1999, CNPC
    purchased materials on behalf of the Company and charged
    commission thereon. The commission is calculated at rates
    ranging from 1% to 5% of the goods purchased.                                                                                                                                                                                                  
|   
|(m) | The Group had a 4.73% equity interest in CP
    Finance at a book value of RMB 85 as of December 31, 1999,
    2000 and 2001.                                                                                                                                                                                                                                                                                         

31     EMOLUMENTS OF
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Details of the directors and
supervisors emoluments are as follows:

|                                          |  |                        |     |         |  |         |       |  |  |  |       | 
|----------------------------------------- |  | ---------------------- | --- | ------- |  | ------- | ----- |  |  |  | ----- | 
|                                          |  |                       
|                                          |  | Year Ended December 31
|                                          |  |                       
|                                          |  | 1999                   |     | 2000    |  | 2001   
|                                          |  |                        |     |         |  |        
|                                          |  | RMB000                |     | RMB000 |  | RMB000
|Fee for directors and supervisors         |  |                        |    |         |  |         | 140   |  |  |  | 170   | 
|Salaries, allowances and other benefits   |  |                        | 736 |         |  |         | 972   |  |  |  | 1,104 | 
|Contribution to retirement benefit scheme |  |                        | 24  |         |  |         | 27    |  |  |  | 23    | 
|                                          |  |                        |     |         |  |         |       |  |  |  |       | 
|                                          |  |                        | 760 |         |  |         | 1,139 |  |  |  | 1,297 | 
|                                          |  |                        |     |         |  |         |       |  |  |  |       | 

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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


The emoluments of the directors and supervisors
fall within the following bands:

|                    |  |                        |    |        |  |        |    |  |  |  |    | 
|------------------- |  | ---------------------- | -- | ------ |  | ------ | -- |  |  |  | -- | 
|                    |  |                       
|                    |  | Year Ended December 31
|                    |  |                       
|                    |  | 1999                   |    | 2000   |  | 2001  
|                    |  |                        |    |        |  |       
|                    |  | Number                 |    | Number |  | Number
|Nil  RMB 1,000,000 |  |                        | 10 |        |  |        | 12 |  |  |  | 12 | 
|                    |  |                        |    |        |  |        |    |  |  |  |    | 

Fees for directors and supervisors disclosed
above included RMB 107,596 yuan (nil in 1999 and
RMB 95,000 yuan in 2000) paid to independent non-executive
directors.

None of the directors and supervisors has waived
their remuneration during the periods indicated above.

The five highest paid individuals in the Group
for each of the periods indicated above were also directors or
supervisors and their emoluments are reflected in the analysis
presented above.

The Company has adopted a share option scheme,
which is a share appreciation right arrangement payable in cash
to the recipient upon exercise of the rights, which become
effective from the initial public offering of the H shares
of the Company on April 7, 2000. The directors, supervisors
and senior executives are eligible for the scheme. 35,000,000
units of share appreciation rights were granted to the directors
and supervisors and 87,000,000 units of share appreciation
rights were granted to senior executives.

The rights can be exercised on or after the third
anniversary of the grant, i.e. on or after April 8, 2003 up
to April 7, 2008. The exercise price is the price as at the
initial public offering being HK$1.28 or approximately
RMB 1.36 yuan per share.

At December 31, 2001 the liability for the
units awarded under the scheme has been recognized in the
financial statements. It has been calculated based on the
difference between the exercise price and the market price of
the shares and amounted to approximately RMB 13,000,000
yuan.

32     SEGMENT
INFORMATION

The Group is engaged in a broad range of
petroleum related activities through its four major business
segments: Exploration and Production, Refining and Marketing,
Chemicals and Marketing and Natural Gas and Pipeline.

The Exploration and Production segment is engaged
in the exploration, development, production and sales of crude
oil and natural gas.

The Refining and Marketing segment is engaged in
the refining, transportation, storage and marketing of crude oil
and petroleum products.

The Chemicals and Marketing segment is engaged in
the production and sale of basic petrochemical products,
derivative petrochemical products, and other chemical products.

The Natural Gas and Pipeline segment is engaged
in the transmission of crude oil and natural gas, and the sale
of natural gas.

In addition to these four major business
segments, the other segment includes the assets, income and
expenses relating to cash management, financing activities, the
corporate centre, research and development, and other business
services to the operating segments of the Group.

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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


All assets and operations of the Group are
located in the PRC, which is considered as one geographic
location in an economic environment with similar risks and
returns.

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, 1999, 2000 and 2001 is presented below:

|                                                                     |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  |         |  
|-------------------------------------------------------------------- |  | ----------- | ------- | --------- |  | --------- | ------- | ------- |  | ----- | ------ | ----- |  |  | ----- | - |  |  | ------ | - |  |  | ------- | -
|                                                                     |  | Exploration |         | Refining  |  | Chemicals |         |         |  |       |        |      
|                                                                     |  | and         |         | and       |  | and       |         | Natural |  |       |        |      
|Year Ended December 31, 1999                                         |  | Production  |         | Marketing |  | Marketing |         | Gas     |  | Other |        | Total
|                                                                     |  |             |         |           |  |           |         |         |  |       |        |      
|                                                                     |  | RMB         |         | RMB       |  | RMB       |         | RMB     |  | RMB   |        | RMB  
|Sales and other operating revenues (including
    inter-segment)     |  |             | 110,190 |           |  |           | 117,562 |         |  |       | 25,417 |       |  |  | 5,977 |   |  |  | 312    |   |  |  | 259,458 |  
|Less: Inter-segment sales                                            |  |             | (75,047 | )         |  |           | (7,917  | )       |  |       | (488   | )     |  |  | (37   | ) |  |  |       |   |  |  | (83,489 | )
|                                                                     |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  |         |  
|Total sales and other operating revenues from
    external customers |  |             | 35,143  |           |  |           | 109,645 |         |  |       | 24,929 |       |  |  | 5,940 |   |  |  | 312    |   |  |  | 175,969 |  
|                                                                     |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  |         |  
|Depreciation, depletion and amortization                             |  |             | (13,013 | )         |  |           | (5,089  | )       |  |       | (4,717 | )     |  |  | (503  | ) |  |  | (211   | ) |  |  | (23,533 | )
|Segment result                                                       |  |             | 53,083  |           |  |           | 7,674   |         |  |       | (263   | )     |  |  | (375  | ) |  |  | (968   | ) |  |  | 59,151  |  
|Other costs                                                          |  |             | (2,188  | )         |  |           | (8,161  | )       |  |       | (1,441 | )     |  |  | (40   | ) |  |  | (421   | ) |  |  | (12,251 | )
|                                                                     |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  |         |  
|Income from operations                                               |  |             | 50,895  |           |  |           | (487    | )       |  |       | (1,704 | )     |  |  | (415  | ) |  |  | (1,389 | ) |  |  | 46,900  |  
|                                                                     |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  |         |  
|Finance costs                                                        |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  | (10,497 | )
|Equity in income of affiliates accounted for by
    equity method    |  |             | 40      |           |  |           | 92      |         |  |       | (4     | )     |  |  |      |   |  |  |       |   |  |  | 128     |  
|                                                                     |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  |         |  
|Income before income taxes                                           |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  | 36,531  |  
|Income taxes                                                         |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  | (9,403  | )
|Minority interests                                                   |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  | (127    | )
|                                                                     |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  |         |  
|Net income                                                           |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  | 27,001  |  
|                                                                     |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  |         |  
|Interest income                                                      |  |             | 219     |           |  |           | 275     |         |  |       | 48     |       |  |  | 4     |   |  |  | 86     |   |  |  | 632     |  
|Interest expense                                                     |  |             | (3,382  | )         |  |           | (2,280  | )       |  |       | (3,011 | )     |  |  | (215  | ) |  |  | (8     | ) |  |  | (8,896  | )
|Revaluation loss                                                     |  |             | (374    | )         |  |           | (221    | )       |  |       | (345   | )     |  |  |      |   |  |  | (182   | ) |  |  | (1,122  | )
|Impairment loss on assets retained by CNPC                           |  |             |        |           |  |           |        |         |  |       | (2,007 | )     |  |  |      |   |  |  |       |   |  |  | (2,007  | )
|Segment assets                                                       |  |             | 224,273 |           |  |           | 93,591  |         |  |       | 73,307 |       |  |  | 8,456 |   |  |  | 8,716  |   |  |  | 408,343 |  
|Investments in equity affiliates                                     |  |             | 1,247   |           |  |           | 1,193   |         |  |       | 502    |       |  |  |      |   |  |  |       |   |  |  | 2,942   |  
|                                                                     |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  |         |  
|Total assets                                                         |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  | 411,285 |  
|                                                                     |  |             |         |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |        |   |  |  |         |  

F-43



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


|                             |                                     |             |        |           |  |           |        |         |  |       |        |       |  |  |       |       |  |  |       |     |  |  |         |        | 
|---------------------------- | ----------------------------------- | ----------- | ------ | --------- |  | --------- | ------ | ------- |  | ----- | ------ | ----- |  |  | ----- | ----- |  |  | ----- | --- |  |  | ------- | ------ | 
|                             |                                     | Exploration |        | Refining  |  | Chemicals |        |         |  |       |        |      
|                             |                                     | and         |        | and       |  | and       |        | Natural |  |       |        |      
|Year Ended December 31, 1999 |                                     | Production  |        | Marketing |  | Marketing |        | Gas     |  | Other |        | Total
|                             |                                     |             |        |           |  |           |        |         |  |       |        |      
|                             |                                     | RMB         |        | RMB       |  | RMB       |        | RMB     |  | RMB   |        | RMB  
|Segment capital expenditure  |                                     |             |        |           |  |           |        |         |  |       |        |       |  |  |       |       |  |  |       |     |  |  |         |       
|                             |  for property, plant and equipment |             |        | 32,878    |  |           |        | 9,208   |  |       |        | 5,011 |  |  |       | 1,646 |  |  |       | 477 |  |  |         | 49,220 | 
|                             |  for assets retained by CNPC       |             |        |          |  |           |        |        |  |       |        | 111   |  |  |       |      |  |  |       |    |  |  |         | 111    | 
|Segment liabilities          |                                     |             | 75,906 |           |  |           | 48,329 |         |  |       | 56,568 |       |  |  | 4,621 |       |  |  | 4,710 |     |  |  | 190,134 |       
|Other liabilities            |                                     |             |        |           |  |           |        |         |  |       |        |       |  |  |       |       |  |  |       |     |  |  | 6,540   |       
|                             |                                     |             |        |           |  |           |        |         |  |       |        |       |  |  |       |       |  |  |       |     |  |  |         |       
|Total liabilities            |                                     |             |        |           |  |           |        |         |  |       |        |       |  |  |       |       |  |  |       |     |  |  | 196,674 |       
|                             |                                     |             |        |           |  |           |        |         |  |       |        |       |  |  |       |       |  |  |       |     |  |  |         |       

|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  |          |  
|-------------------------------------------------------------------- |  | ----------- | -------- | --------- |  | --------- | ------- | ------- |  | ----- | ------ | ----- |  |  | ----- | - |  |  | ----- | - |  |  | -------- | -
|                                                                     |  | Exploration |          | Refining  |  | Chemicals |         |         |  |       |        |      
|                                                                     |  | and         |          | and       |  | and       |         | Natural |  |       |        |      
|Year Ended December 31, 2000                                         |  | Production  |          | Marketing |  | Marketing |         | Gas     |  | Other |        | Total
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |      
|                                                                     |  | RMB         |          | RMB       |  | RMB       |         | RMB     |  | RMB   |        | RMB  
|Sales and other operating revenues (including
    inter- segment)    |  |             | 170,928  |           |  |           | 161,148 |         |  |       | 33,364 |       |  |  | 7,163 |   |  |  |      |   |  |  | 372,603  |  
|Less: Inter-segment sales                                            |  |             | (121,265 | )         |  |           | (8,176  | )       |  |       | (355   | )     |  |  | (815  | ) |  |  |      |   |  |  | (130,611 | )
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  |          |  
|Total sales and other operating revenues from
    external customers |  |             | 49,663   |           |  |           | 152,972 |         |  |       | 33,009 |       |  |  | 6,348 |   |  |  |      |   |  |  | 241,992  |  
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  |          |  
|Depreciation, depletion and amortization                             |  |             | (21,354  | )         |  |           | (5,927  | )       |  |       | (5,728 | )     |  |  | (624  | ) |  |  | (127  | ) |  |  | (33,760  | )
|Segment result (Note a)                                              |  |             | 99,375   |           |  |           | 1,746   |         |  |       | 2,004  |       |  |  | 89    |   |  |  | (500  | ) |  |  | 102,714  |  
|Other costs                                                          |  |             | (4,232   | )         |  |           | (10,488 | )       |  |       | (1,934 | )     |  |  | (75   | ) |  |  | (226  | ) |  |  | (16,955  | )
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  |          |  
|Income from operations                                               |  |             | 95,143   |           |  |           | (8,742  | )       |  |       | 70     |       |  |  | 14    |   |  |  | (726  | ) |  |  | 85,759   |  
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  |          |  
|Finance costs                                                        |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  | (4,292   | )
|Equity in income of affiliates accounted for by
    equity method    |  |             | 280      |           |  |           | 143     |         |  |       | 51     |       |  |  |      |   |  |  | 110   |   |  |  | 584      |  
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  |          |  
|Income before income taxes                                           |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  | 82,051   |  
|Income taxes                                                         |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  | (26,985  | )
|Minority interests                                                   |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  | 165      |  
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  |          |  
|Net income                                                           |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  | 55,231   |  
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  |          |  
|Interest income                                                      |  |             | 914      |           |  |           | 490     |         |  |       | 959    |       |  |  | 70    |   |  |  | 1,234 |   |  |  | 3,667    |  
|Less:                                                                |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  |          |  
|Inter-segment interest income                                        |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  | (3,083   | )
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  |          |  
|Interest income from external sources                                |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  | 584      |  
|                                                                     |  |             |          |           |  |           |         |         |  |       |        |       |  |  |       |   |  |  |       |   |  |  |          |  

F-44



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


|                                      |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  |          |        | 
|------------------------------------- | ----------------------------------- | ----------- | ------- | --------- |  | --------- | ------- | ------- |  | ----- | ------ | ----- |  |  | ------ | ----- |  |  | ------- | --- |  |  | -------- | ------ | 
|                                      |                                     | Exploration |         | Refining  |  | Chemicals |         |         |  |       |        |      
|                                      |                                     | and         |         | and       |  | and       |         | Natural |  |       |        |      
|Year Ended December 31, 2000          |                                     | Production  |         | Marketing |  | Marketing |         | Gas     |  | Other |        | Total
|                                      |                                     |             |         |           |  |           |         |         |  |       |        |      
|                                      |                                     | RMB         |         | RMB       |  | RMB       |         | RMB     |  | RMB   |        | RMB  
|Interest expense                      |                                     |             | (3,412  | )         |  |           | (1,712  | )       |  |       | (2,523 | )     |  |  | (226   | )     |  |  | (1,258  | )   |  |  | (9,131   | )     
|Less:                                 |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  |          |       
|Inter-segment interest expense        |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  | 3,083    |       
|                                      |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  |          |       
|Interest expense to external sources  |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  | (6,048   | )     
|                                      |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  |          |       
|Segment assets                        |                                     |             | 257,706 |           |  |           | 113,399 |         |  |       | 76,434 |       |  |  | 11,990 |       |  |  | 355,014 |     |  |  | 814,543  |       
|Elimination of inter-segment balances |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  | (389,466 | )     
|Investments in equity affiliates      |                                     |             | 809     |           |  |           | 1,364   |         |  |       | 385    |       |  |  | 5      |       |  |  | 440     |     |  |  | 3,003    |       
|                                      |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  |          |       
|Total assets                          |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  | 428,080  |       
|                                      |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  |          |       
|Segment capital expenditure           |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  |          |       
|                                      |  for property, plant and equipment |             |         | 38,654    |  |           |         | 13,227  |  |       |        | 4,104 |  |  |        | 3,214 |  |  |         | 563 |  |  |          | 59,762 | 
|Segment liabilities                   |                                     |             | 92,421  |           |  |           | 61,853  |         |  |       | 52,426 |       |  |  | 7,688  |       |  |  | 83,694  |     |  |  | 298,082  |       
|Other liabilities                     |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  | 19,961   |       
|Elimination of inter-segment balances |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  | (167,909 | )     
|                                      |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  |          |       
|Total liabilities                     |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  | 150,134  |       
|                                      |                                     |             |         |           |  |           |         |         |  |       |        |       |  |  |        |       |  |  |         |     |  |  |          |       

|                                                                     |  |             |          |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |      |   |  |  |          |  
|-------------------------------------------------------------------- |  | ----------- | -------- | --------- |  | --------- | ------- | -------- |  | ----- | ------ | ----- |  |  | ------ | - |  |  | ---- | - |  |  | -------- | -
|                                                                     |  | Exploration |          | Refining  |  | Chemicals |         | Natural  |  |       |        |      
|                                                                     |  | and         |          | and       |  | and       |         | Gas and  |  |       |        |      
|Year Ended December 31, 2001                                         |  | Production  |          | Marketing |  | Marketing |         | Pipeline |  | Other |        | Total
|                                                                     |  |             |          |           |  |           |         |          |  |       |        |      
|                                                                     |  | RMB         |          | RMB       |  | RMB       |         | RMB      |  | RMB   |        | RMB  
|Sales and other operating revenues (including
    inter-segment)     |  |             | 148,277  |           |  |           | 169,534 |          |  |       | 31,776 |       |  |  | 11,321 |   |  |  |     |   |  |  | 360,908  |  
|Less: Inter-segment sales                                            |  |             | (110,738 | )         |  |           | (8,436  | )        |  |       | (462   | )     |  |  | (2,379 | ) |  |  |     |   |  |  | (122,015 | )
|                                                                     |  |             |          |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |      |   |  |  |          |  
|Total sales and other operating revenues from
    external customers |  |             | 37,539   |           |  |           | 161,098 |          |  |       | 31,314 |       |  |  | 8,942  |   |  |  |     |   |  |  | 238,893  |  
|                                                                     |  |             |          |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |      |   |  |  |          |  
|Depreciation, depletion and Amortization                             |  |             | (21,419  | )         |  |           | (5,556  | )        |  |       | (5,171 | )     |  |  | (1,113 | ) |  |  | (108 | ) |  |  | (33,367  | )
|Segment result                                                       |  |             | 81,679   |           |  |           | 10,366  |          |  |       | 129    |       |  |  | 1,142  |   |  |  | (378 | ) |  |  | 92,938   |  
|Other costs                                                          |  |             | (4,747   | )         |  |           | (12,612 | )        |  |       | (2,503 | )     |  |  | (420   | ) |  |  | (439 | ) |  |  | (20,721  | )
|                                                                     |  |             |          |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |      |   |  |  |          |  
|Income from operations                                               |  |             | 76,932   |           |  |           | (2,246  | )        |  |       | (2,374 | )     |  |  | 722    |   |  |  | (817 | ) |  |  | 72,217   |  
|                                                                     |  |             |          |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |      |   |  |  |          |  
|Finance costs                                                        |  |             |          |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |      |   |  |  | (3,100   | )

F-45



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


|                                                                         |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|------------------------------------------------------------------------ |  | ----------- | ------- | --------- |  | --------- | ------- | -------- |  | ----- | ------ | ----- |  |  | ------ | - |  |  | ------- | - |  |  | -------- | -
|                                                                         |  | Exploration |         | Refining  |  | Chemicals |         | Natural  |  |       |        |      
|                                                                         |  | and         |         | and       |  | and       |         | Gas and  |  |       |        |      
|Year Ended December 31, 2001                                             |  | Production  |         | Marketing |  | Marketing |         | Pipeline |  | Other |        | Total
|                                                                         |  |             |         |           |  |           |         |          |  |       |        |      
|                                                                         |  | RMB         |         | RMB       |  | RMB       |         | RMB      |  | RMB   |        | RMB  
|Equity in income/(loss) of affiliates accounted
    for by equity method |  |             | 162     |           |  |           | 38      |          |  |       | 29     |       |  |  | (9     | ) |  |  | 121     |   |  |  | 341      |  
|                                                                         |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Income before income taxes                                               |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 69,458   |  
|Income taxes                                                             |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (23,054  | )
|Minority interests                                                       |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 404      |  
|                                                                         |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Net income                                                               |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 46,808   |  
|                                                                         |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest income                                                          |  |             | 1,893   |           |  |           | 1,181   |          |  |       | 493    |       |  |  | 104    |   |  |  | 4,955   |   |  |  | 8,626    |  
|Less:                                                                    |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Inter-segment interest income                                            |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (7,827   | )
|                                                                         |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest income from external sources                                    |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 799      |  
|                                                                         |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest expense                                                         |  |             | (2,896  | )         |  |           | (2,408  | )        |  |       | (1,991 | )     |  |  | (310   | ) |  |  | (4,371  | ) |  |  | (11,976  | )
|Less:                                                                    |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Inter-segment interest expense                                           |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 7,827    |  
|                                                                         |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Interest expense to external sources                                     |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (4,149   | )
|                                                                         |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Segment assets                                                           |  |             | 268,955 |           |  |           | 116,524 |          |  |       | 73,341 |       |  |  | 22,370 |   |  |  | 412,684 |   |  |  | 893,874  |  
|Elimination of inter-segment balances                                    |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (436,922 | )
|Investments in equity affiliates                                         |  |             | 1,194   |           |  |           | 919     |          |  |       | 590    |       |  |  | 627    |   |  |  | 592     |   |  |  | 3,922    |  
|                                                                         |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Total assets                                                             |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 460,874  |  
|                                                                         |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Segment capital expenditure                                              |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
| for property, plant and equipment                                      |  |             | 41,193  |           |  |           | 11,048  |          |  |       | 4,062  |       |  |  | 4,557  |   |  |  | 321     |   |  |  | 61,181   |  
|Segment liabilities                                                      |  |             | 84,369  |           |  |           | 65,886  |          |  |       | 49,526 |       |  |  | 11,547 |   |  |  | 115,097 |   |  |  | 326,425  |  
|Other liabilities                                                        |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 21,553   |  
|Elimination of inter-segment balances                                    |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | (185,362 | )
|                                                                         |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  
|Total liabilities                                                        |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  | 162,616  |  
|                                                                         |  |             |         |           |  |           |         |          |  |       |        |       |  |  |        |   |  |  |         |   |  |  |          |  




|           |                                                                                                                                                                  
|---------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note (a)  | Segment results for the year ended
    December 31, 2000 included the effect of employee
    separation costs and shut down of manufacturing assets
    (Note 5).



|           |                                                                                                           
|---------- | ----------------------------------------------------------------------------------------------------------
|Note (b)  | Elimination of intersegment balances are
    elimination of intersegment current accounts and investments.

F-46



---



##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)




|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note (c)  | Effective January 1, 2001, the results of
    operations, together with the corresponding assets and
    liabilities, of certain pipeline operations of the Group are
    reclassified from the Refining and Marketing Segment to the
    Natural Gas and Pipeline Segment to reflect the changes in the
    manner under which these operations are managed. The results of
    operations, together with the corresponding assets and
    liabilities, of these pipeline operations were included in the
    Refining and Marketing Segment in the segment information for
    the years ended December 31, 1999 and 2000. Selected
    financial data of these pipeline operations as of and for each
    of the years ended December 31, 1999 and 2000 are as
    follows:

|                                                                     |  |      |       |      |  |  |       | 
|-------------------------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                                                     |  | 1999 |       | 2000
|                                                                     |  |      |       |     
|                                                                     |  | RMB  |       | RMB 
|Sales and other operating revenues (including
    inter-segment)     |  |      | 2,651 |      |  |  | 2,506 | 
|Total sales and other operating revenues from
    external customers |  |      | 1,051 |      |  |  | 976   | 
|Depreciation, depletion and amortization                             |  |      | 470   |      |  |  | 539   | 
|Segment result                                                       |  |      | 641   |      |  |  | 166   | 
|Other costs                                                          |  |      | 198   |      |  |  | 137   | 
|Income from operations                                               |  |      | 443   |      |  |  | 29    | 
|Equity in income of affiliates accounted for by
    equity method    |  |      | 82    |      |  |  | 60    | 
|Interest income                                                      |  |      | 44    |      |  |  | 4     | 
|Interest expense                                                     |  |      | 111   |      |  |  | 91    | 
|Segment assets                                                       |  |      | 8,123 |      |  |  | 7,789 | 
|Segment liabilities                                                  |  |      | 3,227 |      |  |  | 2,653 | 

33     SIGNIFICANT
DIFFERENCES BETWEEN IAS AND US GAAP

The consolidated financial statements have been
prepared in accordance with IAS, which may differ in certain
material respects 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.

F-47



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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


Effect on net income of significant differences
between IAS and US GAAP is as follows:

|                                       |                                                                            |                        |        |        |   |      |        |        |   |  |        |        |   |  |       |       |  
|-------------------------------------- | -------------------------------------------------------------------------- | ---------------------- | ------ | ------ | - | ---- | ------ | ------ | - |  | ------ | ------ | - |  | ----- | ----- | -
|                                       |                                                                            |                       
|                                       |                                                                            | Year Ended December 31
|                                       |                                                                            |                       
|                                       |                                                                            | 1999                   |        | 2000   |   | 2001 |        | 2001  
|                                       |                                                                            |                        |        |        |   |      |        |       
|                                       |                                                                            | RMB                    |        | RMB    |   | RMB  |        | US$   
|Net income under IAS                   |                                                                            |                        | 27,001 |        |   |      | 55,231 |        |   |  | 46,808 |        |   |  | 5,656 |      
|US GAAP adjustments:                   |                                                                            |                        |        |        |   |      |        |        |   |  |        |        |   |  |       |      
|                                       | Depreciation charges on property, plant and
    equipment revaluation gain |                        |        | 4,275  |   |      |        | 8,483  |   |  |        | 8,305  |   |  |       | 1,004 |  
|                                       | Reversal of revaluation loss                                               |                        |        | 1,122  |   |      |        |       |   |  |        |       |   |  |       |       |  
|                                       | Depreciation charges on property, plant and
    equipment revaluation loss |                        |        |       |   |      |        | (112   | ) |  |        | (112   | ) |  |       | (14   | )
|                                       | Loss on disposal of property, plant and equipment                          |                        |        |       |   |      |        | 63     |   |  |        | 53     |   |  |       | 6     |  
|                                       | Income tax effect                                                          |                        |        | (1,411 | ) |      |        | (2,783 | ) |  |        | (2,721 | ) |  |       | (329  | )
|                                       | Minority interests                                                         |                        |        |       |   |      |        | (60    | ) |  |        | (60    | ) |  |       | (7    | )
|                                       |                                                                            |                        |        |        |   |      |        |        |   |  |        |        |   |  |       |      
|Net income under US GAAP               |                                                                            |                        | 30,987 |        |   |      | 60,822 |        |   |  | 52,273 |        |   |  | 6,316 |      
|                                       |                                                                            |                        |        |        |   |      |        |        |   |  |        |        |   |  |       |      
|Basic and diluted net income per share |                                                                            |                        | 0.19   |        |   |      | 0.35   |        |   |  | 0.30   |        |   |  | 0.04  |      
|                                       |                                                                            |                        |        |        |   |      |        |        |   |  |        |        |   |  |       |      

Effect on shareholders equity of
significant differences between IAS and US GAAP is as follows:

|                                   |                                                                            |                |         |         |   |      |         |         |   |  |        |        |  
|---------------------------------- | -------------------------------------------------------------------------- | -------------- | ------- | ------- | - | ---- | ------- | ------- | - |  | ------ | ------ | -
|                                   |                                                                            |               
|                                   |                                                                            | At December 31
|                                   |                                                                            |               
|                                   |                                                                            | 2000           |         | 2001    |   | 2001
|                                   |                                                                            |                |         |         |   |     
|                                   |                                                                            | RMB            |         | RMB     |   | US$ 
|Shareholders equity under IAS     |                                                                            |                | 272,957 |         |   |      | 293,122 |         |   |  | 35,416 |       
|US GAAP adjustments:               |                                                                            |                |         |         |   |      |         |         |   |  |        |       
|                                   | Reversal of property, plant and equipment
    revaluation                  |                |         | (80,549 | ) |      |         | (80,549 | ) |  |        | (9,732 | )
|                                   | Depreciation charges on property, plant and
    equipment revaluation gain |                |         | 12,758  |   |      |         | 21,063  |   |  |        | 2,545  |  
|                                   | Reversal of revaluation loss                                               |                |         | 1,122   |   |      |         | 1,122   |   |  |        | 136    |  
|                                   | Depreciation charges on property, plant and
    equipment revaluation loss |                |         | (112    | ) |      |         | (224    | ) |  |        | (27    | )
|                                   | Loss on disposal of property, plant and equipment                          |                |         | 63      |   |      |         | 116     |   |  |        | 14     |  
|                                   | Deferred tax assets on revaluation                                         |                |         | 22,017  |   |      |         | 19,296  |   |  |        | 2,331  |  
|                                   | Minority interests                                                         |                |         | 544     |   |      |         | 484     |   |  |        | 58     |  
|                                   |                                                                            |                |         |         |   |      |         |         |   |  |        |       
|Shareholders equity under US GAAP |                                                                            |                | 228,800 |         |   |      | 254,430 |         |   |  | 30,741 |       
|                                   |                                                                            |                |         |         |   |      |         |         |   |  |        |       

In preparing the summary of differences between
IAS and US GAAP, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the estimates of revenues and expenses.
Accounting estimates have been employed in these financial
statements to determine reported amounts, including
realizability, useful lives of tangible and intangible assets,
income taxes and other areas. Actual results could differ from
those estimates.

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PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


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

(a) Revaluation
of property, plant and equipment



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As described in Note 16, 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. The revaluation of the property, plant and equipment
    transferred 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 items. The depreciation
    charge on the revaluation surplus from July 1, 1999 to
    December 31, 1999 was RMB 4,275, from January 1,
    2000 to December 31, 2000 was RMB 8,483 and from
    January 1, 2001 to December 31, 2001 was 8,305.
|
| | For purposes of reconciling to the US GAAP
    financial data, the effect of the revaluation and the related
    depreciation charges is reversed. A deferred tax asset relating
    to the reversal of the revaluation effect is established,
    together with a corresponding increase in the shareholders
    equity. Under a special approval granted by the Ministry of
    Finance, the effect of the revaluation will be available as
    additional depreciation base for purposes of determining taxable
    income.                                                                                                                                                                                                                                                                

(b) Related
party transactions



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Group has disclosed in Note 29
    transactions with significant customers and in Notes 13,
    15, 19, 20 and 30 transactions and balances with its immediate
    parent, CNPC, and related companies. CNPC is owned by the PRC
    government, which also owns a significant portion of the
    productive assets in the PRC. IAS exempts state controlled
    enterprises from disclosing transactions with other state
    controlled enterprises. IAS also excludes from related parties
    government departments and agencies to the extent that such
    dealings are in the normal course of business. US GAAP
    contains no similar exemptions but requires disclosure of
    material related party transactions. The Group believes that it
    has provided meaningful disclosures of related party
    transactions through the major customer disclosures in
    Note 29 and the transactions with the CNPC Group disclosed
    in Note 30. Although the majority of the Groups
    activities are with PRC government authorities and affiliates
    and other state controlled enterprises, none individually
    constitutes a major customer or supplier other than those
    disclosed.

(c) One-time
remedial payments for staff housing



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As disclosed in Note 4, certain employees of
    the Group who joined the workforce prior to December 31,
    1998 and have housing conditions below local standards are to be
    reimbursed for such differentials. These one-time remedial
    payments are to be borne by the state-owner of the Company,
    CNPC. Under IAS, such direct payments to employees or
    reimbursements will not be recorded through the consolidated
    income statement of the Group. US GAAP contains no such
    exemption but requires this principal shareholders action
    on behalf of the Company to be recorded in the consolidated
    income statement. To the extent that a reliable estimate can be
    established for such one-time remedial housing payments, the
    amount will be reflected in the consolidated income statement
    for purposes of reconciling to the US GAAP financial data.

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PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


(d) Recent
US accounting pronouncements



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In July 2001, the Financial Accounting Standards
    Board (FASB) issued Statement of Financial Accounting
    Standards No. 141 (FAS 141), Business
    Combinations and Statement of Financial Accounting
    Standards No. 142 (FAS 142), Goodwill and Other
    intangible Assets. FAS 141 addresses financial
    accounting and reporting for business combinations and requires
    that all business combinations in the scope of this statement
    are to be accounted for using one method, the purchase method.
    The provisions of FAS 141 apply to all business
    combinations initiated after June 30, 2001. FAS 142
    addresses how intangible assets that are acquired individually
    or with a group of other assets should be accounted for in
    financial statements upon their acquisition, and how goodwill
    and other intangible assets should be accounted for after they
    have been initially recognized in the financial statements. The
    provisions of FAS 142 are effective for fiscal years
    beginning after December 15, 2001. The Group expects the
    adoption of FAS 141 and FAS 142 will not have a
    material impact on the Groups results of operations and
    its financial position.
|
| | In August 2001, FASB issued Statement of
    Financial Accounting Standards No. 143 (FAS 143),
    Accounting for Asset Retirement Obligations.
    FAS 143 establishes accounting standards for recognition
    and measurement of a liability for an asset retirement
    obligation and the associated asset retirement cost.
    FAS 143 is effective for financial statements issued for
    fiscal years beginning after June 15, 2002. The Group
    expects the adoption of FAS 143 could have a material
    impact on the Groups results of operations and its
    financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | In October 2001, FASB issued Statement of
    Financial Accounting standards No. 144 (FAS 144),
    Accounting for the Impairment or Disposal of Long-Lived
    Assets. FAS 144 addresses financial accounting and
    reporting for the impairment of long-lived assets and for
    long-lived assets to be disposed of. FAS 144 is effective
    for financial statements issued for fiscal years beginning after
    December 15, 2001. The Group expects the adoption of
    FAS 144 will not have a material impact on the Groups
    results of operations and its financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

34     PRINCIPAL
SUBSIDIARIES

|                                           |  |               |     |         |  |         |        |              |  |                      |     |  |  |  |        |  |  |                                                                                                            |  | 
|------------------------------------------ |  | ------------- | --- | ------- |  | ------- | ------ | ------------ |  | -------------------- | --- |  |  |  | ------ |  |  | ---------------------------------------------------------------------------------------------------------- |  | 
|                                           |  | Country of    |     |         |  |         |        |              |  |                     
|                                           |  | Incorporation |     |         |  | Type of |        | Attributable |  |                     
|                                           |  | and           |     | Paid-up |  | Legal   |        | Equity       |  |                     
|Company Name                               |  | Operation     |     | 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 Co., Ltd            |  |               | PRC |         |  |         | 788    |              |  |                      | psi |  |  |  | 80.95  |  |  | Production and sale of oil and chemical products                                                          
|*Jilin Chemical Industrial Company Limited |  |               | PRC |         |  |         | 3,561  |              |  |                      | psi |  |  |  | 67.29  |  |  | Production and sale of chemical products                                                                  

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##### Table of Contents



PETROCHINA COMPANY LIMITED


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Amounts in millions unless otherwise
stated)


|                                                  |  |               |     |         |  |         |       |              |  |                      |     |  |  |  |       |  |  |                                                                                     |  | 
|------------------------------------------------- |  | ------------- | --- | ------- |  | ------- | ----- | ------------ |  | -------------------- | --- |  |  |  | ----- |  |  | ----------------------------------------------------------------------------------- |  | 
|                                                  |  | Country of    |     |         |  |         |       |              |  |                     
|                                                  |  | Incorporation |     |         |  | Type of |       | Attributable |  |                     
|                                                  |  | and           |     | Paid-up |  | Legal   |       | Equity       |  |                     
|Company Name                                      |  | Operation     |     | Capital |  | Entity  |       | Interest     |  | Principal Activities
|                                                  |  |               |     |         |  |         |       |              |  |                     
|                                                  |  |               |     | RMB     |  |         |       | %            |  |                     
|*Gansu Tristar Petrochemical (Group) Co.,
    Ltd |  |               | PRC |         |  |         | 183   |              |  |                      | psi |  |  |  | 51.60 |  |  | Trading of chemical products, electronic products, metal and construction materials
|*Daqing Yu Shu Lin Oilfield Company Limited       |  |               | PRC |         |  |         | 1,272 |              |  |                      | phi |  |  |  | 88.16 |  |  | Exploration and production of crude oil and natural gas                            
|*Liaohe Jinma Oilfield Company Limited            |  |               | PRC |         |  |         | 1,100 |              |  |                      | psi |  |  |  | 81.82 |  |  | Exploration, production, transportation and sale of crude oil and natural gas      




|      |                           
|----- | --------------------------
|phi  | Limited liability company.



|      |                                            
|----- | -------------------------------------------
|psi  | Joint stock company with limited liability.



|  |                                                                       
|- | ----------------------------------------------------------------------
|* | Subsidiaries directly held by the Company as of
    December 31, 2001.

Note  Daqing Oilfield Company
Limited, previously operated as a branch of the Company, was
incorporated on January 1, 2000. The assets and liabilities
of the branch were transferred to Daqing Oilfield Company
Limited on January 1, 2000 at their then carrying values.

35     APPROVAL OF
FINANCIAL STATEMENTS

The financial statements were approved by the
board of directors on April 15, 2002 and will be submitted
to the shareholders for approval at the annual general meeting
to be held on June 6, 2002.

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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
|                                                                                   |                        |                       
|                                                                                   |                        | 1999                   |         | 2000   |  | 2001
|                                                                                   |                        |                        |         |        |  |     
|                                                                                   |                        | RMB                    |         | RMB    |  | RMB 
|Sales and other operating revenues                                                 |                        |                        |         |        |  |      |         |         |  |  |         |        
|                                                                                   | Sales to third parties |                        |         | 35,143 |  |      |         | 49,663  |  |  |         | 37,539  | 
|                                                                                   | Inter-segment sales    |                        |         | 75,047 |  |      |         | 121,265 |  |  |         | 110,738 | 
|                                                                                   |                        |                        |         |        |  |      |         |         |  |  |         |        
|                                                                                   |                        |                        | 110,190 |        |  |      | 170,928 |         |  |  | 148,277 |        
|Production costs excluding taxes                                                   |                        |                        | (31,597 | )      |  |      | (31,237 | )       |  |  | (29,224 | )      
|Exploration expenses                                                               |                        |                        | (7,344  | )      |  |      | (8,680  | )       |  |  | (7,344  | )      
|Depreciation, depletion and amortization                                           |                        |                        | (10,921 | )      |  |      | (17,716 | )       |  |  | (18,423 | )      
|Taxes other than income taxes                                                      |                        |                        | (3,132  | )      |  |      | (4,758  | )       |  |  | (4,921  | )      
|                                                                                   |                        |                        |         |        |  |      |         |         |  |  |         |        
|Income before income taxes                                                         |                        |                        | 57,196  |        |  |      | 108,537 |         |  |  | 88,365  |        
|Income taxes                                                                       |                        |                        | (14,764 | )      |  |      | (35,817 | )       |  |  | (29,160 | )      
|                                                                                   |                        |                        |         |        |  |      |         |         |  |  |         |        
|Results of operations from producing activities                                    |                        |                        | 42,432  |        |  |      | 72,720  |         |  |  | 59,205  |        
|                                                                                   |                        |                        |         |        |  |      |         |         |  |  |         |        
|Income from equity affiliates results of
    operations from producing activities |                        |                        | 98      |        |  |      | 174     |         |  |  | 178     |        
|                                                                                   |                        |                        |         |        |  |      |         |         |  |  |         |        

Capitalized Costs

|                                                         |  |                        |          |      |  |      |          |   |  |  |          |  
|-------------------------------------------------------- |  | ---------------------- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                                         |  |                       
|                                                         |  | Year Ended December 31
|                                                         |  |                       
|                                                         |  | 1999                   |          | 2000 |  | 2001
|                                                         |  |                        |          |      |  |     
|                                                         |  | RMB                    |          | RMB  |  | RMB 
|Property costs                                           |  |                        |         |      |  |      |         |   |  |  |         |  
|Producing assets                                         |  |                        | 187,005  |      |  |      | 198,266  |   |  |  | 212,526  |  
|Support facilities                                       |  |                        | 72,365   |      |  |      | 86,808   |   |  |  | 92,573   |  
|Construction-in-progress                                 |  |                        | 8,738    |      |  |      | 9,775    |   |  |  | 9,755    |  
|                                                         |  |                        |          |      |  |      |          |   |  |  |          |  
|Total capitalized costs                                  |  |                        | 268,108  |      |  |      | 294,849  |   |  |  | 314,854  |  
|Accumulated depreciation, depletion and
    amortization |  |                        | (113,105 | )    |  |      | (116,925 | ) |  |  | (124,612 | )
|                                                         |  |                        |          |      |  |      |          |   |  |  |          |  
|Net capitalized costs                                    |  |                        | 155,003  |      |  |      | 177,924  |   |  |  | 190,242  |  
|                                                         |  |                        |          |      |  |      |          |   |  |  |          |  
|Share of equity affiliates net capitalized
    costs    |  |                        | 801      |      |  |      | 772      |   |  |  | 813      |  
|                                                         |  |                        |          |      |  |      |          |   |  |  |          |  

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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
|                                                                                            |  |                       
|                                                                                            |  | 1999                   |        | 2000 |  | 2001
|                                                                                            |  |                        |        |      |  |     
|                                                                                            |  | RMB                    |        | RMB  |  | RMB 
|Property acquisition costs                                                                  |  |                        |       |      |  |      |       |  |  |  |       | 
|Exploration costs                                                                           |  |                        | 8,696  |      |  |      | 10,856 |  |  |  | 10,146 | 
|Development costs                                                                           |  |                        | 19,110 |      |  |      | 27,764 |  |  |  | 29,445 | 
|                                                                                            |  |                        |        |      |  |      |        |  |  |  |        | 
|Total                                                                                       |  |                        | 27,806 |      |  |      | 38,620 |  |  |  | 39,591 | 
|                                                                                            |  |                        |        |      |  |      |        |  |  |  |        | 
|Share of equity affiliates costs of
    property acquisition, exploration, and development |  |                        | 119    |      |  |      | 100    |  |  |  | 303    | 
|                                                                                            |  |                        |        |      |  |      |        |  |  |  |        | 

Proved Reserve Estimates

Oil and gas proved reserves cannot be measured
exactly. Reserve estimates are based on many factors related to
reservoir performance that require evaluation by the engineers
interpreting the available data, as well as price and other
economic factors. The reliability of these estimates at any
point in time depends on both the quality and quantity of the
technical and economic data, and the production performance of
the reservoirs as well as engineering judgment. Consequently,
reserve estimates are subject to revision as additional data
become available during the producing life of a reservoir. When
a commercial reservoir is discovered, proved reserves are
initially determined based on limited data from the first well
or wells. Subsequent data may better define the extent of the
reservoir and additional production performance, well tests and
engineering studies will likely improve the reliability of the
reserve estimate. The evolution of technology may also result in
the application of improved recovery techniques such as
supplemental or enhanced recovery projects, or both, which have
the potential to increase reserves beyond those envisioned
during the early years of a reservoirs producing life.

Proved oil and gas reserves are the estimated
quantities of crude oil, natural gas and natural gas liquids
which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating
conditions, i.e., prices and costs as of the date the estimate
is made. Prices include consideration of changes in existing
prices provided only by contractual arrangements, but not on
escalations based upon future conditions. Proved developed
reserves are those reserves, which can be expected to be
recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are those
reserves, which are expected to be recovered from new wells on
undrilled acreage, or from existing wells where relatively major
expenditure is required.

The Ministry of Land and Resources in China
issues production licenses to applicants on the basis of the
reserve reports approved by relevant authorities. Administrative
rules issued by the State Council provide that the maximum term
of a production license is 30 years. However, in accordance
with a special approval from the State Council, the Ministry of
Land and Resources has issued production licenses effective
March 2000 to the Group for all of its crude oil and
natural gas reservoirs with terms coextensive with the projected
productive life of those reservoirs, ranging up to
55 years. Production licenses to be issued to the Group in
the future will be subject to the 30-year maximum unless
additional special approvals can be obtained from the State
Council. Each of the Groups production licenses is
renewable upon application by the

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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)


Group 30 days prior to expiration. 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,
1999 and 2000 were based on a report prepared by DeGolyer and
MacNaughton, independent engineering consultants. Proved reserve
estimates as of December 31, 1998 and the changes for the
year ended December 31, 1999 were based on prior year
proved reserve estimates of the petroleum-engineering department
of CNPC. These reserve estimates were prepared for each oil and
gas region (as opposed to individual fields within a region) and
adjusted for the estimated effects of using prices and costs
prevailing at the end of the period. The Companys reserve
estimates include only crude oil and natural gas, which the
Company believes can be reasonably produced within the current
terms of production licenses.

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PETROCHINA COMPANY LIMITED


SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION

AND PRODUCTION ACTIVITIES
(UNAUDITED)  (Continued)


(Amounts in millions unless otherwise
stated)


Estimated quantities of net proved oil and
condensate and natural gas reserves and of changes in net
quantities of proved developed and undeveloped reserves for each
of the period indicated are as follows:

|                                 |                                                                   |                         |                                 |              |       |      |   |        |        |       |  
|-------------------------------- | ----------------------------------------------------------------- | ----------------------- | ------------------------------- | ------------ | ----- | ---- | - | ------ | ------ | ----- | -
|                                 |                                                                   | Crude Oil and           |                                 |             
|                                 |                                                                   | Condensate              |                                 | Natural Gas 
|                                 |                                                                   |                         |                                 |             
|                                 |                                                                   | (millions of            |                                 | (billions of
|                                 |                                                                   | barrels)                |                                 | cubic feet) 
|Proved developed and undeveloped |                                                                   |                         |                                 |              |       |      |   |       
|                                 | Reserves at January 1, 1999                                       |                         |                                 | 10,865       |       |      |   | 22,337 |       
|                                 |                                                                   | Changes resulting from: |                                 |              |       |      |   |        |        |      
|                                 |                                                                   |                         | Revisions of previous estimates |              |       | 160  |   |        |        | 555   |  
|                                 |                                                                   |                         | Improved recovery               |              |       | 330  |   |        |        | 49    |  
|                                 |                                                                   |                         | Extensions and discoveries      |              |       | 419  |   |        |        | 2,332 |  
|                                 |                                                                   |                         | Production                      |              |       | (775 | ) |        |        | (670  | )
|                                 |                                                                   |                         |                                 |              |       |      |   |       
|                                 | Reserves at December 31, 1999                                     |                         |                                 | 10,999       |       |      |   | 24,603 |       
|                                 |                                                                   | Changes resulting from: |                                 |              |       |      |   |        |        |      
|                                 |                                                                   |                         | Revisions of previous estimates |              |       | 138  |   |        |        | 340   |  
|                                 |                                                                   |                         | Improved recovery               |              |       | 363  |   |        |        |      |  
|                                 |                                                                   |                         | Extensions and discoveries      |              |       | 297  |   |        |        | 8,237 |  
|                                 |                                                                   |                         | Production                      |              |       | (765 | ) |        |        | (647  | )
|                                 |                                                                   |                         |                                 |              |       |      |   |       
|                                 | Reserves at December 31, 2000                                     |                         |                                 | 11,032       |       |      |   | 32,533 |       
|                                 |                                                                   | Changes resulting from: |                                 |              |       |      |   |        |        |      
|                                 |                                                                   |                         | Revisions of previous estimates |              |       | 189  |   |        |        | 488   |  
|                                 |                                                                   |                         | Improved recovery               |              |       | 141  |   |        |        | 36    |  
|                                 |                                                                   |                         | Extensions and discoveries      |              |       | 360  |   |        |        | 3,773 |  
|                                 |                                                                   |                         | Production                      |              |       | (763 | ) |        |        | (727  | )
|                                 |                                                                   |                         |                                 |              |       |      |   |       
|                                 | Reserves at December 31, 2001                                     |                         |                                 | 10,959       |       |      |   | 36,103 |       
|                                 |                                                                   |                         |                                 |              |       |      |   |       
|                                 | Proved developed reserves at:                                     |                         |                                 |              |       |      |   |        |       
|                                 |                                                                   | December 31, 1999       |                                 |              | 9,744 |      |   |        | 12,098 |      
|                                 |                                                                   | December 31, 2000       |                                 |              | 9,546 |      |   |        | 12,503 |      
|                                 |                                                                   | December 31, 2001       |                                 |              | 9,309 |      |   |        | 12,974 |      
|                                 | Proportional interest in proved reserves of
    equity affiliates |                         |                                 |              |       |      |   |        |       
|                                 |                                                                   | December 31, 1999       |                                 |              | 56    |      |   |        | 2      |      
|                                 |                                                                   | December 31, 2000       |                                 |              | 61    |      |   |        | 2      |      
|                                 |                                                                   | December 31, 2001       |                                 |              | 62    |      |   |        | 1      |      

Standardized Measure

The following disclosures concerning the
standardized measure of future cash flows from proved oil and
gas reserves are presented in accordance with the Statement of
Financial Accounting Standards No. 69. The amounts
shown are based on prices and costs at the end of each period,
currently enacted tax rates and a 10 percent annual
discount factor. Since prices and costs do not remain static,
and no price or cost changes have been considered, the results

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PETROCHINA COMPANY LIMITED


SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION

AND PRODUCTION ACTIVITIES
(UNAUDITED)  (Continued)


(Amounts in millions unless otherwise
stated)


are not necessarily indicative of the fair market
value of estimated proved reserves, but they do provide a common
benchmark which may enhance the users ability to project
future cash flows.

The standardized measure of discounted future net
cash flows related to proved oil and gas reserves at the end of
each of the three years in the period ended December 31,
1999, 2000 and 2001 is as follows (in millions of RMB):

|                                                                                                                  |                      |  |           |       | 
|----------------------------------------------------------------------------------------------------------------- | -------------------- |  | --------- | ----- | 
|At December 31, 1999                                                                                              |                      |  |           |      
|Future cash inflows                                                                                               |                      |  | 2,452,708 |      
|Future production costs                                                                                           |                      |  | (748,272  | )    
|Future development costs                                                                                          |                      |  | (98,368   | )    
|Future income tax expense                                                                                         |                      |  | (479,174  | )    
|                                                                                                                  |                      |  |           |      
|Future net cash flows                                                                                             |                      |  | 1,126,894 |      
|Discount at 10% for estimated timing of cash flows                                                                |                      |  | (599,804  | )    
|                                                                                                                  |                      |  |           |      
|Standardized measure of discounted future net
    cash flows                                                      |                      |  | 527,090   |      
|                                                                                                                  |                      |  |           |      
|At December 31, 2000                                                                                              |                      |  |           |      
|Future cash inflows                                                                                               |                      |  | 3,067,191 |      
|Future production costs                                                                                           |                      |  | (713,176  | )    
|Future development costs                                                                                          |                      |  | (95,226   | )    
|Future income tax expense                                                                                         |                      |  | (693,910  | )    
|                                                                                                                  |                      |  |           |      
|Future net cash flows                                                                                             |                      |  | 1,564,879 |      
|Discount at 10% for estimated timing of cash flows                                                                |                      |  | (825,992  | )    
|                                                                                                                  |                      |  |           |      
|Standardized measure of discounted future net
    cash flows                                                      |                      |  | 738,887   |      
|                                                                                                                  |                      |  |           |      
|At December 31, 2001                                                                                              |                      |  |           |      
|Future cash inflows                                                                                               |                      |  | 2,049,110 |      
|Future production costs                                                                                           |                      |  | (695,859  | )    
|Future development costs                                                                                          |                      |  | (50,996   | )    
|Future income tax expense                                                                                         |                      |  | (422,453  | )    
|                                                                                                                  |                      |  |           |      
|Future net cash flows                                                                                             |                      |  | 879,802   |      
|Discount at 10% for estimated timing of cash flows                                                                |                      |  | (473,803  | )    
|                                                                                                                  |                      |  |           |      
|Standardized measure of discounted future net
    cash flows                                                      |                      |  | 405,999   |      
|                                                                                                                  |                      |  |           |      
|Share of equity affiliates standardized
    measure of discounted future net cash flows At December 31,
    1999 |                      |  | 2,904     |      
|                                                                                                                  | At December 31, 2000 |  |           | 3,979 | 
|                                                                                                                  | At December 31, 2001 |  |           | 2,013 | 

Future net cash flows were estimated using
period-end prices and costs, and currently enacted tax rates.

F-56



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##### Table of Contents



PETROCHINA COMPANY LIMITED


SUPPLEMENTARY INFORMATION ON OIL AND GAS
EXPLORATION

AND PRODUCTION ACTIVITIES
(UNAUDITED)  (Continued)


(Amounts in millions unless otherwise
stated)


Changes in the standardized measure of discounted
net cash flows for the Group for each of the three years in the
period ended December 31, 1999, 2000 and 2001 are as
follows:

|                                                                    |                                                                          |                         |  |          |   |      |  |          |   |  |  |          |  
|------------------------------------------------------------------- | ------------------------------------------------------------------------ | ----------------------- |  | -------- | - | ---- |  | -------- | - |  |  | -------- | -
|                                                                    |                                                                          |                        
|                                                                    |                                                                          | Year Ended December 31,
|                                                                    |                                                                          |                        
|                                                                    |                                                                          | 1999                    |  | 2000     |   | 2001
|                                                                    |                                                                          |                         |  |          |   |     
|                                                                    |                                                                          | RMB                     |  | RMB      |   | RMB 
|CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED
    FUTURE CASH FLOWS |                                                                          |                         |  |          |   |      |  |          |   |  |  |         
|                                                                    | Beginning of year                                                        |                         |  | 191,698  |   |      |  | 527,090  |   |  |  | 738,887  |  
|                                                                    | Sales and transfers of oil and gas produced, net
    of production costs |                         |  | (78,593  | ) |      |  | (139,501 | ) |  |  | (119,053 | )
|                                                                    | Net changes in prices and production costs and
    other                 |                         |  | 429,634  |   |      |  | 205,555  |   |  |  | (539,088 | )
|                                                                    | Extensions, discoveries and improved recovery                            |                         |  | 60,537   |   |      |  | 144,041  |   |  |  | 43,916   |  
|                                                                    | Development costs incurred                                               |                         |  | 24,096   |   |      |  | 15,878   |   |  |  | 31,518   |  
|                                                                    | Revisions of previous quantity estimates                                 |                         |  | 13,326   |   |      |  | 14,217   |   |  |  | 10,472   |  
|                                                                    | Accretion of discount                                                    |                         |  | 27,451   |   |      |  | 75,122   |   |  |  | 106,653  |  
|                                                                    | Net change in income taxes                                               |                         |  | (141,059 | ) |      |  | (103,515 | ) |  |  | 132,694  |  
|                                                                    |                                                                          |                         |  |          |   |      |  |          |   |  |  |         
|                                                                    | End of year                                                              |                         |  | 527,090  |   |      |  | 738,887  |   |  |  | 405,999  |  
|                                                                    |                                                                          |                         |  |          |   |      |  |          |   |  |  |         

F-57



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##### Table of Contents






EXHIBIT INDEX

|        |      |                         |  |                                                                                             
|------- | ---- | ----------------------- |  | --------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Exhibits
|        |      |                        
|        | 1.1  |                         |  | Articles of Association (as amended) (English
    translation).                             
|        | 4.1  |                         |  | 2000 Performance Contract between Huang Yan and
    PetroChina (English translation).(1)    
|        | 4.2  |                         |  | 2000 Performance Contract between Ren Chuanjun
    and PetroChina (English translation).(1) 
|        | 4.3  |                         |  | 2000 Performance Contract between Luo Yingjun and
    PetroChina (English translation).(1)  
|        | 4.4  |                         |  | 2000 Performance Contract between Shi Xingquan
    and PetroChina (English translation).(1) 
|        | 4.5  |                         |  | 2000 Performance Contract between Su Shulin and
    PetroChina (English translation).(1)    
|        | 4.6  |                         |  | 2000 Performance Contract between Wang Guoliang
    and PetroChina (English translation).(1)
|        | 4.7  |                         |  | 2000 Performance Contract between Lin Qingshan
    and PetroChina (English translation).(1) 
|        | 4.8  |                         |  | 2000 Performance Contract between Zhang Xinzhi
    and PetroChina (English translation).(1) 
|        | 4.9  |                         |  | 2000 Performance Contract between Wang Fucheng
    and PetroChina (English translation).(1) 
|        | 4.10 |                         |  | 2001 Performance Contract between Huang Yan and
    PetroChina (English translation).       
|        | 4.11 |                         |  | 2001 Performance Contract between Ren Chuanjun
    and PetroChina (English translation).    
|        | 4.12 |                         |  | 2001 Performance Contract between Su Shulin and
    PetroChina (English translation).       
|        | 4.13 |                         |  | 2001 Performance Contract between Wang Fucheng
    and PetroChina (English translation).    
|        | 4.14 |                         |  | 2001 Performance Contract between Luo Yingjun and
    PetroChina (English translation).     
|        | 4.15 |                         |  | 2001 Performance Contract between Shi Xingquan
    and PetroChina (English translation).    
|        | 4.16 |                         |  | 2001 Performance Contract between Lin Qingshan
    and PetroChina (English translation).    
|        | 4.17 |                         |  | 2001 Performance Contract between Zhang Xinzhi
    and PetroChina (English translation).    
|        | 4.18 |                         |  | 2001 Performance Contract between Wang Guoliang
    and PetroChina (English translation).   
|        | 4.19 |                         |  | 2001 Performance Contract between Shen Pingping
    and PetroChina (English translation).   
|        | 4.20 |                         |  | 2001 Performance Contract between Jia Chengzao
    and PetroChina (English translation).    



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##### Table of Contents



|        |      |                         |  |                                                                                                                                                     
|------- | ---- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Exhibits
|        |      |                        
|        | 4.21 |                         |  | Crude Oil Mutual Supply Framework Agreement,
    January 30, 2002, between China Petrochemical Corporation
    and PetroChina (English translation).
|        | 8.1  |                         |  | List of major subsidiaries.                                                                                                                         




|    |                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to our Annual Report on
    Form 20-F for the fiscal year ended December 31, 2000
    (File No. 1-15006) filed with the U.S. Securities and
    Exchange Commission on June 29, 2001.