0-cnpc annual report 2011

2011

China National Petroleum

Corporation 2011 Annual Report

9 Dongzhimen North Street, Dongcheng District, Beijing 100007, P. R. China www.cnpc.com.cn

China National Petroleum Corporation

Energize ∙ Harmonize ∙ Realize

Message from the Chairman

Report of the President

Top Management and Organization

Environment and Community

Human Resources

Technology

Annual Business Review

Financial Statements

Major Events

Glossary

03

04

06

08

14

18

22

52

58

64

Contents

02

2011 Annual Report

Operation Highlights

2009 2010 2011

Financial Index

Operating income (billion RMB yuan) 1,220.5 1,720.9 2,381.3

Total profit (billion RMB yuan) 128.4 172.7 181.7

Net profit (billion RMB yuan) 87.2 124.2 130.5

Tax payable (billion RMB yuan) 229.6 313.2 401.5

Oil and Gas Production

Oil production (mmt)

Domestic

Overseas (CNPC's share)

137.45

103.13

34.32

141.44

105.41

36.03

149.27

107.54

41.73

Gas production (bcm)

Domestic

Overseas (CNPC's share)

73.83

68.32

5.51

82.91

72.53

10.38

88.19

75.62

12.57

Refining, Chemicals and Sales

Crude runs (mmt)

Domestic

Overseas

140.82

125.12

15.70

160.08

135.29

24.79

179.62

144.84

34.78

Domestic refined products output (mmt) 80.45 86.33 93.00

Domestic lube oil output (mmt) 1.40 1.61 1.57

Domestic ethylene output (mmt) 2.99 3.62 3.47

Domestic refined products sales (mmt) 88.75 102.47 114.98

Domestic service stations 17,262 17,996 19,323

Pipeline

Oil and gas pipeline mileage (km)

Domestic

Overseas

49,573

41,784

7,789

57,328

47,608

9,720

61,417

50,923

10,494

Oil pipeline mileage (km)

Domestic

Overseas

18,989

13,189

5,800

20,705

14,807

5,898

21,479

14,807

6,672

Gas pipeline mileage (km)

Domestic

Overseas

30,584

28,595

1,989

36,623

32,801

3,822

39,938

36,116

3,822

03

2011 Annual ReportMessage from the Chairman

Message from the Chairman

The world experienced profound changes in 2011. The external

environment is becoming increasingly complex due to multiple factors,

including the ongoing political unrest in the Middle East and North Africa,

the continuing global financial crisis and a highly volatile international oil

market. Faced with all of these challenges, CNPC has been adhering to

the Scientific Outlook on Development in promoting a shift in its mode of

development, stepping up risk management and strengthening internal

controls to ensure steady and sound business growth for a successful start

to the 12th Five-Year Plan.

During the year, we continued to increase resources, expand markets

and seek a greater international role, focusing on our core oil and gas

business and working towards the goal of building an international energy

conglomerate. A marked increase was achieved in oil and gas reserves/

production, crude runs, oil product sales and operating revenues. The

company ranks fifth among the world’s top 50 oil companies and has risen

to sixth place in the Fortune Global 500. With total assets amounting to

more than RMB 3 trillion, we achieved tax payable of over RMB 400 billion

in 2011, enjoying a significant rise in our business strength, competitiveness

and international presence.

While maintaining a firm foothold in China, CNPC is vigorous in exploring

the international market to improve the resource base for sustainable

development. In 2011, our domestic oil and gas production reached

record highs and our natural gas business maintained its robust growth

momentum. Major refining and petrochemical projects, trunk lines and

main networks for oil and gas transportation progressed smoothly. There

was substantial growth in our crude runs, and the sales of refined products

and natural gas. The year also witnessed new progress in our overseas

operations, with our equity production reaching over 50 million tons of

oil equivalent out of the 100 million tons we produced. Three overseas oil

& gas operation centers are taking shape. The company’s oilfield service,

engineering & construction and equipment manufacturing activities are

playing an important role in supporting core operations, underscoring an

integration of business competences.

New breakthroughs and achievements have been made in technology

and management innovation. We promote indigenous innovation and

deepen global cooperation and international exchange of technology.

As a result, the contribution of technology to business growth continues

to rise. New management techniques and methods are introduced and

grassroots management is further enhanced to cultivate the skills and

competencies required to meet our objectives. Knowledge updating and

training programs have been designed for technical professionals, highly

skilled employees and executives respectively. The human resources in our

overseas operations are becoming more international, professional and

local, forming a dedicated and motivated team of employees.

Enjoying a good corporate image, we are committed to regulatory

compliance and corporate social responsibility. Giving priority to the

“people, environment, safety and quality” and aiming at “zero defects,

zero injuries and zero pollution”, the company has stepped up safety and

environmental management and coordinated environmental efforts and

business operations to continuously enhance its safety and environmental

performance. The company promotes energy-efficient growth by making

remarkable progress in energy conservation and emission reduction and

was titled “Best Enterprise in Energy Conservation and Emission Reduction”

in recognition of its efforts. We work closely with stakeholders to give back

to the community in a variety of ways and make due contributions to

economic growth and social development in the countries and regions we

operate in.

Looking ahead to 2012, despite an even more challenging and complex

environment and much tougher tasks, we will move forward to fulfill our

glorious mission and achieve greater success. Upholding the Scientific

Outlook on Development, we will continue to accelerate the shift of our

development mode and dedicate in oil and gas operations. We will focus

our strength on exploration & production, and coordinate activities in

refining & chemicals, marketing & trading, and pipeline transportation &

storage, while giving oilfield services full play to ensure an overall increase

in business scale, growth rate and quality-driven efficiency. We will strive

to build an environmentally friendly, international and sustainable CNPC to

better serve the needs of economic growth and social development.

Jiang Jiemin, Chairman

04

2011 Annual Report

In 2011, in the face of a complex and changing macroeconomic climate full

of risks and challenges, CNPC continued to push ahead with its resource,

market and globalization strategies. We maintained a strong growth

momentum, enhanced corporate value, ensured stable energy supply,

and saw safety and environmental performance continue to improve. Key

business indicators soared to record highs, ushering a successful start to

the 12th Five-Year Plan.

Thanks to the hard work of our employees, we saw significant growth in

operation results. In 2011, the company recorded operating revenues of

RMB 2.38 trillion, total profits of RMB 181.7 billion, and tax payable of RMB

401.5 billion, up 38.4%, 5.3% and 28.2% respectively from the previous year.

Our exploration and production activities focused on the major exploration

areas in China and resulted in a number of major discoveries and

breakthroughs, representing by the achievements in gas exploration in

Sichuan Basin and Ordos Basin. In 2011, the newly added proven oil in place

and gas in place were 715.12 million tons and 487.9 billion cubic meters. The

proven oil and gas reserves stood above 1 billion tons of oil equivalent for

the fifth consecutive year, indicating an optimum reserve replacement.

We launched the Oilfield Development Year campaign focusing on

waterflood for the third consecutive year. The increase in production

capacity in new areas and improvements in key indicators of domestic

fields sustained oil and gas production growth. In 2011, we produced

107.54 million tons of crude and 75.62 billion cubic meters of natural gas

at home. In particular, Daqing continued to produce at the 40 million ton

level and Changqing produced more than 40 million tons of oil equivalent.

In the refining and chemical sector, key technical and economic indicators

were improved. We processed 144.84 million tons of crude and produced

93 million tons of refined products, up 7.1% and 7.7% year-on-year

respectively. New progress was achieved in the strategic adjustment of

our refinery capacity. Liaoyang Petrochemical put its upgrade/expansion

project into operation, becoming CNPC’s eighth 10Mt/a refining base. In

addition, we analyzed market demand for petrochemical products and

focused on product marketability, achieving a remarkable rise in both

production volume and sales revenue.

Our marketing companies mobilized and allocated market resources to

meet challenges such as natural disasters and transportation constraints

to ensure oil products supplies. We opened up “green channels for

fueling”, took steps to be more consumer-friendly, and improved sales and

customer service networks. In 2011, the company’s market share continued

to rise as sales of oil product exceeded 100 million tons, up 12.2% year-

on-year, including 85.56 million tons of retail sales. Besides, we remained

top among fuel oil and asphalt suppliers in China and continued to make

inroads in the lubricant market.

We accelerated the development of natural gas, with gas output

accounting for 36% of the company’s total production in tons of oil

equivalent. Gas production, transportation and distribution were better

coordinated and marketing efforts were stepped up. We promoted gas

utilization and explored business opportunities along newly operational

pipelines. In 2011, we sold 82.7 billion cubic meters of natural gas, up 23.7%

year-on-year, to 28 provinces, municipalities and autonomous regions

throughout the country, and guaranteed safe and steady supplies to urban

residents, utilities and major industrial consumers.

In 2011, CNPC operated oil & gas pipeline mileage surpassed 60,000 km,

accounting for 2/3 of the national total. An efficient, nationwide supply system

backed by multi-sources and cross-border delivery has taken shape. The trunk

of the Second West-East Gas Pipeline went into operation, delivering natural

gas from Central Asia to energy-thirsty Yangtze River Delta and Pearl River

Delta. The LNG terminals in Jiangsu and Dalian were completed and started

pumping gas to the West-East Gas Pipeline network and Northeast China.

The quality and efficiency of our international operations continued to

improve. An integrated framework of overseas cooperation began to

come into being to leverage the advantages of CNPC’s business spectrum

covering the whole industrial chain from upstream to downstream. Our

overseas projects proceeded smoothly, producing more than 100 million

tons of oil equivalent in 2011, of which CNPC’s share is more than 50

million tons. Production capacity building in Iraq advanced steadily. The

joint project with BP at Rumaila saw rapid increases in oil output. The

joint project at Al-Ahdab Oilfield built an annual capacity of 6 million

tons, making it the first new oil project to start production in Iraq over



05

2011 Annual Report

the past two decades. The joint project with Total at Halfaya Oilfield was

well underway. In Chad and Niger, we put into operation two upstream

and downstream integration projects. Our international trade maintained

rapid growth in both sales volume and financial efficiency. Additionally, we

enhanced the capability to optimize the allocation of resources globally. In

2011, our international trade volume reached 250 million tons, up 29.1%

year-on-year. Three overseas oil & gas operation centers in Asia, Europe and

the Americas began taking shape. The acquisition and transfer of INEOS

refineries were completed, which smoothly began operation.

The oilfield service, engineering & construction and equipment

manufacturing sectors continued to enhance service competence and

market competitiveness, underscoring CNPC’s strength in integrated

and comprehensive operation. Our overseas oilfield services continued

a favorable development momentum, taking the largest market share in

onshore geophysical prospecting, ranking top six in offshore geophysical

prospecting and keeping the top position in pipeline construction. The

percentage of EPC and PMC contracting in our engineering & construction

business rose markedly. Our equipment manufacturing business made

advances in structural adjustment and new products development. The

company’s financial operations were healthy and robust, enabling an

optimized investment portfolio and effective access to domestic and

overseas financial resources.

The company continued to invest heavily in technical R&D, gaining

significant advances and achievements in exploration & production,

refining & chemicals, as well as oilfield services. Two achievements

namely “Key technologies for massive and efficient field development

in CNPC’s overseas operations” and “R&D and commercial application

of the technology for producing high-end products with naphthenic

base oil” were granted first-class National Scientific & Technological

Advancement Prize. Technical breakthroughs in the development of ultra-

low permeability reservoirs and volcanic gas deposits enabled further

increases in reserves and production. An innovative technology package

for ethylene cracking furnace was worked out with proprietary intellectual

property. In addition, a number of innovative techniques and equipment

were developed, including vertical drilling, precise pressure controlled

drilling, logging while drilling, new-generation mud, coiled tubing unit and

compressor units for long-distance gas pipelines.

We strengthened grassroots management by raising the caliber of

employees, focusing on the professional training of technicians and front-

line operators. Training became more targeted and effective, with significant

gains in position-specific training, best practices and HSE knowledge and

skills training. Highlights were given to the building of a corps of highly

skilled technicians through participation in skills competitions. As a result,

a whole class of skilled experts and technicians has come to the fore. For

example, Pei Xianfeng, a young welder from CNPC, won the first silver medal

in welding for China at the 41st WorldSkills Competition. Also, we made new

progress in building a corps of international talents and promoting human

resources localization. In 2011, the percentage of foreign employees in our

overseas projects reached 91%.

While meeting the growing demand for energy, CNPC is committed to

operational safety and environmental protection. By strengthening the

HSE management system and reinforcing risk control, we achieved steady

improvement in HSE performance. At the same time, we implemented

programs for quality control and established sound quality management

and corporate standard systems. A new breakthrough was achieved in

standardized management. Cooperation between ISO CBM Technical

Committee and CNPC CBM National Engineering Research Center was an

event of great significance to establish the company’s leading position in

China’s CBM sector. We continued to promote energy conservation and

emission reduction. A market-driven energy-saving mechanism based on

contract energy management was introduced and the energy efficiency

programs were carried out, including the “ten energy-saving projects” and

“ten emission reduction projects”. As a result, a total of energy equivalent to

1.22 million tons of standard coal and 23.53 million cubic meters of water

were saved in 2011.

The year 2012 is a crucial year for the implementation of the 12th Five-Year

Plan. In a world full of opportunities and challenges, we will dedicate in oil

and gas operations, encourage innovation in technology and management,

and improve operational safety and environmental protection, so as to

facilitate the building of an integrated international energy conglomerate.

As we follow the path of sustainable development, we will continue to

provide quality, clean and stable energy to fuel economic and social

development.


Zhou Jiping, President

06

2011 Annual Report Top Management and Organization

Jiang JieminChairman

Zhou JipingPresident

Liao YongyuanVice President,

Chief Safety Officer

Li XinhuaVice President

Wang GuoliangChief Financial Officer

Wang DongjinVice President

Yu BaocaiVice President

Wang YongchunVice President

Shen DianchengVice President

Wang LixinChief of Discipline &

Inspection Group


07

2011 Annual Report

Corporate C

ulture Departm

ent

Retiree Affairs D

epartment

Logistics Departm

ent

Internal Control &

Risk M

anagement D

epartment

Auditing D

epartment

Supervision Departm

ent

International Departm

ent

Procurement D

epartment

IT Departm

ent

R & D

Departm

ent

Legal Departm

ent

HSE and Energy C

onservation Departm

ent

Budgeting Managem

ent Departm

ent

Finance & A

ssets Departm

ent

M &

A D

epartment

Planning Departm

ent

Policy Research Offi

ce

General O

ffice

Hum

an Resources Departm

ent

CN

PC M

anufacturingC

ompany

CN

PC Engineering &

Construction C

ompany

CN

PC O

ilfield Service C

ompany

Holding C

ompanies

Research Institutions

Refining and Chem

icalC

ompanies

Others

Overseas C

ompanies

Manufacturing C

ompanies

Engineering & C

onstructionC

ompanies

Oilfield Service C

ompanies

Oil and G

as Fields

Quality and Standard

Managem

ent Departm

ent


In 2011, CNPC reorganized the operational structure of its headquarters and redefined the functions and duties of some departments.

The energy conservation and emission reduction functions are reorganized and the functions, offices and staff related to energy and

water conservation activities are transferred from the former Quality Management and Energy Conservation Department to the new

HSE Department. Accordingly, the former Quality Management and Energy Conservation Department is now the Quality and Standard

Management Department and the former HSE Department is now the HSE and Energy Conservation Department.

The Budget Management Office is now the Budgeting Management Department.



In 2011, the company further improved its HSE management system

and identified the functions and procedures of the HSE Committee. Risk

management practices such as Permit to Work and Job Safety Analysis were

implemented at grassroots levels. We promoted the application of an HSE

management system in our overseas operations. Overseas projects were

required to follow the best practices and appropriate procedures used

in the headquarters to enable consistency and efficiency and to improve

our overseas HSE performance. We have maintained a satisfactory track

record in safety and environmental protection in overseas operations amid

security incidents, natural disasters, growing business needs and increased

job-related risks.

CNPC always gives top priority to people, the environment and safety. We highlight the importance of environmental protection, safety management and quality control, and promote a safe, green and resource-efficient development model. We are committed to improving the communities we operate in and building harmonious relationships between energy and the environment, as well as between corporate performance and community interests.

09

2011 Annual Report

Operational Safety Operational safety was further enhanced, focusing on potential risk

identification and control and operation process monitoring. The key safety

performance indicators continued to improve.

In 2011, we stepped up safety management throughout all processes and

promoted the use of the HAZOP approach to achieve an improvement

in intrinsic safety. Safety risks were kept under control through constant

safety inspection of special equipment, offshore facilities and thunder-

proof devices etc., and hidden hazard screening for gas pipelines, refining

installations, tank farms, and drilling rigs.

With respect to contractor management in engineering and construction

activities, CNPC Guidelines for Contractor Management were developed

and published to manage contractor safety. The Guidelines are intended

for contractor management at CNPC headquarters, wholly-owned

subsidiaries and affiliates, consisting of 48 rules in eight chapters on

qualification, selection, use, assessment and monitoring of contractors. The

qualification requirements, application and approval procedures, methods

of selection, rules and requirements for contractor use, assessment criteria

and monitoring responsibilities were clearly defined. In particular, CNPC

affiliates are asked to identify HSE objectives for each engineering or

construction project, review the HSE management plan of contractors and

see to it that the approved plan is duly implemented.

Environmental Protection In 2011, two monitoring substations (for oil production and refining)

and eight regional monitoring centers were set up to basically form an

environmental monitoring network, further strengthening our capacity in

environmental monitoring and management. In March 2011, the second

West-East Gas Pipeline (west section) was listed by the Ministry of Water

Resources as a “Model Project for Soil and Water Conservation”.

In addition, CNPC Guidelines for Environmental Protection in Construction

Projects were published to provide guidance to environmental protection

management in key aspects such as feasibility studies, EIA approval,

design and construction, and final acceptance. The Guidelines are

intended for environmental management at CNPC headquarters,

wholly-owned subsidiaries and affiliates, consisting of 36 rules in seven

chapters on environmental impact assessment (EIA) in feasibility studies,

environmental activities in design, construction, commissioning and

completion, and monitoring responsibilities. In particular, with respect to

site/line allocation or construction projects in environmentally sensitive

areas, an environmental services agency should be employed to carry out

environmental feasibility studies and identify the major environmental risks

and constraints as a basis for decision making.

Energy Efficiency Energy efficiency is an important aspect of building a conservation-

oriented and environmentally friendly enterprise. In 2011, a market-driven

energy-saving mechanism based on contract energy management was

piloted successfully in some CNPC member companies, including Tarim

Oilfield and Ningxia Petrochemical. The contract energy management

approach will be widely used as one of the key energy efficiency solutions.

Meanwhile, facing the energy consumption challenges that accompany

production expansion and new projects, the company has heightened

energy assessment of new projects and verification/on-site inspection

of pollution reduction data to facilitate “ten energy-saving projects” and

“ten emission reduction projects”. Throughout the year, we cut energy

consumption equivalent to 1.22 million tons of standard coal and

decreased water use by 23.53 million cubic meters.


10

2011 Annual Report

Occupational Health Based on the principle of “prevention-oriented intervention”, we reinforced

occupational health management, providing our employees with knowledge

and skills regarding occupational health management, occupational health

standards, and occupational disease precaution and treatment.

In 2011, the occupational health management system, including

its supporting measures, was further improved. Workplace health

surveillance and occupational health record management were enhanced,

focusing on occupational health services during field operation,

construction engineering and refinery maintenance. These led to a

continuous improvement in the company’s occupational health status.

The occupational health medical examination rate and the workplace

occupational hazard detection rate remained 92% and 90% respectively

throughout the year.

Since 2006, we have been carrying out a Four-Coverage occupational

health program which is intended to provide overseas employees with

extensive health benefits, including medical examination, employee

insurance, HSE training and medical evacuation. As a result, there has been

a significant improvement in the medical examination rate and on-site

medical treatment. During this process, cooperation with International SOS

in medical assistance has played an important role. All of these contribute

to a more effective occupational health system safeguarding overseas

employees.

Quality ControlWe are fully committed to the values of honesty, trustworthiness and

excellence in an ongoing effort to improve the quality of our products

and engineering services by improving the existing quality management

system. By the end of 2011, 97.3% of the member companies engaged

in CNPC’s core business had a quality management system in place and

94% of the member companies whose business activities are subject to

third-party testing or certification had been certified. In particular, the

quality control systems of our marketing companies are 100% certified. In

Chenghai Block at Dagang Oilfield is located in Huanghua Shoals

of the Bohai Bay. To minimize the environmental impact caused

by drilling and oil production on the surrounding waters, three

artificial islands were built. Economic and intensive use of land

is realized by an “onshore production of offshore oil” approach

that uses wellhead-slot batch drilling, cluster well drilling with

a modular rig, and extended-reach horizontal well drilling and

waterflood. Meanwhile, all wells are equipped with safety valves

and automatic protection devices, as well as offshore firefighting

equipment and an oil spill emergency response system, to ensure

safe drilling and production.

The artificial islands feature well-designed oil pollution treatment

facilities and sewage treatment systems operating in a closed-loop.

Wellhead-slot wastewater and summer rainwater are collected

and recycled. Reusable drilling fluid is used in place of oil-based

mud and concrete pits are available to contain workover wastes.

All industrial and domestic waste is collected for centralized

processing. Since becoming operational in 2007, offshore oil

production has been carried out in a green way, and has been free

of any man-made environmental accidents.

Green Oilfield in Bohai Bay


11

2011 Annual Report

addition, we have intensified random inspection of oil products and valves

and heightened the quality surveillance of products manufactured or

purchased by the company to ensure product and service quality.

The existing standard system was further upgraded. During the year, 390

national, industrial and corporate standards were developed or amended.

We solely undertook the secretariat task of the CBM Technical Committee

under ISO. In 2011, the company worked closely with relevant Chinese

government departments under a cooperation program with the Centre

for Standardization and Metrology of Turkmenistan regarding standards

in the oil and gas sectors. The negotiations focused mainly on mutual

recognition of standards. According to an inter-governmental cooperation

agreement with Turkmenistan on standardization, metrology, certification

and accreditation, the Chinese standards developed by CNPC are

applicable and valid in Turkmenistan.

Emergency Response CNPC has pushed ahead with its emergency response system to enable

overall responsiveness to various emergencies. With the debut of the

Pipeline Emergency Response Center, an emergency response system

consisting of five professional teams to deal with firefighting, offshore

rescue, hazardous chemicals, well control and pipeline emergencies is

taking shape.

In 2011, coordination and cooperation with industrial and community

resources were underscored. An emergency response coordination

mechanism was introduced to coordinate the emergency response

efforts of CNPC, Sinopec and CNOOC. We also signed agreements with

the maritime authorities of Hebei, Liaoning and Tianjin to implement

an offshore emergency rescue coordination mechanism. An associated

emergency response drill was carried out among our affiliates in the

refining and chemical sector in order to enhance preparedness and

response to any emergency.

We continued to strengthen emergency management in our overseas

operations. A comprehensive emergency response mechanism was

introduced to ensure more effective emergency response and rescue.

In 2011, we took a series of steps, including counter-terrorism training,

involving all employees to build security awareness and necessary skills

and ensure the safe operation of our overseas projects. We trained around

13,000 construction workers and 530 foremen in the year. In addition, we

strive to build a harmonious relationship with local communities and work

with local communities to form a barrier against security threats.


12

2011 Annual Report

Community DialogueWe emphasize the importance of understanding and responding

to stakeholder expectations where we operate. A stable and long-

term relationship has been created between the company and local

communities through donations to education, medical assistance and

building public utilities to contribute to community building, economic

prosperity and social development.

Educational and Medical OutreachOver the years, CNPC has supported domestic education in various forms

such as establishing scholarships and grants and making donations to

build schools. In 2011, we granted a new round of CNPC Scholarships and

signed cooperation agreements with 13 Chinese universities to increase

financial assistance to less-privileged or freshman students.

CNPC has played an active role overseas in helping local communities

improve educational and medical conditions. The project team in Iraq

donated stationery and sports equipment to BERJESIA – a local primary

school. In Chad, the Alkoudou primary school funded by N'Djamena

refinery was put into use and the students have received schoolbags,

stationery and sports equipment from the joint venture. The Intercampo–

Caracoles project team in Venezuela offered grants to three local primary

schools. The Block-1AB/8 joint venture in Peru provided financial support

to improve medical conditions in indigenous settlements along the

Corrientes River. Andes Petroleum in Ecuador has purchased medicines for

the local residents.

A community outreach program has been started in 2011 as part

of the Myanmar-China Oil & Gas Pipelines Project. In April 2011,

CNPC signed a letter of intent with Myanmar’s Ministry of Energy

on providing USD 6 million to Myanmar by stages to support the

health and education initiatives in local communities. CNPC is also

responsible for planning, equipment procurement, construction

and staff training at these projects, while creating as many new

jobs as possible for local communities in the process.

The first eight CNPC-funded schools along the pipelines, including

six primary schools and two secondary schools, are under

construction and expected to open before the start of the new

school year in 2012. On December 18, we signed an agreement

with Myanmar's Ministry of Health to help improve the medical

conditions in local communities by offering assistance to 19

medical sub-centers i.e. seven in Rakhine State, one in Magway

Region, six in Mandalay Region and five in Shan State.

Since its start, the pipeline project has been carried out in strict

compliance with the local laws and regulations. The project hires

2,505 local employees, accounting for more than 50% of the total

recruitment. All local employees are insured under the social

security program. As to the compensation for converted land,

we adhere to three principles — “voluntary decision”, “minimal

impact on farmland” and “compensation before construction”. The

compensation funds are paid directly to each household. There is

no involuntary conversion or forced demolition, and no complaints

have ever been reported from the compensated villagers.

Educational Programs and Medical Facilities along the Myanmar-China

Oil & Gas Pipelines


13

2011 Annual Report

In July 2011, the Sino-Sudan Abu Ushar

Friendship Hospital was completed in

Abu Ushar – a town in Al Jazirah, Sudan.

This is the first Africa assistance initiative

between CNPC and a Chinese NGO – China

Foundation for Poverty Alleviation (CFPA).

In November 2010, CNPC Nile donated USD

600,000 to CFPA as financial aid to the Abu Ushar Friendship Hospital –

one of the China-funded demonstration projects jointly managed by

CFPA and BTO Sudan to improve the maternal and child health system

in Sudan.

Currently in operation, the Abu Ushar Hospital specializes in maternal

and child health services while offering expertise in a variety of

medical services. This 180-bed facility has 22 departments, including

obstetrics and gynecology, surgery, orthopedics, internal medicine,

ophthalmology and pediatric etc. In 2011, the hospital treated 39,459

patients, including 5,073 surgically treated cases. A report from an

assessment team organized by CFPA and BTO Sudan shows that the

Abu Ushar Friendship Hospital Put to Use

Public AmenitiesIt is our responsibility to assist the local communities in building

public infrastructure to foster overall socioeconomic development. The

Intercampo – Caracoles project team in Venezuela has supported power

upgrading, housing and drinking water programs for local communities.

The Block-6/7 project team in Peru spent special fund on improving

the environment and purifying natural gas, and encouraged volunteer

employees to participate in various community activities like well-

site surrounding cleanup, field survey for municipal construction and

community-based environmental assessment etc. Their efforts were

highly praised by the local government and the General Directorate of

Environment and Energy. In Kazakhstan, the PK project team maintains a

patients and their families are satisfied with the therapeutic effect and

clean medical environment in the hospital. The project is granted the

Special Contribution Award for International Outreach Programs and

listed by the Ministry of Foreign Affairs of China as one of the Best

Public Diplomacy Programs in 2011.

close relationship with the local community and NGOs and was granted

the Presidential 2011 Gold Paryz Award for its outstanding contributions to

employee welfare, social responsibility and environmental protection.

In October, 2011, Kelema-1 and Kelema-2, two community markets funded

by CNPC under the community sustainability program in the Southern

Ijaw area of Bayelsa State, Nigeria were completed and put into use. These

projects were highly praised by the local community-based organizations

and the Bayelsa State government for playing an important role in

improving the local business environment and promoting the sustainable

development of local communities.


We follow the principle of democracy, openness and competition to

shortlist outstanding talents from inside and outside the company. The

human resources structure has been further improved in terms of age,

knowledge and competencies. By the end of 2011, the company had

17 CAS (Chinese Academy of Sciences) and CAE (Chinese Academy of

Engineering) members, 287 senior technical experts, 100 management

experts, 250 senior specialists, 1,382 government-subsidized experts, 3,522

senior technicians and 23,351 technicians.

The company gives priority to the career development of its employees

and continues to expand the scope of training and explore new training

techniques. We have a training team mainly comprising CAS and CAE

members, senior experts, technology leaders, highly skilled talents and

senior executives. In 2011, the head office implemented 114 training

programs covering nearly 20,000 person/times. Member companies trained

administrative staff 263,000 person/times and technical professionals

160,000 person/times. More than 200 executives and high-performers

Human Resources

CNPC is committed to building a human resource system accommodative to an integrated international energy conglomerate. We adhere to a people-oriented vision in achieving employment regulatory compliance, respecting and protecting employee interests, providing a platform for employee development and promoting the all-round development of both the company and its employees.

15

2011 Annual Report

were selected to participate in business management training. A total

of 12 training workshops have been run to train more than 800 high-

level technicians in “redevelopment of mature oilfields”, “natural gas

development under complex conditions” and “on-site solutions for long-

distance pipelines”. The distance learning system was further improved

with more than 600 courses available for online or off-site video training.

Skill contests have become an effective way to identify highly-skilled

experts and technical specialists. We hold a professional skills contest in

2011, covering five categories, i.e. maintenance electricians, atmospheric

and vacuum distillation unit operators (5Mt/a refineries), oil and gas

pipeline operators, gas transmission operators, and large-diameter pipeline

repair workers. The purpose of such contests is to encourage front-line

workers to sharpen their knowledge and skills. Pei Xianfeng, a young

employee of CNPC, won a silver medal in welding at the 41st WorldSkills

Competition, the first Chinese to gain medals in the competition, and

was granted the title of “National Skill Expert”. Four CNPC employees

participated in the ARC-LVM International Welding Skills Competition and

won first place in four categories. Four National Skill Master Studios named

after Shu Binxia (senior technician, Liaohe Oilfield), Zhou Xiaodong (senior

technician, Dagang Oilfield), Wang Xijun (pipeline technician, Qinghai

Oilfield) and Zuo Chengyu (senior technician, Daqing Petrochemical) have

been established, among the first 50 National Skill Master Studios approved

by the Ministry of Human Resources and Social Security in 2011.

Human Resources

16

2011 Annual Report

Overseas HR Management and LocalizationWe attach great importance to overseas human resources development

and management to meet the increasing demand for talent in our

international operations. We promote local hiring and workplace diversity

and create a communicative, coordinated and harmonious workplace

atmosphere.

In 2011, the company pushed ahead with language training in Russian,

Arabic, Spanish and Farsi. We send employees to Russia and the United

States for financial and legal training, Executive MBA (EMBA) courses and

project management professional (PMP) training to prepare our high-level

management and technical executives for overseas operations.

Adhering to the principle of “mutually beneficial and common

development”, we encourage our overseas projects and oilfield service

crews to create new jobs for local communities. Meanwhile, we provide

well-tailored management knowledge, job-related skills and HSE training

to foreign employees. By the end of 2011, the percentage of foreign

employees in our overseas projects reached 91%.

Local employees account for more than 90% of the total workforce in the

Andes project in Ecuador and the Block-6/7 project in Peru. In the joint

venture projects in Venezuela, the percentage of Chinese employees is

less than 5%. In Turkmenistan, a variety of training approaches, such as

coaching, full-time training and off-site training have been used to train

1,336 Turkmen employees. The Niger project has a team of experienced

lecturers offering training course specifically tailored to the needs of the

project. In South Sudan, two training workshops in drilling and welding

were held.

The Kazakhstan branch of CNPC affiliated China Petroleum Engineering and

Construction Corp. has worked with the local universities to broaden the

channel of executive search. Meanwhile, long-term training cooperation

programs between the company and local universities and colleges such

as Aktobe Institute of Technology and No.2 Shymkent Vocational School

are under way to offer theoretical training to local employees. The training

bases in Shymkent and Zhanazhol can provide simultaneous training to 25

welders, 30 pipeline workers and 30 riveters. BGP, a CNPC subsidiary, shows

respect for local cultural and religious customs and has won the trust

of the local employees. The percentage of employees working with the

company for three years or more is above 60% and even up to 80% in some

regions. A questionnaire shows that it is the personal goal of 96% of foreign

employees to become a “Star Employee” of BGP.

Human Resources

17

2011 Annual ReportHuman Resources

Technology

In 2011, we focused on technological R&D, made progress in overcoming

key technical bottlenecks constraining the development of our exploration

and refining business, and boosted our capacity of independent

innovation, providing a strong support for core businesses growth.

We posited an exploration and development theory for China’s marine-

facies carbonate reservoirs and developed 12 matching exploration and

development technologies. All these have effectively guided our carbonate

exploration and productivity building in new blocks. Our new geological

understandings from research on hydrocarbon-rich Qikou Sag provided

data and progress in the petroleum geology in hydrocarbon-rich sags in the

Bohai Bay Basin. We continued to improve exploration and development

theory as well as matching technologies for lithologic reservoirs, foreland

basins, and unconventional hydrocarbon. We established the genetic

model for low-porosity, low-permeability tight sandstone reservoirs,

built the development mode of deep effective reservoirs, and worked

out technical specifications and standards for the evaluation of shale gas

19

2011 Annual Report

resources in China. Overseas, our research into oil and gas exploration and

composite matching technologies increased in variety and effectiveness,

allowing us to improve the quality of our overseas exploration work.

In oil and gas field development, the improvement of waterflood technology,

the industrial application of polymer flooding for type-II reservoirs, and the

development of petroleum sulfonate surfactants suitable to weak-base ASP

flooding systems enabled Daqing Oilfield to maintain steady production.

Changqing Oilfield boosted production rapidly thanks to achievements

in the key development technologies for low and ultra-low-permeability

reservoirs, including new stimulation techniques, overall profile control

process, three plugging agent systems, low-flow precise water injection,

staged fracturing stimulation and reconstruction of horizontal wells, and the

surface matching technologies of skid-based digital boosting process. An

integrated CCS-EOR demonstration base of emission control and efficiency

enhancing, the first of its type in China, was built in Jilin Oilfield – marking a

major breakthrough in the intensive research and field tests of CO2 flooding

and underground storage. The matching technology for the development of

volcanic gas reservoirs saw commercial application in Xinjiang, Daqing, and

Jilin oilfields, drawing on reserves totaling more than 200bcm and annual

output of more than 2.5bcm.

In the domains of refining and chemicals, we made important

breakthroughs in the research and development of key technologies for

the conversion of inferior heavy oil into light oil, and technologies for the

industrialization of large-scale ethylene units and large-scale nitrogen

fertilizer units. Five grades of refining catalyst in the LDO family were

developed and used in ten units at home and abroad. We also commenced

major industrial tests that led to excellent results, notably including an

industrial application test of the slurry polymerization of ethylene catalyst

Hostalen and a pilot test of an EPR production unit.

CNPC also made progress in engineering technologies and equipment

manufacturing. The ES109 seismic apparatus realized industrial upgrading,

passing a field test in which it collected 100km2 of highly dense 3D seismic

profiles on 15,000 channels. The company began field-testing for a newly

developed 5,000-channel prototype of the G3 wired seismic apparatus. In

addition to significant progress in our research on 3D imaging and other

high-end logging units, we created a series of electromagnetic wave

resistivity, neutron porosity with a controlled source, and azimuthal gamma

ray formation evaluation LWD technologies, placing China into an elite group

of countries in the world with technologies based on lithology, saturation,

and porosity parameters. We also made major progress in the testing and

application of precise PCD systems and BH-VDT5000 vertical drilling systems.

In 2011, we developed a 20MW electric-driven compressor package, a 30MW

gas-turbine-driven compressor package, and large-diameter full-welding ball

valves, all of which are ready for industrial application.

In 2011, CNPC continued to push forward with the construction of key

laboratories and test bases. We commenced construction of major

laboratories for reservoir description, underground oil and gas storage,

natural gas quality control, and energy metering, as well as test bases for CO2

flooding and storage, gas lifting, chemical catalysts, and high-performance

synthetic materials. We also obtained state approval for the construction of

the State Research Center on the Engineering Technology of Petroleum and

Natural Gas Pipe Material and the State Energy and LNG R&D (Test) Center.

By the end of 2011, CNPC had 11 major state-level laboratories/research

centers. Building upon major projects, we established long-term partnerships

with the Chinese Academy of Sciences (CAS) and domestic universities and

colleges, and built strategic alliances with renowned foreign universities,

colleges, and institutes to carry out joint research. In addition, we promoted

and participated in the exchanges and cooperation with SPE, SEG, IGU, and

other international academic organizations to provide us with more room for

scientific and technical cooperation.

In 2011, we applied for 3,026 patents (including 1,234 invention patents)

and were granted 2,304 (448 of which were invention patents). Nine

of our scientific and technological achievements won national awards:

“Key technologies for massive and efficient field development in CNPC’s

overseas operations” and “R&D and commercial application of the

technology for producing high-end products with naphthenic base oil”

were each awarded a first-class National Scientific and Technological

Advancement Prize (NSTAP); “Design, manufacturing, and industrial

application of 10,000m-grade ultra deep onshore drilling rigs”, “Geological

theory, key technologies, and industrial application of medium-to-high

coal-rank CBM in China”, “Safe production and sulfur recovery technologies

of large-scale high-sulfur-content gas fields”, “Exploration and development

technologies and their applications in low-permeability oilfields in lake

basins of inland depression” and two other achievements were each

awarded second-class NSTAP; and the “Fiber optical vibrant sensor-based

pipeline pre-warning technology and its application” was awarded second-

class National Technical Invention Prize.

Technology

20

2011 Annual Report

Reservoir Forming Theory and Technology for Large Onshore Oil and Gas Zones

The reservoir forming geological theory and effective reservoir pre-

stack prediction for large oil and gas zones of low-porosity, low-

permeability and clastic lithology enabled us to overcome the

technological bottlenecks in amplitude-preservation processing of

seismic data and prediction of effective reservoirs in low-porosity and

low-permeability clastic rocks.

As to carbonate krast reservoirs, backed by the reservoir forming

geological theory and the matching technology for quantitative

description of fracture-cave units, we solved the technical difficulties in

predicting carbonate fracture-cave reservoirs.

We formed new ideas on the formation and distribution of large gas

zones in carbonate platform margin reefs based on the understanding

on reservoir forming geological theory and supported by the

technology for reservoir and fluid prediction.

For complex high steep and deep structures, we gained new

understanding on the reservoir forming geological theory and

developed pre-stack seismic imaging technology for such structures,

making us capable of tackling key technologies such as wide-line plus

large geophone array seismic data acquisition and leading to improved

imaging quality.

The reservoir forming theory and the “four-step” reservoir description

method for volcanic lithostratigraphic strata helped us break through

the technological barrier in predicting effective volcanic reservoirs.

Exploration Theory and Technology for Ultra-deep Buried Hill Reservoirs

A concept of fine re-exploration of oil-rich sags in north China was

put forward. We discovered a new mechanism whereby hydrocarbons

have migrated and accumulated to form reservoirs in buried hills, and

established multiple new buried hill reservoir-forming models. We also

obtained new understandings that hydrocarbon sources are available to

form large oil and gas fields in deep layers and that the reservoir properties

in ultra-deep buried hills are generally irrelevant to the buried depth.

These have guided our exploration practices in eastern China. The

Niudong ultra-deep buried hill field discovered in the Jizhong depression,

characterized by a reservoir bottom depth of 6,027 meters with a

temperature of 201 degrees centigrade, produced high yield oil and gas

flows during a formation test. In fact, Niudong is the deepest and hottest

super-high-yield buried hill field that has ever been discovered in the Bohai

Bay Basin, and is even the deepest and hottest of all in eastern China. The

Niudong discovery is a milestone in our efforts to promote hydrocarbon

exploration in deep buried hills.

Key Development Technologies for Complex Overseas Reservoirs

We uncovered the genesis mechanism of layered carbonate reservoirs

with microcracks as main seepage channels. CNPC was the first to

use the injection-production approach that combines separated layer

water injection in subdivided strata series and the shelter and oil-ring

pattern water injection in gas-cap reservoirs for large carbonate oil and

gas fields. This helped increase the recovery from carbonate fields by

more than 13%.

We found the depressurization production mechanism for ultra heavy

oil. We upgraded a design method to efficiently utilize energy in foam

displacement with discontinuous dispersed solution gas, as well as

the process technology for cold production with integrally deployed

cluster and horizontal wells. These helped increase the cold production

recovery of ultra heavy oil by 2.6%.

We discovered the mechanism of solid-phase precipitation from

high-pour-point oil, as well as the variation laws of waterflooding

temperature field. We also upgraded the waterflood technology for

large-scale high-pour-point oil reservoirs, which features combined

vertical and horizontal well development at controlled temperature

without damaging the reservoir.

We integrated Chinese technologies for waterflood and potential

release of remaining oil, resulting in recovery enhancement by 5.6% in

mature sandstone oilfields.

Software System for Fracture Prediction

The anisotropy-theory-based software system is an embodiment of the

advanced service-oriented architecture design concept. It integrates our

unique technologies including interactive fracture analysis that combines

logging and seismic data, the anisotropic pre-stack fracture prediction, the

composite pre-/post-stack fracture prediction, and multi-scale visual 3D crack

sculpting. The system can run in the three mainstream operating systems.

It also integrates geological, logging, and seismic information to provide a

composite and integrated solution to predict complex fractured reservoirs.

Technology

Fracture prediction

21

2011 Annual Report

Precise PCD System

The full-automatic control software package allows annular pressure

monitoring and control, backpressure compensation, and nearbalanced/

underbalanced precise controlled pressure drilling, under various

operating conditions. It integrates hydraulic computation, online intelligent

equipment monitoring and emergency response to achieve closed loop

monitoring and control of annular pressure, as well as multi-strategy and

adaptive safe drilling.

We also developed surface systems for pressure controlled drilling, i.e.

PCDS-I and CQMPD-I, to accommodate different geological characteristics

and production needs. In field tests and applications, the systems showed

stable performance and effectiveness in addressing drilling difficulties with

a narrow mud weight window, such as the case when overflow and loss

of drilling fluid coexist. In their industrial application in Jidong Oilfield, the

systems helped eliminate mud loss in formations where drilling fluid would

otherwise be easy to lose, significantly increasing the penetration rate.

Formation Evaluation LWD Technologies

The electromagnetic wave resistivity LWD adopts a symmetrical design

consisting of two transmitting frequencies, four transmission antennas, and

two reception antennas. It also consolidates intelligently and automatically

adjusted transmission of electromagnetic waves, perturbation of decoding

time of impulse signals, and intelligent human-machine interaction

decoding. This instrument increases data storage and transmission capacity

and can precisely measure data deep under the ground. The neutron

porosity LWD with a controlled source uses a pulsed neutron generator

in place of a chemical radioactive source, allowing formation porosity

measurement during drilling.

Field tests and practical application have proven that the formation

evaluation LWD series can provide precise formation evaluation parameters

of lithology, saturation, and porosity. Data are uploaded in real-time to

reflect changes in stratigraphic horizons and geological parameters,

thereby effectively guiding the formation evaluation and geosteering.

Key Equipment for Gas Pipelines and LNG Terminal Technologies

During the construction of the Second West-East Gas Pipeline, we achieved

domestic production of three key devices: a 20MW-grade high-speed,

frequency conversion, direct-coupling, and electric-driven compressor

package, a 30MW-grade gas-turbine-driven compressor package, and

48"/40" 900lbs./600lbs. large-diameter full-welding ball valves.

Through intensive research efforts, we created a package of technologies

for the design, construction, material, and operation management of LNG

terminals. With successful application in LNG terminals in Jiangsu and other

provinces, this package has paved the way for the commencement and

construction of future projects.

Industrial Test of Key Technologies for Converting Venezuela’s Ultra-heavy Oil to Light Constituents

The thermo hydrocracking technology for Venezuela's ultra-heavy oil saw

successful application on 400kt/a and 1Mt/a industrial units. The thermo

hydrocracking reduces the viscosity of the heavy oil by more than 99%.

The upgraded oil passed tests of long-period storage stability, meeting the

viscosity and stability requirements for oil in ocean transport.

Delayed coking of Venezuela's ultra-heavy oil underwent an industrial test

on a 1Mt/a industrial unit. The unit safely and stably processed more than

30,000 tons of vacuum residual from Venezuela’s ultra-heavy oil, the one

and only feedstock supplied to the unit. Among the many key technologies

used on the unit, one technology circulates hydrogen donators to suppress

coking. The unit has produced coking liquids at a yield of more than 60%

and the thermal efficiency of the furnace has been more than 92%.

Industrial Application of NBR Technology with Highest Single-line Capacity Sees Long Running Period

We independently developed a technology package for 50kt/a nitrile

butadiene rubber (NBR) process that ran for an extended time period on a

unit at Lanzhou Petrochemical, producing new grade rubber with better

performance than those of its type.

The core technologies of NBR process formula have been improved. A

new emulsification technology is adopted, and calcium chloride is used

in place of concentrated sulfuric acid in the cohesion system. This has

enabled us to independently develop multiple products. The process flow

was upgraded to a 25kt/a single-line polymerization capacity. An improved

polymerizer works with a process of two columns in tandem to effectively

reduce the residual acrylonitrile content (AN<50ppm) in the degassed

latex. Additives are added at a precisely controlled quantity and location to

adjust the molecular weight. By adjusting the active polymerization system,

butadiene is maximally recycled and only 6% of it is discharged. By using

digital simulation technologies, the outcomes of changes to the process

conditions can be simulated at lowered cost and higher accuracy.

Technology

Annual Business Review

2011 saw oil price hovering around elevated levels more drastically and

frequently than the previous year. The world would probably see tight

energy supply in a long run although the growth rate of oil demand

fell. Faced with opportunities and challenges, CNPC carefully organized

production and operation, strengthened risk control and recorded the best

performance in its history and maintained rapid yet steady growth.

23

2011 Annual ReportAnnual Business Review

WTIBrent

USD/bblOil Prices in 2011

701 2 3 4 5 6 7 8 9 10 11 12

80

90

100

110

120

130

Exploration and Production

In 2011, CNPC focused its exploration in major domestic petroliferous

basins including Songliao, Ordos, Tarim, Sichuan, and Bohai Bay. We

continued to maintain a growth momentum in hydrocarbon reserves,

providing a solid resource base for oil and gas production.

ExplorationIn 2011, our domestic exploration resulted in newly proven oil and gas in

place of 715.12 million tons and 487.9 billion cubic meters respectively, and

proven oil and gas reserves exceeded 1 billion tons of oil equivalent. The newly

proven reserves are mainly contained in lithostratigraphic reservoirs and low-

permeability reservoirs that are deeply buried but feature massive scale and

producibility. The oil reserve replacement ratio remained above 100%.

Reserves and operating data (Domestic)

2009 2010 2011

Newly proven oil in place (mmt) 627.50 655.77 715.12

Newly proven gas in place (bcm) 461.60 570.10 487.90

2D seismic (kilometers) 26,816 31,023 33,912

3D seismic (square kilometers) 11,427 13,463 12,954

Exploration wells 1,901 1,640 1,794

Preliminary prospecting wells 1,071 949 1,020

Appraisal wells 830 691 774

Major DiscoveriesNew breakthroughs were made in major exploration blocks in Sichuan,

Bohai Bay, Qaidam, Ordos, Junggar, and Hailaer basins. Gas exploration in

Sichuan Basin identified great potential of the Sinian System. Exploration

in the deeply buried hills in Bohai Bay Basin showed favorable prospects.

In Ordos Basin, the Lower Palaeozoic strata became a new exploration

target. Lithologic reservoirs with abundant reserves were discovered in the

Jurassic System in Junggar Basin.

In addition, we made a number of major progresses at Jiyuan and Sulige

in Ordos Basin, Tazhong and Tabei in Tarim Basin, Chuanzhong Xujiahe

formation in Sichuan Basin, Qibei-Chenghai block in Bohai Bay Basin, north

(oil) and south (natural gas) in Songliao Basin, Jimusaer Sag in Junggar

Basin, Kunbei in Qaidam Basin, and Fushan Sag in North Bay Basin.

Newly proven gas in place (Domestic)

Newly proven oil in place (Domestic)

(mmt) (bcm)

461.60

570.10

487.90

2009 2010 2011

627.50

655.77

715.12

2009 2010 2011

24

2011 Annual Report Annual Business Review

Development and ProductionIn 2011, our oil and gas production at home was pressed ahead steadily.

Productivity building for new blocks was strengthened, and new fields

were put into development under an overall program, resulting in increase

in the daily output of individual new well. In addition, we continued

fine management of mature fields and refined measures in waterflood

deployment, seeing major development indicators continue to improve.

The reserves tapped by waterflood increased to 72%, the natural decline

rate of mature wells reduced by 1.6%, and the water cut growth rate

controlled to be within 0.5%.

Mass application of proven and our unique technologies such as horizontal

drilling, underbalanced drilling, and snubbing operation played an

important role in speeding up drilling rate, stabilizing and increasing single

well output, and improving the development efficiency and benefits of oil

and gas fields. In 2011, our domestic oil and gas production reached 167.79

million tons of oil equival, up 2.8% year-on-year. In particular, natural gas

contributed 36% of the company’s total oil and gas production.

Crude oilIn 2011, we produced 107.54 million tons of crude oil in China, 2% higher

than the previous year. Despite the challenges of ultra-high water-cut,

Daqing continued to produce at an annual level of 40 million tons, of which

more than 13 million was attributable to tertiary recovery represented by

polymer flooding and ASP flooding. Attributing to the efficient and massive

development of low-permeability reservoirs, Changqing produced more

than 40 million tons of oil equivalent, with an average increase of more

than 5 million tons for each of the past four years. In particular, 5.5 million

tons of oil was produced from ultra-low-permeability reservoirs.

Campaign of Waterflood Control

To intensify the waterflood-based comprehensive management of mature

fields, CNPC launched a “Fundamental Year of Oilfield Development”

campaign that is oriented towards fine waterflood control in 2009. In the

past three years, we have converted 16,266 production wells to water

injection wells, increasing the water injection volume by 59.28 million

cubic meters.

In 2011, Liaohe Oilfield registered an annual oil output above 10 million

tons. Its waterflooded fields recorded a natural decline rate of 13%,

composite decline rate of 6.4%, and total water cut of 0.5%, 7.3%, 5.1%,

and 1.2% lower than in 2008, respectively. In blocks where the production

capacity has been newly built, production and water injection commenced

simultaneously. Full-scale water injection was deployed in blocks that

have passed water injection tests, with finely controlled water injection in

uncompartmentalized fault blocks, and targeted water injection into major

pay zones in complex fault blocks. As a result, the waterflooded fields

produced 9,303 tons of oil every day in 2011, as compared to the 8,581

tons before effect has been seen.

Redevelopment of Mature Oilfields

The redevelopment of mature oilfields, which was launched in 2007, was

equipped with improving matching technologies and yielded favorable

results. In 2011, we focused on well pattern improvement in strata series,

finely controlled water injection and production, and water displacement

front control in some blocks, where the annual oil output was significantly

increased to 7.99 million tons. By the end of 2011, a total of 1.03 billion tons

of oil in place was subject to redevelopment. It is expected that the newly

added recoverable reserve could be increased by 74.08 million tons, and the

recovery efficiency enhanced by 7.2%.

Dagang Oilfield is one of the 8 pilot oilfields for redevelopment. After more

than four decades of production, it has a total water cut of more than

80%, and more than 70% of its recoverable reserves have been produced.

Through redevelopment, Dagang has worked out matching technologies

for redevelopment of reservoirs in complex fault blocks. Precise geological

study based on high-resolution 3D seismic data and dynamic monitoring

information enabled the field rebuild injection-production well pattern and

surface process that led to the birth of 264.3Kt/a production capacity in

Gangdong and Gangxi. In fact, the fault block 2/4 of Gangxi Oilfield outputs

304 tons of oil each day, taking its overall development back from high water

cut stage to medium water cut stage.

25


Pilot Development

CNPC is carrying out intensive technical researches and development tests

in Daqing, Changqing, Liaohe, Xinjiang, Jilin and Tuha oilfields, in view of that

lithostratigraphic and low-permeability reservoirs account for most of its

new reserves and that most of its oilfields have suffered high water cut and

high recovery percentage of reserves. In 2011, we smoothly pushed forward

major development tests on CO2 flooding, surfactant/polymer flooding,

and fire flooding. Much better result has been obtained from the pilot and

expanding tests of CO2 flooding in block Hei-59 and Hei-79 of Daqingzijing

Oilfield in Jilin, with the production rate kept at 2.2%, 1.5 times as much as

that of waterflood. Moreover, the formation pressure in the test zone has

been restored to more than the miscible pressure. The fire flooding test,

which commenced in 2009 in Hongqian test zone in Xinjiang, enabled 14

affected wells output 9,748 tons more oil at a daily rate of 34.5 tons. The test

is expected to increase the recovery factor by 36.2%.

Natural GasIn 2011, we produced 75.62 billion cubic meters of natural gas domestically,

4.3% more than that in 2010. The gas production of Changqing registered

another year of rapid growth in 2011 to 25.8 billion cubic meters. Tarim

produced more than 17 billion cubic meters of natural gas, supporting the

need of West-East Gas Pipelines.

Production capacity building projects in Sulige and Gaoqiao was pushed

forward smoothly. Sulige has become the largest gas field in China.

Development of Sulige Gas Field

Sulige gas field, as part of Changqing gas-producing region, is located deep

in the Mu Us Desert of Ordos Basin. It is a typical tight lithologic gas field

of low permeability, low pressure, and low abundance. Since its mass and

efficient development in 2006, a large amount of cluster wells and horizontal

wells were drilled, leading to the continued rapid growth of its gas output.

In fact, the daily gas output of the field went beyond 20 million cubic meters

in 2008, reached 30 million cubic meters in 2009 and was 37 million cubic

meters in 2010. In 2011, Sulige produced 46 million cubic meters of natural

gas per day, i.e. 13.7 billion cubic meters throughout the year.

Oil and gas gathering station of Shixi Oilfield in Xinjiang

Natural gas production (Domestic)

Crude production (Domestic)

(mmt) (bcm)

68.32

72.53

75.62

2009 2010 2011

103.13105.41

107.54

2009 2010 2011

26


Daqing Oilfield - China’s largest - has been developed for 52 years since its discovery in 1959. Its exploration and development proved the terrestrial facies theory on the origin of petroleum as suggested by Chinese scientists, and have given birth to a suite of effective technologies for the development of large-scale terrestrial multi-strata sandstone oilfields. After its crude production reached 50 million tons in 1976, production-stabilizing and water-cut-control measures were taken to suppress the rise of its natural decline rate and water-cut, and polymer flooding was introduced in addition to waterflood. As such, Daqing maintained a 50Mt/a production for 27 consecutive years.

But after 2003, Daqing suffered production decline due to the ultra-high water-cut and recovery percentage of its major fields. To address this, new technologies and new development modes were adopted and tested. After years of field tests and intensive technical research, Daqing has developed suitable new technologies to stabilize production, which includes waterflooding for controlled decline rate, polymer flooding for increased development efficiency, and ASP flooding for improved base of steady production. These helped Daqing maintain 40Mt/a production for nine consecutive years by 2011, accounting for more than 30% of the total oil that CNPC domestically produced in the same period.

In 2011, Daqing stimulated its production by promoting fine reservoir description, fine and efficient waterflooding, precise measures for potential release, and fine production management. Building upon fine reservoir description, the oilfield adjusted injection-production pattern, subdivided injection interval and shortened test periods, resulting in much slowed down production decline and water-cut increase. In addition, the injection distribution and artificial lifting techniques were further improved, and strong-base and weak-base ASP flooding increased the recovery factor by more than 20% in industrial tests, supporting the oilfield to maintain stable production even longer.

In 2011, Changqing Oilfield produced 40.6 million tons of oil equivalent. In fact, the field has seen an annual production increase of more than 5 Mtoe for four consecutive years, the fastest among all oil and gas fields in China.

Changqing’s exploration and development activities are mainly in Ordos Basin. Covering Shaanxi, Gansu, Shanxi, Ningxia and Inner Mongolia, the basin features tight and highly dispersed reservoirs that are hard to tap in a complex geological structure. Facing these challenges, Changqing has built upon low-permeability lithologic reservoirs and emphasized on new carbonate exploration areas. Multi-strata series composite reservoir-forming theory and large tight lithologic gas reservoir theory were put forward and the carbonate reservoir-forming theory was improved, boosting the hydrocarbon reserves in Jiyuan and Sulige. The field’s newly proven oil and gas in place have been kept more than 200 million tons and 200 billion cubic meters each year since 2008.

Because most of the new reserves are contained in low-permeability, ultra-low-permeability, and super-low-permeability reservoirs, Changqing has established a management mode over the development of ultra-low-permeability reservoirs. Aiming at increasing output per individual well, it has developed 19 unique technologies in 6 series, namely quick reservoir evaluation, optimization of effective displacement systems, staged fracturing stimulation of horizontal wells, surface process optimization and streamlining, low-cost drilling and production package, and horizontal well development. These have enabled Changqing to effectively tap ultra-low-permeability reservoirs. In 2011, 5.5 million tons of oil was produced from ultra-low-permeability reservoirs, accounting for about 1/4 of the total oil output of the oilfield. Following a mode of integrated exploration and development, Sulige Gas Field has been able to build production capacity in a planned and standard-compliant manner. Since its massive and efficient development in 2006, the gas field had built a 17bcm/a gas production capacity, the highest in China, by the end of 2011.

Daqing Hits 40Mt/a Targetfor Nine Consecutive Years

Changqing Yielded 40 Mtoe in 2011

27


Gathering and transportation station in Xifeng Oilfield in Changqing

28


Exploration and Development of Unconventional Oil and GasCNPC attaches great importance to the exploration and development of

CBM, shale gas and other unconventional oil and gas resources. We not

only expedite the construction of CBM industrial bases, but also promote

shale gas demonstration projects.

CBM In 2011, we enhanced CBM production capacity building in Qinshui Basin and

the eastern edge of Ordos Basin. Throughout the year, we newly proved 78.7

billion cubic meters of CBM in place, built additional 0.35 bcm/a production

capacity, and supplied 420 million cubic meters of commercial CBM.

We made a major breakthrough in the exploration of low-coal-rank CBM

with the discovery of the first medium-to-low-coal-rank CBM field of China

in the Baode block on the eastern edge of Ordos Basin. Production test has

shown that the block is characterized by early gas show, rapid production

increase, thick coal seam, good permeability, and high bottom hole

pressure, in addition to biogas compensation. All these suggest that it can

be a major block to build CBM production capacity.

Shale Gas In 2011, we accelerated the building of demonstration zones of shale gas

industrialization at Weiyuan-Changning in Sichuan and Zhaotong in Yunnan.

We drilled four vertical wells and four horizontal ones, and fractured five of

them. Well Wei 201-H1 was completed and fractured, maintaining a daily

output of 11,500-13,400 cubic meters. In 150 days of gas testing, it outputted

1.77 million cubic meters of natural gas, and became the first completed

horizontal well that began to produce shale gas.

Joint Exploration and Development in ChinaAs authorized by the Chinese government, CNPC opened some of its blocks

in China to foreign companies to jointly explore and develop oil and gas

resources. Most of the joint projects concern low-permeability reservoirs,

heavy oil, tidal and shallow water zones, high-sulfur gas reservoirs, high-

temperature and high-pressure gas reservoirs, and CBM.

In 2011, a natural gas cooperation project of Dajing block in Junggar Basin

was approved by the Ministry of Commerce. The execution of joint CBM

evaluation agreement of Daning block in Ordos Basin and the Fushun-

Yongchuan joint shale gas evaluation agreement was well underway.

By the end of 2011, our 36 ongoing joint exploration and development

projects, including 15 conventional oil projects, 11 conventional gas

projects, and 10 CBM projects, produced 4.04 million tons of crude oil and

3.75 billion cubic meters of natural gas, which totaled 7.03 million tons of

oil equivalent, up 5% year-on-year.

Executive Summary of Major Projects

Changbei Natural Gas Project

Changbei Block covers 1,691 square kilometers in Ordos Basin. Shell Group

is our partner and the operator of the project.

In 2011, the block produced 3.48 billion cubic meters of natural gas. By

the end of the year, it had put 29 bilateral horizontal wells into production.

Among these wells, 18 initially outputted more than 1 million cubic meters

per day, 12 had outputted more than 500 million cubic meters for each,

and well CB12-1 had produced more than 1.31 billion cubic meters.

South Sulige Natural Gas Project

South Sulige Natural Gas Block covers 2,392 square kilometers in Ordos

Basin. Total is our partner of the project. According to the signed

PSC amendment, CNPC is the operator. In 2011, the preparation for

development was in smooth progress and an appraisal well delivered high

output in a test.

Zhaodong Oilfield Project

Zhaodong Block covers 78.5 square kilometers at the tidal and shallow

water zone in the Bohai Bay Basin. Australia's ROC Oil (Bohai) Company is

our partner and the operator of the project.

In 2011, the block produced 1.05 million tons of oil, exceeding one million

tons for the eighth consecutive year. It also produced 71 million cubic

meters of associated natural gas. A pipeline system was employed to

transport oil to the shore in place of oil barges that had been the only

way for years. In addition, approved by the Chinese government, Block

Zhanghai-4 and Block Chenghai-1401 were included in the project.

Hainan-Yuedong Oilfield Project

Hainan-Yuedong Block covers 108 square kilometers at the tidal and

shallow water zone in the Bohai Bay Basin. Tincy Group Energy Resources

Limited is our partner and the operator of the project.

The block commenced commercial production in May, 2011 and produced

56,000 tons of oil in 2011. All development wells on Island A have been

drilled. Construction of Island B, C, and D, the seafloor oil pipeline, and the

seashore terminal is underway.

29


Natural Gas and Pipelines

Natural gas and pipelines are our fastest-growing core business. As a

practical way to environmentally friendly development, we accelerate

the development of natural gas to facilitate China’s regulation of energy

consumption mix.

Our gas reserve and production are burgeoning thanks to the new

breakthroughs in domestic natural gas exploration and development

and the enhanced building of production capacity in new blocks. The

production capacity of major gas-producing regions like Changqing and

Tarim keeps expanding, especially in Changqing. We have doubled our gas

import with the Central Asia-China Gas Pipeline and the Second West-East

Gas Pipeline put into operation. All these have positioned us well to quickly

develop our gas business.

In 2011, our gas production and sales kept on a fast track. We did this

by fully utilizing our advantages in resource and pipeline network and

strengthening the supply chain. An efficient nationwide oil and gas supply

system backed by diversified resources and cross-board delivery has taken

shape, better ensuring supplies to the market.

By the end of 2011, we operated 60,257 kilometers of pipelines in China,

including 14,807 kilometers for crude, 36,116 kilometers for natural gas,

9,334 kilometers for refined products, about 66%, 75%, and 50% of the

nation's total respectively.

Operation and ControlIn 2011, we ensured safe, steady, and efficient operation of our pipeline

network by taking advantage of central control and management and

optimizing resource configuration on the supply chain. We transported

more crude and refined products than in 2010 to cater for the capacity

building of oilfields and safe production of refineries. To meet the rapid

growth of refined products demand at Sichuan and Chongqing in

southwestern China, we upgraded the capacity of Lanzhou-Chengdu-

Chongqing Products Pipeline from 5.8Mt/a to 7Mt/a.

We maximized the transport capacity and storage-adjustment ability of

the nationwide network connecting the four major gas-producing regions

of Changqing, Tarim, Sichuan, and Qinghai to key consumer markets.

We swiftly adjusted resource configuration and took proactive measures

to ensure gas supplies to gas-fueled power plants in Yangtze Delta and

Hunan and Hubei provinces when they ran in full load in the peak power

consumption season of summer. By doing so, we played an important role

in mitigating seasonal short-supply of electricity in China.

Crude pipeline mileage in the nation's total

Natural gas pipeline mileage in the nation's total

66%

75%

Beijing Oil & Gas Pipeline Control CenterBeijing Oil & Gas Pipeline Control Center dispatches, manages, remotely

monitors and controls, operates, and coordinates the service and

emergency response of all long-distance oil and gas pipelines of CNPC,

and carry our central dispatch and operating optimization of the network

of oil and gas pipelines. It has established an all-around system for service

and emergency response and assistance with its 14 service and emergency

response centers and 29 service and emergency response teams. The

Center also leased helicopters to inspect pipelines on a regular basis or to

transport rescue crews and materials in case of emergency.

At present, it controls 54 long-distance pipelines of more than 40,000

kilometers in total length. In 2011, the Center further utilized the advantage

of networked operation and central control of gas pipelines, and became

more capable of cross-country coordination on gas production, mutual

transfer and supply switchover between key nodes in the pipeline

network, and control on the large pipeline network. In addition, it ensured

safe operation of oil and gas pipelines by successfully responding to

emergencies such as dust and ice plugging of gas pipelines, power outage

and lightning-induced failures in crude pipeline stations, and drilling theft

and valve failure on refined product pipelines.

30


Underground Gas Storages Underground gas storages are the “control valves” for peak shaving. The

gas storages at Dagang, Jintan, and Huabei have played a vital role in

improving the ability of our natural gas network to respond to seasonal

peak regulation and emergency supply.

In 2011, the gas storages at Dagang and Jintan were upgraded, the Jing-

58 gas storages at Huabei and the gas storage at Liuzhuang in Jiangsu

Province were completed and put into operation, and the construction of

the gas storage at Hutubi in Xinjiang for the Second West-East Gas Pipeline

commenced.

Storage and Transportation Facilities In 2011, we commenced the construction of more than ten oil and

gas pipelines, one of which was Lanzhou-Chengdu Crude Pipeline. We

completed and put into operation the trunk of Second West-East Gas

Pipeline, Qinhuangdao-Shenyang Gas Pipeline, Dalian-Shenyang Gas

Pipeline, and Shandong Gas Pipeline Network, as well as some matching

pipeline networks.

Qinhuangdao-Shenyang Gas PipelineQinhuangdao-Shenyang Gas Pipeline consists of one trunk and three

branches. The 406km-long trunk has a pipe diameter of 1,016mm and a

designed annual delivery capacity of 8 billion cubic meters. It is the thickest

and longest gas pipeline with the highest pressure in Northeast China. The

pipeline became operational on June 18, 2011. As an important channel

connecting the gas pipeline in Northeast China to that in North China, it

will be connected to the Second West-East Gas Pipeline and Shaan-Jing

Gas Pipeline System through Yongqing-Tangshan-Qinhuangdao Pipeline,

making gas from Central Asia and Changqing available to Northeast China.

Dalian-Shenyang Gas PipelineDalian-Shenyang Gas Pipeline is connected to Qinhuangdao-Shenyang

Gas Pipeline. Its 433km-long trunk runs across 5 cities of Dalian, Yingkou,

Anshan, Liaoyang, and Shenyang and 15 counties and districts. With a

711mm diameter, the pipeline is designed to transport 8.4 billion cubic

meters of gas per year. On December 18, 2011, Dalian-Shenyang Gas

Pipeline became operational. It mainly transports the gas from Dalian LNG

terminal to cities along its route, connecting the gas pipeline in Northeast

China to that in North China.

Shandong Gas Pipeline Network Shandong Gas Pipeline Network starts from Tai'an City and ends at Weihai

City. This 1,067km-long pipeline consisting of one trunk and six branches

is designed to transport 8.6 billion cubic meters of natural gas per year. Its

342km-long Tai'an-Qingdao trunk began to receive and transport gas on

April 26, 2011, to provide stable gas supplies to the prefectures and cities

along its route in Shandong Province.

Lanzhou-Chengdu Crude Pipeline Lanzhou-Chengdu Crude Pipeline starts at the Lanzhou Terminal of the

Western Crude Pipeline, traversing 22 counties in Gansu, Shaanxi, and

Sichuan provinces before ending at Pengzhou City, Sichuan Province. As

an important part of the strategic energy channel in western China, this

878km-long and 610mm-thick pipeline is designed to transport 10 million

tons of crude oil per year. Its construction commenced in Longnan, Gansu

on March 30, 2011, and is planned to be completed and operational in 2012.

Beijing Oil & Gas Pipeline Control Center

31


On June 30, 2011, the natural gas coming from the Right Bank of Amu-

Darya River in Turkmenistan arrived at Guangzhou City through the

Second West-East Gas Pipeline. This marks the introduction of Central

Asian gas to China’s energy-hungry Yangtze Delta and Pearl River Delta.

The 8,704km-long Second West-East Gas Pipeline is the first in China

to import overseas gas resources. Consisting of one trunk and eight

branches, it is connected to the Central Asia-China Gas Pipeline at

Horgos in Xinjiang Uygur Autonomous Region, and reaches Shanghai

in the east and Guangzhou and Hong Kong in the south. The 4,978km-

long, and 1,219mm-thick trunk is designed to transport 30 billion cubic

meters of gas per year and keep steady supply for more than 30 years.

CNPC’s pipeline constructors completed the trunk that runs for nearly

5,000 kilometers across 15 provinces, municipalities, and autonomous

regions from the west to the east in less than four years. Construction

of the Pipeline began at its western section (Horgos-Zhongwei Trunk)

in February 2008, which became operational in December 2009.

Construction of the eastern section, the Zhongwei-Guangzhou Trunk,

commenced in February 2009. By the time the section was completed

Trunk of Second West-East Gas Pipeline Became Operational

on June 30, 2011, the whole trunk had been completed and put

into operation and connected to important gas transport trunks and

pipeline networks in China such as the West-East Gas Pipeline, Shaan-

Jing Gas Pipelines, and Zhongxian-Wuhan Gas Pipeline.

The Second West-East Gas Pipeline project has driven dozens of

industries such as machinery, electronics, metallurgy, and gas utilization

as well as the local equipment manufacturing industry of China. Large-

diameter X80 steel pipes saw their first application in China in the trunk

installation of the Pipeline. By the end of 2011, more than 2.6 million

tons of the pipes had been used.

With the whole pipeline being operational in 2013, residents in the 15

provinces, municipalities, and autonomous regions along its route will

benefit from the clean energy it delivers. The 30 billion cubic meters of

gas transported by the pipeline each year are expected to increase the

percentage of gas in China’s primary energy mix by 1-2 percentages.

This will be significant for reducing carbon emissions, improving

atmospheric environment, helping optimize China’s primary energy

mix, and promoting socioeconomic growth.

Trunk

Branch Trunk

Lunnan-Turpan Branch Trunk

Pingdingshan-Tai’an Branch Trunk

Zhongwei-Jingbian Branch Trunk

Zhangshu-Xiangtan Branch Trunk

Zaoyang-Shiyan Branch Trunk

Guangzhou-Nanning Branch Trunk

Guangzhou-Shenzhen Branch Trunk

Nanchang-Shanghai Branch Trunk

Horgos

DushanziUrumqi

Lunnan Turpan Hami

Jiuquan

ZhongweiJingbian Tai’an

Shanghai

Xi’an

Shiyan

Luoyang

Pingdingshan

Zaoyang

NanchangZhangshu

GuangzhouNanning

Shenzhen

Hong Kong

Xuedian

Huangpi

Xiangtan

32


Natural Gas Utilization and Marketing Our natural gas marketing saw smooth progress. With the operation of

the eastern trunk of the Second West-East Gas Pipeline, CNPC’s natural

gas supply extends to Jiangxi and Guangdong provinces, covering

28 provinces, municipalities, and autonomous regions of China. The

downstream gas utilization such as urban gas and compressed natural gas

(CNG) for automobiles is so improved that our gas industry chain has been

expanded to market terminals with additional added value. In 2011, our

gas sales maintained rapid growth to 82.7 billion cubic meters, up 23.7%

year-on-year.

In 2011, we explored the cooperation mode with gas networks on

provincial and municipal levels, and invested jointly with local enterprises

in constructing and operating provincial and municipal branch pipeline

networks to receive gas supplies from trunk pipeline networks. Construction

of phase II pipeline network in Jiangxi, and pipeline network in Guangxi was

well underway. Also, we made new progress in developing and building

our CNG sale terminal network with the startup of 7 primary filling stations

and 42 secondary filling stations in 2011. Because the sales volume of the

secondary stations became more coordinated with the production capacity

of their primary stations, our CNG projects were made more profitable. In

addition, we participated in three gas-fueled power generation projects, one

of which was CHD Yizheng Thermal Power Co., Ltd.

Liquefied Natural Gas (LNG)Faced with the rapid growth of domestic market demand, we seek for

channels to import LNG resources and realize independent design,

construction, and operation of LNG projects. In 2011, we put into operation

Dalian and Jiangsu LNG terminals.

Jiangsu LNG ProjectThe Jiangsu LNG Project, consisting of a dedicated dock, receiving

terminals, and a sea-crossing pipeline, is the first LNG project that CNPC

has independently designed, built, and operated. It is built in three phases,

including Phase-I with a receiving capacity of 3.5Mt/a and a deliverability of

4.8bcm/a, and Phase-II with the receiving capacity increased to 6.5Mt/a and

a deliverability of 8.7bcm/a. In the long term, it will have a receiving capacity

of 10Mt/a and deliver 13.5 billion cubic meters of gas per year.

In November, 2011, the phase-I project started commercial operation. The

dedicated dock has a maximum cargo unloading capacity of 267,000 cubic

meters of natural gas. The project mainly receives, stores, and gasifies overseas

LNG. It is connected to the Ji-Ning Branch Pipeline and the West-East Gas

Pipeline through export pipelines. It also fills LNG tank trucks for export

purpose. Natural gas is supplied to Yangtze Delta and surrounding regions.

Dalian LNG ProjectThe Dalian LNG Project includes a dedicated dock, receiving terminals, and

gas pipeline works. It is built in two phases, including Phase-I with a receiving

capacity of 3Mt/a and a deliverability of 4.2bcm/a, and Phase-II with the

receiving capacity increased to 6Mt/a and a deliverability of 8.4bcm/a.

In December, 2011, the Phase-I project was put into commercial operation

and began to supply gas to Northeast China and part of North China through

the Dalian-Shenyang Gas Pipeline.

33


Dalian LNG Terminal

34


Refining and Chemicals

Refining and chemicals is an important sector which builds up CNPC’s

composite competitiveness. In 2011, we streamlined production

management based on market demands, and kept our refining units

running under high load. 22 major technical and economic indicators were

better than those in 2010, with light oil yield, ethylene yield, and ethylene

and propylene yield leading in China.

In 2011, we domestically processed 144.84 million tons of crude and

produced 93 million tons of refined products, up 7.1% and 7.7% year-on-

year respectively. Confronted with market changes, we optimized product

portfolio and updated refined product quality, ensuring stable market supply.

In 2011, facing with a complex chemical market, we optimized production

plans, strengthened marketing, appropriately allocated resources for newly

started units, and secured product transport. Total production and sales

volume of chemical products were increased, with fertilizer sales rose by

more than 20% year-on-year.

Construction of Large Refining BasesMajor projects ran smoothly in 2011. These include Guangxi Petrochemical’s

10Mt/a refining project, Dushanzi Petrochemical’s 10Mt/a refining and 1Mt/a

ethylene project, and the Tarim Fertilizer project. At Dushanzi Petrochemical,

the crude runs and the production of ethylene, high-grade gasoline, aviation

kerosene, and rubber products increased thanks to its integrated refining and

chemical production and fine management measures.

In 2011, we made new progress in the restructuring of our refining

business and the deployment of refining facilities. As the reconstruction

and upgrading of the refining unit at Liaoyang Petrochemical was put

into operation, CNPC had eight 10Mt/a refining bases in place. 36 refining

2009 2010 2011

Crude runs (mmt) 125.12 135.29 144.84

Utilization rate of refining units (%) 90.1 91.3 91.3

Refine products output (mmt) 80.45 86.33 93.00

Gasoline 25.82 26.76 28.89

Kerosene 3.64 3.66 3.68

Diesel 50.99 55.91 60.43

Lubricating oil output (mmt) 1.40 1.61 1.57

Ethylene output (mmt) 2.99 3.62 3.47

Synthetic resin output (mmt) 4.76 5.65 5.78

Synthetic fiber output (mmt) 0.14 0.12 0.09

Synthetic rubber output (mmt) 0.48 0.62 0.61

Urea output (mmt) 3.97 3.76 4.48

Synthetic ammonia output (mmt) 2.71 2.61 3.03

Refining and chemicals operating data (Domestic)

units for 13 major projects were newly completed. Three quality upgrading

auxiliary projects at Changqing Petrochemical, Urumqi Petrochemical and

Jinzhou Petrochemical were put into operation. Fushun Petrochemical’s

10Mt/a refining and 1Mt/a ethylene project was completely and

delivered. Hohhot Petrochemical's 5Mt/a refining capacity expansion and

reconstruction project was mechanically completed. Major projects such

as Sichuan Petrochemical’s large-scale integrated refining and chemical

project and Daqing Petrochemical’s ethylene project proceeded smoothly.

As a support to the rapid productivity rise of Changqing Oilfield, Ningxia

Petrochemical’s 5Mt/a refining project and a 1-million-cubic-meter

commercial crude storage at Lanzhou became operational as scheduled.

Crude runs (Domestic)

(mmt)

125.12

135.29

144.84

2009 2010 2011

Refined products output (Domestic)

(mmt)

80.45

86.33

93.00

2009 2010 2011

35


Ningxia Petrochemical’s 5Mt/a Refining Project Ningxia Petrochemical’s 5Mt/a refining project is an important part of the

industrial belt along the Western Pipeline. It includes the reconstruction and

upgrading of a 5Mt/a atmospheric distillation unit, a 2.6Mt/a catalytic cracking

unit, a 600kt/a continuous reforming unit, a 100kt/a PP unit, and eight other

units, as well as ancillary facilities. Construction of the project commenced in

December, 2009 and trial production began in December, 2011.

Urumqi Petrochemical’s Refining Upgrading and Reconstruction Project Urumqi Petrochemical’s refining upgrading and reconstruction project

includes the construction of a 6Mt/a atmospheric-vacuum distillation

unit, a 1.5Mt/a gas oil hydrotreating unit, a 1.2Mt/a delayed coking unit,

a 2Mt/a diesel hydrofining unit, and a 40kt/a sulfur recovery unit, as well

as the reconstruction of a 400kt/a continuous reforming unit. The entire

project is expected to be completed in 2013. In 2011, the 2Mt/a diesel

hydrofining unit and the 1.2Mt/a delayed coking unit were completed

and put into production. Both units have produced qualified products.

Jinzhou Petrochemical’s Oil Product Upgrading Project Jinzhou Petrochemical’s oil product upgrading project includes a 1Mt/a FCC

hydrotreating and desulfurization unit, a feedstock tank yard, and ancillary

facilities. It was put into operation in the same year as the construction

commenced. On November 5, 2011, the 1Mt/a FCC hydrotreating unit

was successfully put into production at the first try, and outputted quality

products at both 50ppm and 10ppm operating conditions.

Upgrading of Refined Products and Development of New Products In 2011, all gasoline and diesel produced by CNPC for vehicle use reached

national III standard, and some of them reached national IV standard.

Throughout the year, 88.2% of CNPC produced gasoline was of high-grade,

up by 13.4% year-on-year. The quality upgrading projects at Kelamayi

Petrochemical and Jinzhou Petrochemical became operational and Jinzhou

Petrochemical became the first producer of national-V-compliant gasoline in

China. Lanzhou Petrochemical’s LDO-75 heavy-oil catalytic-cracking catalyst

and LDR-100AL catalytic-cracking catalyst were launched to overseas markets.

In 2011, we developed 75 new chemical products, whose output amounted

to 1.4 million tons. In particular, Dushanzi Petrochemical’s PE80 pipe

materials, Daqing Petrochemical’s materials for chlorinated polyethylene,

BOPP materials from Guangxi Petrochemical and Dagang Petrochemical,

and environmentally friendly SBR1778E from Lanzhou Petrochemical and

Dushanzi Petrochemical have been recognized by users.

To address the changing global climate and minimize the

greenhouse gas emissions of the world aviation industry, China

National Energy Administration (CNEA) spearheaded the founding

of the Aviation Fuel Steering Committee and Clean Transport

Workgroup to promote the sustainable development of China’s

aviation biofuel industry. With CNEA’s sponsorship, CNPC, Air China,

Boeing, and Honeywell's UOP signed MOU of cooperation on

verification trial flight of sustainable aviation biofuel in China on

May 26, 2010. CNPC takes charge of supplying the aviation biofuel

needed by the test flight.

Research has shown that aviation biofuel emits 50%-90% less

greenhouse gas during its life cycle than traditional aviation

kerosene. After one year of research and development, CNPC has

grasped the key processing technologies for aviation biofuel that

is refined from the seed of non-crop Jatropha curcas, and handed

over 15 tons of such biofuel needed by the test flight. On October

28, 2011, the first test flight of a passenger plane with a fuel

mixture of the biofuel and traditional aviation kerosene succeeded.

Successful Trial Flight ofAviation Biofuel

36


Marketing and Sales

CNPC considers marketing and sales as an important window to serve

end consumers and improve its brand value. We continued to strengthen

our domestic distribution network and enhance services to ensure stable

supply of refined products.

In 2011, we achieved much increased sales volume of refined products by

adapting to the trend of domestic market and adjusting our sales at the

right time spot. Sales of refined products exceeded 100 million tons, up

12.2% year-on-year. Retail sales exceeded 85 million tons, 19% more than

the previous year. Daily sales per individual station rose by 7.7% year-on-

year. Gasoline sales climbed up considerably. The portion of terminal sales

was kept at about 90%.

Marketing NetworkWe accelerated the development of our marketing network by leveraging

integrated business advantages. In 2011, we built or put into operation

more service stations, and increased the depot capacity to more than 16

million cubic meters. By the end of 2011, we operated more than 19,000

service stations throughout China.

We had a more improved customer service system. Following successful

promotion in 2010, we issued more than 13 million Kunlun fuel cards in

2011. In addition, our “95504” service hotline became available throughout

China. We also built an integrated “one-stop” service platform that provides

consultation services, information enquiry, card loss register, complaint,

and suggestion to Kunlun card holders.

Non-oil Services Non-oil services maintained fast growth in terms of both size and

profitability, with the revenue increased by 37% year-on-year. We have

more than 10,000 uSmile convenience stores in operation. The customer

recognition and satisfaction of uSmile brand saw steady growth.

Lube OilIn 2011, we sold 1.86 million tons of lube oil and achieved sales growth

of 3% for packaged lube and 5% for top grade lube over 2010. Our ship

lube oil witnessed steady growth in terms of sales and market reach. In

fact, we have established a supply network of ship lube oil that radiates

from Singapore and Korea to Asia. By cooperating with Russia’s LukOil, we

supplied such oil to domestic ocean-going vessels at Istanbul, Saudi Arabia,

India, and Panama. Moreover, we developed lube oil satisfying marine

emission requirements for two-stroke engines and crankcases. The heavy-

duty diesel engine oil with an ultra-long cycle for China National Heavy

Duty Truck Group (SINOTRUCK) has passed the 80,000-kilometer road test

and won user acceptance.

In 2011, our rapid oil change service witnessed fast development. We have

established 15 outlets in Beijing, Daqing, Lanzhou, Dalian, and Chongqing. All

these outlets provide emergency assistance in a short range of 3-5 kilometers.

In 2011, the replacement service achieved 80%, 110%, and 46% growth in the

sales revenue, filling volume of top grade oil, and serviced vehicles year-on-

year, respectively, and became a new section of business growth.

Miscellaneous Refined Products In 2011, sales of miscellaneous refined products including fuel oil and

asphalt grew more than 16% over the previous year. Being widely used

to build expressway and airport runway, Kunlun asphalt recorded an

annual average increase of 20% over the past three years in sales volume.

Its market share was enlarged by 5.7% over 2010 and maintained the top

seller position in China.

37


The 2nd Formula SAE of China (FSAE) took place in Shanghai from

October 17 to 21, 2011. As the main sponsor of the event, CNPC

supports those college students who are keen on automobile

design and manufacturing and those who race on the circuit.

On the car design and test stages, we provided 21 racing teams

with four types of special lubricants, namely, Kunlun Tianxie lube,

Tianyuan brake fluid, Kunlun HP high-performance grease, and

Kunlun LSD limited slip differential gear oil. Even on the circuit, we

supplied the teams with different types of lubricant products to

ensure smooth progress of the event.

FSAE is an automobile design and manufacturing competition

organized by the Society of Automotive Engineers of China. Teams

of college students majoring in automobile engineering or related

disciplines are eligible to participate in the event. The 2011 event

attracted 33 university teams at home and abroad and the teams

of Beijing Institute of Technology, University of Technology Munich,

and Xiamen University of Technology won the champion, runner-

up, and third place, respectively.

“Kunlun Lubricant Cup” Formula SAE of China

38


Overseas Oil and Gas Operations

In 2011, CNPC improved the operating quality and profitability of its

overseas oil and gas operations by optimizing overseas assets configuration

and enhancing the capability of risk prevention and control.

We achieved major discoveries by promoting risk and progressive

exploration. A hydrocarbon play was discovered at block H in Chad’s

Bongor Basin. Through progressive exploration, we made new progresses

in joint projects in Kazakhstan, Indonesia, and South American countries

and regions.

In oil and gas production, we further exploited mature oilfields and drilled

more new wells. Proven techniques such as waterflood and horizontal

drilling were deployed. In fact, horizontal wells accounted for 27.7% of

the total development wells in the same period. As a result, our overseas

production was boosted to 89.38 million tons of crude oil and 17.06 billion

cubic meters of natural gas, up 17.9% and 24.5% year-on-year respectively.

CNPC operated more than 10,000 kilometers of overseas oil/gas pipelines,

including 6,672 kilometers of oil pipelines and 3,822 kilometers of gas

pipelines, which transported 39.20 million tons of oil and 17.76 billion

cubic meters of gas in 2011. The Kazakhstan-China Oil Pipeline and Russia-

China Crude Pipeline maintained safe and steady operation. The Central

Asia-China Gas Pipeline was upgraded to have a deliverability of 23bcm per

year and transported 15.86bcm in 2011.

We deepened our cooperation with resource countries in downstream

sectors. Chad’s N'Djamena JV Refinery and Niger’s Zinder JV Refinery were

completed and became operational on schedule. Khartoum Refinery and

PetroKazakhstan's Shymkent Refinery ran safely, steadily, and efficiently

with optimized process and production plans. Our JV refineries in

Singapore, Japan, Scotland and France maintained steady operation. Our

overseas crude runs reached 34.78 million tons in 2011.

Natural gas production (Overseas)

Crude production (Overseas)

(mmt) (bcm)

CNPC's share CNPC's shareTotal Total

34.325.51

36.03

10.3841.73 12.57

75.82

13.7069.62

8.20

89.38 17.06

2009 20092010 20102011 2011

39


FPF Power Station at Niger's Agadem Oilfield

40


Central Asia-RussiaCNPC had joint oil and gas investments in Kazakhstan, Turkmenistan,

Uzbekistan, Azerbaijan and Russia. 2011 saw the smooth operation of

our joint oil and gas projects in Central Asia-Russia region and closer gas

cooperation with Central Asian countries.

AktobeMunaiGas was reputed by our partner – KazMunaiGas – as a model

of Kazakhstan-China oil and gas cooperation, with the recovery efficiency

of its Kenkijak Subsalt Oilfield further increased and the oil production of its

MMG Oilfield recording a new high. CNPC and KazMunaiGas concluded an

in-principle cooperation agreement to jointly explore and develop Urikhtau

Gas Field, which will be a gas source to Phase-II Kazakhstan-China Gas

Pipeline. High-yield gas flow was obtained from Block B of Amu-Darya gas

project in Turkmenistan during exploration. Production capacity building

works in the block commenced.

The Central Asia-China Gas Pipeline has maintained safe and steady

operation since the startup of its Line A and Line B in October, 2010. In 2011,

No.1, 4, and 6 compressor stations were completed and put into operation,

upgrading the deliverability of the pipeline to 23bcm/a. The pipeline

transported 15.86 billion cubic meters of gas throughout the year. In addition,

CNPC signed agreements with Uzbekneftegaz and KazMunaiGas to build

and operate Line C of the Central Asia-China Gas Pipeline, which will run in

parallel to the operating Line A and B to transport gas from Turkmenistan,

Uzbekistan, and Kazakhstan. After Line C is completed, the deliverability of

the pipeline will be upgraded to 55bcm/a.

AfricaCNPC had joint oil and gas investments in Tunis, Algeria, Libya, Niger, Chad,

Nigeria, Sudan, and South Sudan. In 2011, we maintained safe, steady, and

controlled operation of our joint projects despite the challenges posed by

the turbulence in the region. We did this by establishing and improving

an early-warning mechanism for overseas risks and strengthening our

emergency response capability.

In 2011, our two upstream and downstream integrated projects in Chad and

Niger, including the oilfields, the crude export pipelines, and refineries, were

completed and put into operation. Two self-contained modern bases of

petroleum production and refining were completed, one in N'Djamena, the

capital city of Chad, and the other in Zinder, a middle-southern city in Niger.

In the development of the Ronier Oilfield in Chad, CNPC strictly observe the

“Environmental Law of Chad” and the “Environmental Evaluation and Study

Report of Operating Blocks”. Before operation was carried out on any new

block, we appointed dedicated organizations to investigate the protected

trees, wild animals and plants, cultural relics, and historic sites in it. In doing

this, we minimized environmental impact and ensured clean production.

Before a well was spudded, water, soil, and atmosphere samples were taken

and analyzed. After drilling, the environment was sampled once again for

comparative analysis. After one or two rain seasons, the vegetation on the

well site has been restored. Joint-ventured by CNPC and Chadian Ministry

of Petroleum, N'Djamena JV Refinery is the second refinery that CNPC has

ever designed and built overseas. Its main products include gasoline, diesel,

fuel oil, LPG, and PP. Its associated power station will supply electricity to

the capital city of Chad. On July 10, 2011, its first batch of diesel product

was delivered to the local market.

On November 28, 2011, Phase-I of Agadem upstream and downstream

integrated project was completed and became operational. It includes a

1Mt/a oilfield, the 1Mt/a Zinder Refinery, and a 462.5km-long oil pipeline

connecting them to each other. The refinery produces gasoline, diesel, fuel

oil, and LPG, which will be first supplied to the domestic market of Niger

and then exported to surrounding countries. Just before the oil pipeline of

the project was to be operational, CNPC provided one-month training on

the theory and knowledge of pipeline operation to 26 Nigerien trainees

in Niamey in July, 2011. These trainees will be Niger’s local engineers for

the operation and maintenance of the oil pipeline. “With this training, we

learnt more technical knowledge on how to run the pipeline and deliver

crude safely to Zinder Refinery. We are confident to take the ‘baton’,” said

Amsagana Lawan Sanda, a trainee.

41


AmericasCNPC had joint oil and gas investments in Venezuela, Ecuador, Peru,

Columbia, Canada, and Costa Rica. In 2011, our American joint venture

projects saw fast growth. We made significant contribution to the

steady increase of oil production in the joint blocks by leveraging our

technological advantage and executing our rights and obligations as a

minority shareholder. We signed a framework agreement with Cupet to

expand cooperation, in addition to a MOU for cooperation in engineering

construction. The two sides will extensively cooperate with each other in

onshore and offshore exploration and development, operating cost control

and EOR for existing oilfields, as well as engineering construction in Cuba.

2011 witnessed our progress in Venezuela. CNPC’s MPE3 project increased

its daily output from 60,000 barrels to 105,000 barrels by intensifying field

management, speeding up drilling rate, and optimizing oil well parameters.

With respect to the Intercampo–Caracoles project, we stabilized the

production of the mature fields by improving our coordination with

PDVSA and increasing the production from gas lift. Production of the

Zumano Oilfield was also stabilized, thanks to comprehensive data study

and optimized stimulation measures in old wells. In Peru, we elaborately

organized drilling plan and stimulation measures to minimize operational

risk and met the annual production target for Block 1AB/8 and Block 6/7.

CNPC’s Andes Project in Ecuador improved the result of new and stimulated

wells by innovatively applying our unique matching technologies. Its

crude production was well underway and new contract blocks showed

promising prospects. On October 10, 2011, the Andes project company

received the “Excellence in Petroleum Technology Development” award

from the Ecuadorean Ministry of Non-renewable Natural Resources and

the International Society of Petroleum Engineers (SPE) in reward of its

horizontal well completion technology in high-water-cut mature oilfields

with discrepant seepage fields in complex and subtle traps.

Middle EastCNPC had joint oil and gas investments in Iraq, Iran, Oman, Syria, and Qatar.

In 2011, despite the operating risk posed by increasing instability in the

region, we achieved the capacity building objectives of our joint projects in

Iraq and exceeded the annual production objectives of our Omani project

by accelerating horizontal well waterflood in mature fields.

In 2011, we played an active role in the board of directors, joint

administration committees, and partnership committees of the three

cooperation projects at Al-Ahdab, Rumaila, and Halfaya oilfields in Iraq.

We kept close relationship with the Iraqi government, our partners,

and local communities. The joint project with BP at Rumaila saw rapid

increases in oil output. The joint project at Al-Ahdab Oilfield built an

annual capacity of 6 million tons, making it the first new oil project to start

production in Iraq over the past two decades. The joint project with Total

at Halfaya Oilfield was well underway, with seismic prospecting, drilling,

and surface engineering rolled out. In fact, the project was recognized

by the Iraqi Ministry of Oil the one with the “fastest progress and best

construction quality” among of the awarded projects in the second round

of international bid invitation.

During the capacity building of the Iraqi projects, we appointed a tutor

or co-worker to each local employee to improve their operating skills. In

2011, the Al-Ahdab project offered more than 2,000 jobs to local residents.

A production internship base was opened up together with Baghdad

University of Technology to provide Iraqi college students with internship

opportunities. In the Halfaya project, we subcontracted works to local firm

as long as they could fulfill them. The camp site construction, equipment

foundation works, bounding walls, roads, and other construction projects

were subcontracted to BURJ, SANIDA, BA and other local companies,

providing nearly 500 local jobs. In August, 2011, CNPC organized the first

selection campaign of eight outstanding Iraqi employees and 44 excellent

Iraqi employees.

Al-Ahadab Oilfield in Iraq

42


Asia-PacificCNPC had joint oil and gas investments in Indonesia, Myanmar, Thailand,

Mongolia, Singapore, Japan, and Australia.

In 2011, we maintained smooth oil and gas production in our Indonesian

joint projects by rechecking and exploiting mature wells. We also made

remarkable progress in oil and gas cooperation in northeastern Asia.

According to a MOU on expanding oil cooperation with Mongolian

Ministry of Mineral Resources and Energy, we will expand our downstream

operations in Mongolia.

Construction of the Myanmar section of Myanmar-China Oil and Gas

Pipelines commenced. We developed and issued “Environmental Supervision

Plan”, “Specifications for the Administration of Environmental Supervision”, and

“Detailed Implementation Rules of Environmental Supervision” to minimize

environmental impact during pipeline construction. Full play is given

to the supervisors, who oversee and inspect how the environment is

protected along the pipelines during construction and, especially, monitor

and control the environmentally sensitive areas on the construction site.

Contractors are required to prepare special control plans for any work in an

environmentally sensible area. Moreover, these plans have to be approved

by the environmental supervision office of the project before they may be

implemented. As such, environmental pollution and ecological damage

events are avoided.

International Trade

In 2011, our international trade continued fast growth with expanding size

and soaring gains. We engaged in trading of oil futures and oil spot, as

well as blending, transportation, wholesale, and retail of refined products.

Throughout the year, we posted a trade volume of 250 million tons, up

29.1% year-on-year, worth USD 192.1 billion.

We strive to enhance our ability in analyzing and forecasting the market

to control operational risks. We utilized various modes and approaches of

trade to better control crude resources and expanded import sources.

We actively explored the resources and market of refined products to

extend the value chain and improve operating performance of international

trade. By leveraging the resource advantages of our overseas refineries,

we carried out cross-market operation from America to the Far East. We

have ranked top in trade volume of fuel oil and diesel for many years on

Platts’ trading window in Singapore and initiated trade on Platts European

window. We became the largest aviation fuel supplier in Singapore and

Hong Kong, with a share of 25% and 40% in the two markets respectively.

We supplied 20%, 13% and 37% of ship fuel in Singapore, Hong Kong, and

Taiwan, respectively, and is the largest ship fuel supplier in Singapore.

We put more efforts in tapping overseas resources and market of chemical

products. In addition to keeping our position as the largest importer of

Middle Eastern sulfur, we successfully worked with Statoil in the first ship

of methanol dealing across the European and Asian markets, and carried

out CDM business in London. Our export portfolio of chemical products

has been extended from the traditional petroleum coke, paraffin, urea, and

sulfur to MX and PTA.

We made major progress in multiple gas-sourcing projects for pipelines.

These included the conclusion of a gas purchasing agreement with

Uzbekistan and a gas purchasing agreement and pipeline transportation

agreement with Castle Peak Power Company Limited. We established close

partnership with international LNG suppliers to secure resource for the

startup and stable operation of our LNG projects in Dalian and Jiangsu.

Our shipping business has been strongly supporting our international

trade. Despite the weak oil transport market, our fleet enjoyed higher

profitability thanks to optimized transport plans and reasonably arranged

delivery volume and ship schedule that lowered the transport cost.

We further strengthened the building of our three major overseas oil and

gas operation centers in Asia, Europe, and America, in order to make us

more capable of optimizing resource configuration worldwide. In 2011,

the Asian center was established, much increasing our competitiveness

and influence in the region. The smooth hand-over and operation of the

INEOs refinery project represented a breakthrough of our European center.

Synergy was created by associated logistics facilities, including the 4.2Mcm

Dalian international storage that was successfully put to use and the large

storages at Qinzhou, Nansha, and Yangshan running smoothly.

43


LNG carrier arrives at Dalian LNG terminal

44


Oilfield Services, Engineering & Construction, andEquipment Manufacturing

As part of our comprehensive and integrated operations, oilfield

services, engineering & construction, and equipment manufacturing

have provided reliable support to our oil and gas production. In 2011,

we had 1,077 crews in 66 countries and regions around the world,

providing technical services in geophysical prospecting, well drilling,

well logging and mud logging, as well as engineering and construction

services. Our petroleum equipment and materials were exported to 70

countries and regions.

Oilfield ServicesIn 2011, we saw much increased workload in our 2D seismic prospecting,

drilling and downhole operations, and expanded the application special

drilling techniques. Throughout the year, we completed 1,296 horizontal

wells, 350 underbalanced wells, and 2,292 snubbing wells, up 49.5%,

14.8%, and 41.4% year-on-year, respectively. This strongly supported the

stabilization and increase of our oil and gas output both at home and

abroad. We worked closely with international oil companies, national oil

companies, and industrial peers and made new progress in developing

high-end overseas market.

Geophysical ProspectingIn 2011, CNPC deployed 197 seismic crew-times (93 2D and 104 3D) at

home and abroad. We also had 13 VSP crews, and 41 non-seismic (gravity

and magnetic survey, electric survey, and geochemical prospecting) crews

in operation. We acquired 93,306 kilometers of 2D lines and 36,678 square

kilometers of 3D profiles.

2009 2010 2011

Seismic crews in operation

Domestic

Overseas

175

112

63

170

105

65

169

98

71

2D seismic data acquired (kilometers)

Domestic

Overseas

74,392

31,897

42,495

81,130

32,959

48,171

93,306

35,618

57,688

3D seismic data acquired (square kilometers)

Domestic

Overseas

53,525

15,383

38,142

54,338

15,671

38,667

36,678

14,619

22,059

Geophysical prospecting operations

Our onshore geophysical prospecting continued to take the largest share

in the international market. We performed the Yingdong 3D prospecting

in Qaidam, the quasi-full 3D prospecting at well Ha-601 in Tarim Oilfield,

Total's 3D prospecting in southern Sulige, and phase-II 4D seismic acquisition

in Shu-1 block of Liaohe Oilfield. In the Yingdong project, we carried out

high-density, wide-azimuth 3D seismic acquisition in the mountainous

Yingxiongling region. Using a wide-azimuth 3D observation system with a

high covering number, high channel density, multi-well combined excitation,

seismograph array, and multiple receiving lines, we made breakthroughs

in data acquisition with the discovery of a practicable technical route for

hydrocarbon exploration in complex mountains. A series of composite

prospecting technologies oriented about 3.5D and 4D seismic and reservoir

description delivered excellent results in redeveloping the mature Liaohe

and Huabei oilfields, helping improve the success ratio of development wells,

identify residual oil, and increase the reserves and production.

3D seismic data acquired2D seismic data acquired

(kilometers) (square kilometers)

Domestic DomesticOverseas Overseas

31,89715,383

32,95915,671

35,618

14,619

48,171

38,667

42,495

38,14257,688

22,059

2009 20092010 20102011 2011

45


In 2011, we gained entrance into the markets of Brazil, Ethiopia, Qatar, and

the transition zone of the Caspian Sea, and carried out technical R&D and

tests jointly with Saudi Aramco, Shell, and Petroleum Development Oman

(PDO). We maintained our presence and made new breakthroughs on the

high-end Middle East market by winning PDO’s tremendous 3D project and

three long-term exploration projects of Saudi Aramco. The S64 transition

zone project in Saudi Arabia, which commenced in November, 2009, was

smoothly completed. The node data acquisition, OBC data acquisition, and

onshore data acquisition were integrated in complex transition zones in

deep water, pushing the seafloor seismic prospecting down to more than

1,200 meters underwater.

We became one of world’s top-6 deepwater prospecting service providers

and maintained a fast growth momentum. In 2011, we completed 5,378

square kilometers of 3D profiles and 19,620 kilometers of 2D lines in

14 projects. Our excellent deepwater operation in Oman, Algeria, and

Venezuela was highly praised by the owners. BGP-Prospector, one of the

most advanced streamer vessels in the world, was launched. The ship can

operate in waters as deep as 40-1,000 meters, with a towing capacity of 12

streamers.

We improved the performance of our equipment products and expedited

the R&D of new products. GeoEast, an integrated seismic data processing

and interpretation system, has been upgraded to version 2.3.1. Built with

complete pre-stack processing capacity of onshore, VSP data, and uneven

ground, it supports the processing of marine, multi-wave data processing,

interpretation of 2D and 3D structure, visualized 3D volume interpretation,

and post-stack reservoir forecasting and inversion. The GeoMountain

interpretation software subsystem was upgraded to have 30 unique

features for complex mountains, some of which are the 2D fine reservoir

interpretation based on seismic sequence constraints, fracture detection,

and fluid identification technologies. Efficient acquisition with high-

tonnage vibroseises has been deployed at home and abroad. Moreover,

we have researched and grasped the matching technologies for efficient

acquisition with ISS and DSSS vibroseises and developed matching

software for quality monitoring and control and data processing. This has

improved our competitiveness in efficient vibroseis operations.

Well DrillingIn 2011, our 1,009 drilling rigs spudded 13,751 wells, of which 13,706 were

completed. Our drilling speed saw much increase thanks to the application

of proven matching technologies and more detailed technical plans. The

average penetration rate of wells deeper than 4,000 meters was increased

by 12% year-on-year, and the construction speed of horizontal wells up by

20% year-on-year.

2009 2010 2011

Drilling rigs in operation

Domestic

Overseas

1,009

814

195

1,000

835

165

1,009

833

176

Wells drilled

Domestic

Overseas

12,900

11,570

1,330

13,043

11,919

1,124

13,706

12,509

1,197

Footage drilled (million meters)

Domestic

Overseas

24.79

22.07

2.72

25.20

22.97

2.23

26.98

24.39

2.59

Drilling operations

In 2011, we completed 1,296 horizontal wells, up 49.5% year-on-year and

accounting for 6.3% of the total wells, including 1,018 at home and 278

abroad. Great Wall Drilling Company built up 1bcm/a gas production

capacity in Sulige by drilling horizontal wells, equivalent to that by 300

vertical wells according to the original plan. Our Bohai Drilling Engineering

Company drilled the horizontal well Su-76-1-20H, whose 2,856m horizontal

interval registered a record among of onshore horizontal wells in China.

Our Chuanqing Drilling Engineering Company finished the first horizontal

shale gas well Wei-201-H1 in China, with a regional record footage of

1,688.48 meters per drilling bit.

Underbalanced drilling played an important role in releasing the potential

and increasing the production per individual well. In 2011, we completed

350 underbalanced wells, 14.8% more than that in 2010. Chuanqing Drilling

Engineering Company applied gas drilling technology in 57 wells, at an

average penetration rate of 10.85m/h, 3-8 times as fast as the drilling with

conventional drilling fluid. Daqing Drilling Engineering Company applied

nitrogen drilling to protect the reservoirs. This provided a new technical

approach for hard-to- tap reserves.

46


2009 2010 2011

Logging crews

Domestic

Overseas

644

556

88

675

556

119

678

546

132

Well logging operations (well-time)

Domestic

Overseas

69,776

64,277

5,499

80,319

74,826

5,493

88,727

83,317

5,410

Well logging operations

Well Logging and Mud LoggingIn 2011, CNPC‘s 678 logging crews completed 88,727 instances of well

logging and perforation, and 11,172 instances of mud logging, up 10.5%

and 10.3% from 2010, respectively.

2011 saw excellent application of composite perforation, pressure-pulse

boosted perforation, ultra-deep perforation for slim holes, and directional

perforation for horizontal wells. Remote acoustic reflection imaging logging

can adapt to physical property evaluation for complicated heterogeneous

reservoirs, seeing good application in Dagang and Tarim oilfields and being

used in horizontal well logging for the first time.

The EILOG logging units of our independent intellectual property were

widely used in Changqing, Huabei, Tuha, and Qinghai oilfields, providing

an effective manner for the evaluation of complex reservoirs featuring

low porosity, low permeability, low resistivity, complex lithology, floodout

formation and tight gas. The logging units also provided services in

Bangladesh, Mongolia, Myanmar and Canada. Our multi-pole array acoustic

logging tool (MPAL) has passed the acceptance check of Russian experts

as suitable to direct well logging of open holes and cased holes using

multiple types of waves. The technology series of resistivity logging,

acoustic wave logging and radioactive logging has been formed to

compose the formation evaluation LWD system. The prototype of the

FELWD was tested at the experimental well, which can satisfy the need for

real-time geosteering and reservoir evaluation.

We consolidated and expanded our overseas well logging, mud logging,

and testing operations. We provided well logging services at oilfields in 20

countries including Sudan and Kazakhstan. Great Wall Drilling Company

successfully applied EPI residual oil evaluation and rotary sidewall coring in

Sudan, and entered the drilling markets of Venezuela and Columbia by way

of EPC contracting.

We aggressively expanded our presence and service scope in the

international drilling market. In 2011, we won drilling contracts in Kyrgyz,

Iraq, New Zealand, Canada, and Rwanda. We continued to provide

integrated drilling services for the Amu-Darya project in Turkmenistan.

Well VDW-1004 and well CMN-100 drilled by Great Wall Drilling Company

in Cuba were completed at a depth of 5,652 meters and 6,588 meters,

respectively. The wells recorded the largest well depth, longest horizontal

interval and shortest construction period in Cuba, providing reference for

the mass development in VARADERO region. We completed the drilling of

16 high-temperature geothermal wells in Kenya. “CNPC Great Wall Drilling

Company provides much technical support to the Olkaria geothermal

power plants and is a model of ‘South-South Cooperation’," said Ban Ki-

moon, Secretary General of the United Nations, when he visited the plants.

The China Geosteering Drilling System (CGDS) and precise PCD system

independently developed by CNPC delivered excellent results in tests and

applications. Developed by CNPC Drilling Research Institute, CGDS was

used for 15 well-times in 2011. In its first application in Daqing Oilfield, the

system precisely steered the bit to oil layers as thin as 0.4-1m. The precise

PCD system jointly developed by Drilling Research Institute, Chuanqing

Drilling Engineering Company and Xibu Drilling Engineering Company was

tested and applied in Sichuan and Xinjiang for 20 well-times. The vertical

drilling system jointly developed by Bohai Drilling Engineering Company

and Xibu Drilling Engineering Company was well positioned to mass

application with its accumulative application for 6 well-times in 2011.

UN Secretary General Ban Ki-moon meets with GWDC employees in Kenya

47


4B Plant of Myanmar Petrochemical Enterprise

Downhole OperationsIn 2011, CNPC had 2,117 downhole operation crews providing services

including fracturing and acidizing, formation testing, well intervention,

workover and sidetrack drilling. We completed 142,800 downhole

operations throughout the year, 4.7% more than that in 2010; and

conducted formation testing in 6,950 layers, 1.4% more than that in 2010.

Snubbing was applied in a larger scope and more fields. In 2011, our 88

crews applied this operation in 2,292 wells, up 41.4% year-on-year. The scope

has been extended from water injection wells to oil wells, gas wells, and

polymer injection wells. We also made substantial progress in the fields of

live-well completion, coiled tubing acidizing and fracturing with snubbing,

and snubbing workover of gas wells. Snubbing significantly minimizes

wastewater discharge and stabilizes production per individual well. By doing

so, we accumulatively reduced the discharge of wastewater by 1.757 million

cubic meters and cut the transportation by 115,000 tanker-times.

Staged fracturing was massively applied in horizontal wells, leading

to a breakthrough in reservoir stimulation. Throughout the year, it was

conducted in 503 horizontal wells, with up to 16 stages being fractured in

a single string run. This effectively addressed the bottleneck that restricted

the output per individual well. 488 open-hole staged fracturing has been

done for 57 horizontal wells, which had been developed by Chuanqing

Drilling Engineering Company, maximally fracturing 13 stages. The

continuous in-situ blending fracturing tool was used for 736 well-times.

Two extended reach horizontal wells in Sulige were tested by Great Wall

Drilling Company. With the 2,111m-long horizontal interval being fractured

in 14 stages, the wells produced more than 200,000 cubic meters of natural

gas per day.

Engineering and ConstructionCNPC provides survey, design, construction, and supervision services for

oil and gas field surface engineering, refining and chemicals, long-distance

pipeline and storage tank around the world. In 2011, our engineering

and construction business was significantly improved in terms of both

scale and profitability. Throughout the year, we had 53 major engineering

and construction projects in progress, including 16 delivered or made

operational, and 15 newly commenced.

We focused on building regional markets and developed technology-

intensive and high value-added projects. High-end EPC and PMC projects

accounted for a much higher proportion of our total projects, and took

a larger market share. In 2011, CNPC affiliated China Petroleum Pipeline

Bureau (CPPB) signed 24 EPC contracts. 23 EPC projects under China

Petroleum Engineering & Construction Corp. (CPECC) were well underway.

CNPC Petroleum Engineering Company (CPE) made progress in new

project development, with 72% of its new contracts inked in an EPC form.

CPECC, among ENR’s Top 225 International Contractors, was recognized as

the largest general contractor of petroleum engineering and construction

in Asia. It set up PetroChina Petrofac Engineering Service Company with

the London-based Petrofac Ltd. The JV mainly provides engineering

consultancy, design, and construction services to the Middle East and

other high-end markets. CNPC's China Huanqiu Contracting & Engineering

Corp. (HQCEC) acquired a 19.9% stake in Australia’s LNGL and became

LNGL’s largest shareholder. This consolidated our domestic leadership in

LNG sector.

Downhole operations

2009 2010 2011

Downhole operation crews

Domestic

Overseas

1,892

1,739

153

1,877

1,698

179

2,117

1,913

204

Downhole operations (well-time)

Domestic

Overseas

131,321

128,397

2,924

136,382

134,201

2,181

142,753

140,283

2,470

48


Oil and Gas Field Surface EngineeringWe maintained our position as the domestic leader in building onshore

oil and gas fields. We have surface engineering technology packages

for conventional fields, as well as for fields featuring high water cut, low

permeability, ultra heavy oil and high condensate content, high pressure,

high yield, and high sulfur content. In addition, we have the capacity to

build surface works to accommodate facilities with 20Mt/a oil production

capacity and 10bcm/a gas production capacity.

In 2011, our production capacity building projects in domestic fields were

well underway. The South-8 Gas Processing Plant in Daqing and the No.5

Gas Processing Plant in Sulige were completed and put into operation.

Daqing shale oil pilot base was constructed in an orderly way.

Overseas, we saw smooth progress in surface engineering projects. The

6Mt/a capacity building project in Iraq’s Al-Ahdab Oilfield completed ahead

of schedule. The Phase-I surface engineering at Ronier Oilfield in Chad, the

No. 4 Oil and Gas Processing Plant at the Hope Oilfield in Kazakhstan, and

the EPC of the private station of Bagtyiarlyk Contract Block in Turkmenistan

were smoothly completed.

Construction of Refining and Chemicals Facilities In 2011, we ensured smooth progress and on-schedule operation of

major projects. Ningxia Petrochemical’s 5Mt/a refinery upgrade and

reconstruction, Karamay Petrochemical’s continuous reforming unit, and

Urumqi Petrochemical’s 1.2Mt/a delayed coking unit were completed

and became operational. Fushun Petrochemical’s ethylene project was

completed and delivered. Sichuan Petrochemical’s integrated refining

and chemicals project and Daqing Petrochemical’s ethylene project were

pushed forward orderly. As the EPC contractor, CPECC achieved 99.06%

first-run yield and 100% acceptance of unit constructions in Ningxia

Petrochemical’s refinery upgrade and reconstruction project. We also made

new progress in coal chemicals with the winning of Ordos Energy Group’s

500kt/a coal tar contract, in addition to the Phase-I contract of two coal

olefin units of Shenhua Group’s Ningxia Coal Industry Group Co., Ltd.

Chad’s N'Djamena JV Refinery, Niger’s Zinder JV Refinery, and Vietnam’s

fertilizer project became operational. 4A and 4B plants of Myanmar

Petrochemical Enterprise's No. 4 Fertilizer Plant, with HQCEC as the EPS

contractor, ran safely and smoothly, and reached their designed capacity

of urea production. In addition, we signed EPC contracts with Cuba on the

Cienfuegos refinery expanding project and a LNG project.

Pipeline and Storage Tank ConstructionAs the domestic leader in building and world leader in construction

technologies of onshore long-distance oil and gas pipelines, we have the

annual capacity to build 6,700-9,700 kilometers of pipeline with a diameter

larger than 711mm. In addition, we have the technological capacity to

design and construct 150,000 cubic meters of crude tank and 10,000

cubic meters of gas tank, and are capable of designing and building 26

million cubic meters of crude tanks and 16 million cubic meters of refined

products tanks annually.

In 2011, we put into operation the trunk and Xiangtan branch trunk of the

Eastern Section of the Second West-East Gas Pipeline, the Tai'an-Qingdao

pipeline as part of the Shandong Gas Pipeline Network, and Dalian-

Shenyang Gas Pipeline. Construction of Guangzhou-Shenzhen, Shanghai,

and Guangzhou-Nanning branch trunks of the Eastern Section of the

Second West-East Gas Pipeline, the Lanzhou-Chengdu Crude Pipeline, and

Changqing-Hohhot Gas Pipeline were well underway.

Some of our overseas construction projects were put into operation on

schedule. These included the export pipeline of Al-Ahdab Oilfield in Iraq, the

crude export pipelines of the upstream and downstream integrated projects

in Niger and Chad, the compressor station of the Central Asia-China Gas

Pipeline, and the upgrade of the western products pipeline as part of the

No. 4 pipeline in Kenya. The Abu Dhabi Crude Pipeline began trial operation.

Myitnge River spanning and Irrawaddy River crossing, the controlling works

of the Myanmar-China Oil and Gas Pipelines, were completed. Construction

of Line C of the Central Asia-China Gas Pipeline commenced. On November

23, 2011, CPPB and Thailand’s PTTEPI signed the EPCIC general contracting

contract on the Myanmar-Thailand Gas Pipeline.

We took advantage of the expertise and technologies in storage tank

construction of HQCEC, CPECC and CNPC Northeast Refining & Chemicals

Engineering Company Limited. Phase-I parts of both Jiangsu and Dalian

LNG projects were completed and put into operation. Jiangsu LNG Project,

which is independently designed, constructed, and operated by HQCEC,

has been the first large-scale LNG terminal project ever independently built

by any Chinese engineering company as a general contractor. CNPC made

its presence in the Oceania engineering and construction market for the

first time by concluding a memorandum regarding Gladstone Fisherman’s

Landing LNG in Australia.

49


Offshore EngineeringWe have the capacity to provide integrated and comprehensive support for

offshore production in 80m-deep waters. Our services include well drilling,

well completion, well cementing, production test, downhole operations,

design and construction of marine engineering, and vessel services.

In 2011, we spudded 44 wells and delivered 41 wells, with a total footage of

105,000 meters. We also provided downhole operations for 43 well-times,

formation testing in 20 layers, and acidizing and fracturing for 26 formation-

times. In well Chenghai-33 at Dagang Oilfield, our CPOE-10 rig completed

drilling at a depth of 3,977 meters by optimizing drilling parameters, strictly

controlling the process, and adjusting the drilling pressure, displacement,

and pump pressure in real-time. The fast and safe penetration was finished

with a drilling period of 36.5 days, construction period of 44.5 days, and

average penetration rate of 14.71 meters per hour. Plug drilling saw success

with an average footage of 10.01 meters per hour in a deep slim hole at

Bohai Bay.

The main part of our Tangshan production support base was put into trial

operation. The matching facilities of the Qingdao offshore engineering

construction base, which has the capacity to process 38,000 tons of steel

per year, saw smooth progress. Installation of the Shenzhen-Hong Kong

Seafloor Pipeline of the Second West-East Gas Pipeline was well underway.

The pipeline laying vessel CPOE-101 was in place.

CNPC has 39 large-scaled offshore equipment units, including 9 mobile

drilling platforms, 1 modular drilling and workover rig, 5 mobile production

test platforms, and a variety of 25 vessels. In 2011, our 23 vessels provided

transportation service for 6,100 steaming days.

CPOE-5 jack up rig

50


Petroleum Equipment ManufacturingPetroleum equipment manufacturing is an important part of CNPC’s core business.

With the continued reconstruction of our specialized units, the sector boasts improved

industrial concentration and professional level, provided by six major equipment

manufacturers, namely Baoji Oilfield Machinery Co., Ltd. (BOMCO), Baoji Petroleum Steel

Pipe Co., Ltd.(BSG), Bohai Equipment Manufacturing Co., Ltd. (BHEM), CNPC Jichai Power

Complex, Daqing Oilfield Equipment Manufacturing Co., Ltd., and Liaohe Petroleum

Equipment Manufacturing Corporation, in addition to one international trading firm —

China Petroleum Technology & Development Company (CPTDC). The competitive edge

of our core and flagship products has been further strengthened.

Our position as the technological leader in the field of petroleum pipes was consolidated

with the establishment of the State Research Center on the Engineering Technology

of Oil and Natural Gas Pipe Material at BSG. Our production of petroleum steel pipes

was made more reasonable. Petroleum steel pipe projects invested by BSG and BHEM

commenced and will build two petroleum steel pipe production lines in Xinjiang Uyghur

Autonomous Region. Our production capacity of high value-added and state-of-the-

art petroleum pipes was improved. A petroleum pipe production line was completed

and put into operation in Baoji, Shaanxi. The line can produce 200,000 tons of ERW

welding pipes per year and a complete production chain from pipe manufacturing to

downstream processing will be set up.

We intensified our R&D on new equipment and technologies to accommodate for

business development and market needs. The highly-reliable diesel engine was ready for

mass production, with its prototype running trouble-free for more than 5,000 hours after

first startup in an industrial test at Tarim Oilfield. A prototype of the snubbing equipment

was put into an industrial test. Progresses were obtained in the R&D of new technology of

high-steel-grade HFW oil pipes, and new products of X100 high-steel-grade longitudinal

submerged arc welded pipes and spiral submerged arc welded pipes, and X65/X70 steel

grade welded pipes for seafloor oil and gas transportation. The CP-300 jack-up rig of our

full and independent intellectual property was delivered to the customer. The rig can

operate at a max. water depth of 91.4 meters and drill up to 9,000 meters. Among of the

rigs independently designed by China, it is the one with the highest operating water depth

and widest adaptability of operating conditions.

In 2011, our petroleum equipment and materials were exported to 70 countries and

regions, taking a markable market share in central Asia-Russia, the Middle East,North

Africa and South America.

The export of our flagship products kept growth. In addition to increasing contract value

of long-distance pipeline, offshore engineering equipment, special pipe and drilling

rig, we doubled the export of conventional products including oil tube, line pipe, mud

pump, and wire line. The coiled tubings produced by BSG were sold to the Middle East

market. A 5,000m highly mobile desert drilling rig developed by BOMCO was delivered

to the user — UAE's National Drilling Co. (NDC). Recognizing the product, NDC renewed

the contract to purchases three more rigs of the same type. Leveraging its advantage

in technologies and brand, BOMCO established Bomcobras JV with Brazilian companies

BRCP and Asperbras. The JV will manufacture and assemble petroleum drilling rig

packages and provide technical services in Brazil and other South American countries.

51


Assembly line for highly flexible automated high-power engine at CNPC Jichai Power Complex

52

2011 Annual Report

2009 2010 2011

Current assets

Cash and cash equivalent 257,975.98 235,670.40 278,416.84

Tradable financial assets 564.20 1,431.72 3,064.12

Net bills and accounts receivable 63,389.14 88,233.81 101,809.68

Prepayments 38,412.29 37,657.95 51,975.03

Other accounts receivables 18,109.40 43,307.85 55,533.84

Inventories 188,526.43 227,676.04 314,589.98

Other current assets 47,505.64 40,940.08 81,823.48

Total current assets 614,483.08 674,917.85 887,212.97

Fixed assets

Available-for-sale financial assets 38,508.08 45,553.44 45,588.18

Held-to-maturity investments 125,210.98 160,513.86 138,700.62

Long-term equity investments 39,155.85 66,070.31 71,785.96

Fixed assets-net value 470,011.78 555,665.29 619,741.11

Construction in progress 258,150.89 284,671.93 319,252.25

Oil and gas assets 551,207.55 636,605.70 699,907.95

Intangible assets 40,954.66 47,721.77 60,451.37

Other fixed assets (other long-term assets) 83,922.14 158,236.11 185,235.83

Total fixed assets 1,607,121.93 1,955,038.41 2,140,663.27

Total Assets 2,221,605.01 2,629,956.26 3,027,876.24

Current liabilities

Short-term loans 31,931.15 60,943.52 92,165.76

Bills and accounts payable 219,829.48 286,325.64 327,909.64

Prepayments 40,545.11 57,032.51 73,298.16

Employee pay payable 26,264.18 23,130.42 23,164.33

Taxes payable 25,117.64 53,071.31 132,842.21

Other payables 70,108.08 82,353.68 92,315.83

Other current liabilities 125,326.03 157,953.82 241,099.04

Total current liabilities 539,121.67 720,810.90 982,794.97

Non-current liabilities

Long-term loans 43,069.83 34,393.32 29,671.92

Estimated liabilities 48,003.47 65,440.66 73,384.11

Deferred income tax liabilities 23,883.07 23,752.57 25,319.25

Other non-current liabilities 146,365.52 217,448.21 216,024.16

Total non-current liabilities 261,321.89 341,034.76 344,399.44

Total liabilities 800,443.56 1,061,845.66 1,327,194.41

Consolidated Balance Sheet million RMB yuan



53

2011 Annual Report

Consolidated Balance Sheet (continued)

2009 2010 2011Operating income 1,220,488.13 1,720,885.19 2,381,278.23

Income from core businesses 1,219,788.48 1,716,365.86 2,376,592.51

Income from other businesses 699.65 4,519.33 4,685.72

Less: Operating cost 778,764.31 1,154,873.26 1,716,446.20

Cost of core businesses 778,563.37 1,151,017.90 1,712,817.30

Cost of other businesses 200.94 3,855.36 3,628.90

Business tax and supertax 139,160.76 188,782.79 268,676.76

Sales expenses 53,848.23 63,531.85 61,139.91

Management expenses 90,724.85 101,427.99 120,923.24

Financial expenses 4,702.95 8,406.80 14,251.20

Loss on depreciation of assets 2,440.19 7,248.65 13,352.40

Others 22,791.93 27,140.64 26,460.65

Plus: Income from change in fair value (Loss is presented with "-") 101.15 -44.98 -67.21

Income from investments 7,441.11 12,844.91 21,735.59

Operating profit 135,597.17 182,273.14 181,696.25

Plus: Non-operating income 7,566.70 7,594.28 14,434.14

Less: Non-operating expense 14,743.57 17,210.44 14,406.35

Total profit 128,420.30 172,656.98 181,724.04

Less: Income tax expense 41,196.09 48,473.02 51,196.20

Net profit 87,224.21 124,183.96 130,527.84

Less: Loss and gain from minority 17,652.96 26,931.64 25,037.65

Net profit attributable to owners' equity of the parent company 69,571.26 97,252.32 105,490.19

2009 2010 2011

Owners equity

Paid-in capital 320,429.89 348,953.24 379,863.46

Capital reserves 270,562.90 267,207.03 261,852.85

Special reserves 23,230.89 26,645.64 32,442.96

Surplus reserves 115,838.40 749,117.88 841,139.89

Retained profits 552,514.46 13,129.06 14,241.18

Converted difference in Foreign Currency Statements -11,319.15 -10,517.80 -17,096.44

General risk preparation 635.88 1,117.06 1,480.42

Total owners' equity attributable to parent company 1,271,893.27 1,395,652.11 1,513,924.32

Minority interests 149,268.18 172,458.49 186,757.51

Total owners' equity 1,421,161.45 1,568,110.60 1,700,681.83

Total liabilities and owners' equity 2,221,605.01 2,629,956.26 3,027,876.24

Consolidated Profit Statement

million RMB yuan

million RMB yuan


54

2011 Annual Report

A. Description of Principal Accounting Policies and Accounting Estimates

1. Accounting standard and accounting system

Since January 1, 2007, CNPC (hereinafter referred to as the Company)

started to follow the Accounting Standard for Business Enterprises issued by

the Ministry of Finance in 2006.

2. Fiscal year

The fiscal year starts on January 1 and ends on December 31 each calendar year.

3. Standard accounting currency

The Company adopts RMB yuan as currency used in bookkeeping.

4. Accounting basis and valuation

Accounting is based on the accrual system. Unless otherwise specified, all

assets are measured at historical cost.

5. Foreign currency accounting and conversion

(1) Foreign currency transaction

Our foreign currency transactions are converted into RMB yuan at the spot

exchange rate on the days the transactions occurred; the monetary foreign

currency assets and liabilities on the balance sheet date are converted

into RMB yuan at the spot exchange rate on the balance sheet date. The

exchange gains and losses arising from these translations that occurred in

construction preparation, production and operation are taken into financial

expenses; those related to the acquisition and construction of fixed asset,

oil and gas asset and other assets in line with the capitalization condition

are handled according to relevant provisions about borrowing costs; and

those occurred in the period of liquidation are taken into liquidation gain

or loss.

A non-monetary foreign currency asset measured at historical cost is

converted into RMB yuan at the spot exchange rate on the trading day,

with its amount in RMB yuan unchanged. A non-monetary foreign currency

asset measured at fair value is converted into RMB yuan at the spot

exchange rate for the date when the faire value was determined, with the

difference thus caused taken into the current profits and losses as a change

in fair value.

(2) Conversion of financial statement in foreign currency

All asset and liability items presented in Foreign Currency Balance Sheet

are converted into RMB yuan at spot exchange rate on the balance sheet

date; the owner’s equity other than “undistributed profit” is converted

at spot exchange rate when occurred. Foreign incomes and expenses

presented in the Income Statement are converted at the mean value of the

reference rates for RMB published by PBC on a daily basis over the period

of time covered by the income statement. The exchange difference of

Foreign Currency Balance Sheet arising from the conversions mentioned

above is presented separately in “Converted Difference in Foreign Currency

Statement” under owner’s equity. The exchange difference arising from

monetary foreign currency items materially invested in foreign business

due to the change in exchange rate is also presented separately in owner’s

equity when preparing consolidated financial statements. When disposing

foreign business, the related exchange difference is carried, in proportion,

to the gains/ losses of the period the business is disposed.

The opening balances of cash and cash equivalents in the Foreign Currency

Cash Flow Statement are converted at statement’s initial exchange rate;

and the closing balances are converted at the spot exchange rate on the

balance sheet date. And other items are converted at the mean value of the

reference rates for RMB published by PBC on a daily basis over the period of

time covered by the cash flow statement. The converted difference of cash

flow statement arising from the conversions mentioned above is presented

separately in Effect of the Change of Exchange Rate on Cash.

6. Recognition of cash and cash equivalents

The cash presented in the Cash Flow Statement comprises cash in hand

and the deposits available for payment from time to time. Cash equivalents

presented in the Cash Flow Statement are short-term (mature within three

months), highly liquid investments that are readily convertible into cash

and almost have no risk of change in value.

7. Financial assets

(1) Financial assets are classified upon initial recognition into four categories:

financial assets at fair values through profit or loss, held-to-maturity

investments, loans, receivables, and available-for-sale financial assets.

(2) Recognition and measurement of financial assets

Financial assets are initially recognized at fair value. For financial assets at

fair value through profit or loss, the costs of acquisition are directly stated

in profit and loss accounts. Transaction costs of other financial assets are

initially recognized at fair value.

Financial assets at fair value through profit or loss and available-for-sale

financial assets are subsequently measured at fair value; the investments in

equity instruments that are not quoted in active market and its fair value

can not be measured reliably are measured at costs; loans, receivables and

Notes to the Financial Statements


55

2011 Annual Report

held-to-maturity investments are measured at amortized cost using the

effective interest method.

Changes in fair value of financial assets at fair value through profit or

loss are recorded in profit/loss on changes in fair value; interests or cash

dividends from the assets held are recognized as income from investment;

when disposed, the difference between its fair value and initially

recognized amount is recognized as gain/loss on investment, and its gain/

loss on changes in fair value are adjusted accordingly.

The held-to-maturity investments during the period of holding shall be

determined using the effective interest method and shall be recognized

as income from investment. The effective interest rate shall be determined

upon obtaining such investment and remain unchanged in the following

period. When disposed, the difference between the price of obtaining such

investment and its book value shall be determined as income from investment.

When recovering the loans and receivables or disposing of the loans, the

difference between the price of obtaining such investment and loan book

value shall be determined as the income statement.

Changes in fair value of available-for-sale financial assets are recorded

in owner's equity; interests are recorded in gains on investment using

the effective interest method; cash dividends of available-for-sale

investment in equity instruments are recorded in gains on investment

when invested enterprises announce to distribute dividends; when

disposed, the difference between acquisition cost and the carrying value is

recorded in gains from investment; meanwhile, the accumulative amount

of the changes in fair value originally recorded in owner’s equity and

corresponding to the disposition is carried into gains from investment.

(3) Impairment of financial assets

An assessment of carrying value of financial assets, except for financial

assets at fair value through profit or loss, is made at each term end to

determine whether there is objective evidence of impairment. If there

is an objective evidence of impairment of a financial asset, a provision

for impairment is recognized. For an impairment of financial assets held

at amortized cost, a provision for impairment is made at the difference

between the estimated discounted future cash flows from the asset

and the book value thereof. If there is any objective evidence proving

that the value of the said financial asset has been restored, and it is

objectively related to the events occurring after such loss is recognized,

the impairment-related losses as originally recognized shall be reversed

and be recorded into profits and losses of the current period. Where there

is a substantial or non-temporary decrease in fair value of available-for-

sale financial assets, the accumulated losses on decrease of fair value that

are directly recorded in owner’s equity before are recorded in losses on

impairment. For available-for-sale investment in debt instruments with

recognized loss on impairment, if its fair value is increased in a subsequent

period and the increase can be related objectively to an event occurring

after the impairment was recognized, the previously recognized loss on

impairment is reversed and recognized in the income statement. For

available-for-sale investment in equity instruments with recognized loss

on impairment, if its fair value is increased in a subsequent period and

the increase can be related objectively to an event occurring after the

impairment was recognized, the previously recognized loss on impairment

is reversed and recognized directly in the shareholder’s equity.

8. Inventories

(1) Categories of inventory: raw materials, work in progress and semi-

finished goods, finished goods, packing materials, low-value consumption

goods, goods sold, materials for consigned processing, engineering

construction (outstanding payment) etc.

(2) Inventories are carried at the actual cost when acquired, using perpetual

inventory method; actual cost of delivered or sold inventories are carried at

weighted average.

(3) Low-value consumption goods and packing materials are amortized

using one-off amortization method when they are put into use.

(4) Year-end inventories are carried at the lower of cost and net realizable

value. Based on wall-to-wall inventory at the end of the period, provision

for inventory write-down is retained at the difference between cost and net

realizable value of inventory on the individual item basis in the following

circumstances, where the net realizable value is lower than the cost. For

inventory of large quantity and low unit price, provision for inventory write-

down may be recognized by category. The net realizable value is expected

selling price less estimated complete cost, selling cost and related tax.

a. The market price of inventory continues to fall with no hope of recovery

in the foreseeable future;

b. The product using the raw material is manufactured at a cost higher than

the selling price thereof;

c. The existing raw material fails to meet the needs of new products as a

result of product upgrading and the market price of such raw material is

lower than its carrying cost;

d. The goods or services are obsolete or there is a preference-driven change

in market needs, resulting in a gradual decline in the market price thereof;

e. Other circumstances demonstrating a substantial impairment of inventory.


56

2011 Annual Report

9. Long-term equity investment

(1) Initial measurement of long-term equity investment

The assets paid, liabilities occurred or assumed and the fair value of the

equity securities issued on the purchase day for acquiring the control of

the purchased business are recognized as cost on combination. And the

cost on combination is recognized on the purchase day as initial cost of

investment in the long-term equity investment.

Except for the long-term equity investment obtained from combination of

business mentioned above, if a long-term equity investment is obtained

through payment of cash, payment of non-monetary assets or issue of

equity securities, its fair value is recognized as initial cost of long-term

equity investment; if a long-term equity investment is obtained from debt

reorganization, the fair value of the shares converted from financial claim

is recognized as the initial cost of investment to the debtor; if a long-term

equity investment is invested directly, the value agreed in investment

contract is recognized as initial cost of the investment, in the event that the

value agreed is unfair, the fair value of the equity invested is recognized as

initial cost of investment.

(2) Subsequent measurement of long-term equity investment

Investment in subsidiary is the equity investment in a business practically

controlled by the Company. The investment in subsidiary is recognized

using cost method, and is adjusted using equity method for the purpose of

consolidated financial statements.

Investment in joint venture is the equity investment in a mutual control on

a contracted commercial activity in which the sharing party agrees to share

the control on the significant financial, production and operating decisions

with the Company. The investment in joint venture is recognized using

equity method.

Investment in subsidiary is the equity investment in a business on which

the Company does significant influence. The investment in associate is

recognized using equity method.

Long-term equity investment that is not quoted in active market and with

undeterminable fair value and insignificant influence are recognized using

cost method. For the long-term equity investment quoted in active market

and with determinable fair value, if it is not quite influential, its fair value is

reported in available-for-sale financial assets, and the change in fair value is

taken into owner’s equity.

(3) Provision for depreciation of long-term equity investment

At the end of the year, the long-term equity investment is reviewed and

the provision for the depreciation of the long-term equity investment

is retained against the difference between the recoverable amount and

the carrying value. Recoverable amount of marketable long-term equity

investment is the market price of the investment less disposal expenses; if

a long-term equity investment is not marketable, but its fair value can be

measured reliably, the recoverable amount of the investment is determined

against the lower of its fair value less disposal expenses and the expected

current value of cash flows from holding and exposal of the investment in

the future. If a long-term equity investment is not marketable and its fair

value can not be measured reliably, its recoverable amount is determined

against the discount of its future cash flow at the market earnings ratio for

the similar financial assets.

For marketable long-term equity investment, depreciation is likely in the

following circumstances:

a. The market price has been lower than the carrying value in the past

two years;

b. The investment has been suspended of trading for more than one year;

c. The invested business suffered serious loss in the year;

d. The invested business has been running at a deficit in the past two years;

e. The invested business is in liquidation, reorganization or business

discontinuance.

For non-marketable long-term equity investment, depreciation is likely in

the following circumstances:

a. There is a change in the political or legal environment of the invested

business, such as an enactment of or amendment to the tax and trade

regulations, that may result in huge losses of the invested business;

b. The goods or services of the invested business are obsolete or there is a

change in market needs, resulting in a serious deterioration in the financial

conditions of the invested business;

c. The invested business has lost its competitive edge due to a major

technological change etc. in the sector, resulting in a serious deterioration

in the financial conditions of the invested business such as clean-up or

liquidation;

d. Other circumstances demonstrating a substantial failure of the invested

business to generate economic benefits for the company.


57

2011 Annual Report

10. Government subsidies

(1) Types of government subsidies

Government subsidies comprise mainly of treasury funding, interest

subsidies, tax rebates and free allocation of non-monetary assets etc.

(2) Acknowledgment of government subsidies

The company has acknowledged government subsidies that it is eligible

for and granted. Asset-related governmental subsidies are recognized as

asset and deferred income when received, and contributed averagely to

gains/losses of the period against the useful life of such asset. For a disposal

upon or before end of the useful life of such asset, the un-contributed

deferred income is carried into gains/losses of the period. Income-related

governmental subsidy used to recover related expenses or losses in the

subsequent period is recognized upon receiving as deferred income, and

is taken into the income statement of the period in which the related

expenses is recognized; those used to recover related expenses and losses

occurred in this period are directly recognized upon receiving as the gains/

losses of the current period.

11. Income tax

Income tax expenses are recognized using balance sheet debt method.

Asset and liability of the deferred income tax is based on the (temporary)

difference between the tax base of asset and liability and the carrying value

thereof.

B. Main Taxes

1. Income tax

The applicable tax rate for business income taxes of the Company is 25%.

2. Value added tax

Value added tax is set at 17% for petroleum and petrochemical products

and 13% for natural gas and LPG.

3. Operating tax

Operating tax is set at 3% for transportation and construction, and at 5%

for finance and insurance, service operations, transfer of intangible assets

and real estate sales.

4. Supertax

Urban tax is calculated and paid at 1% of turnover tax. Maintenance tax is

calculated and paid at 5% of turnover tax. Construction tax is calculated

and paid at 7% of turnover tax. Educational surtax is calculated and paid at

3% of turnover tax.

5. Excise tax

Tax payable is calculated at the rate of 1.0 yuan per liter for lead-free

gasoline, 0.8 yuan per liter for diesel, 1.0 yuan per liter for naphtha, solvent,

and lubricant, and 0.8 yuan per liter for fuel oil.

6. Personal income tax

The employees are responsible for their own income tax, which is withheld

and remitted by the Company.

7. Royalties

A value-based resource tax is imposed on crude oil and natural gas at a

rate of 5%. According to the Circular on Some Issues in the Reform of Resource

Tax on Crude Oil and Natural Gas (CS [2011] No.114), crude oil and natural

gas used for heating in on-site heavy oil transmission are exempt from

the resource tax; heavy oil, high pour point oil and acid gas enjoy 40% tax

reduction; EOR operations enjoy 30% tax reduction; low-abundance fields

enjoy 20% tax reduction on a temporary basis; and deepwater fields enjoy

30% tax reduction.


58

2011 Annual Report

JanuaryOn January 1, the Russia-China Crude Pipeline became operational.

On January 17, Jilin Oilfield celebrated its 50th anniversary. In 1961, Fuyu

Oilfield was established, marking the start of development of Jilin Oilfield.

On January 27, China Huanqiu Contracting & Engineering Corporation

(HQCEC) signed an equity aquisition framework agreement with Australia's

LNG Limited to acquire 19.9 percent of the total common shares of

Australia's LNG.

FebruaryOn February 22, CNPC inked an agreement in principal with KazMunaiGas

on the cooperation project at Urikhtau in Kazakhstan. According to the

agreement, the two sides will establish a joint venture on equal equities to

jointly develop the Urikhtau gas field.

MarchOn March 17, CNPC and Saudi Aramco signed a MOU on the refining

project in Yunnan and a supplemental agreement for the crude sales

agreement. According to the documents signed, the two parties will jointly

build a refinery in Yunnan and launch integrated cooperation in terms of

resources, processing and marketing.

On March 23, Tangshan LNG project was kicked off. The project consists of

three parts under a two-stage plan, i.e. a dock, receiving terminals and gas

pipelines. The project is expected to become operational in 2013 to serve

as a new source of natural gas supply to Beijing, Tianjin and Hebei.

On March 25, China's first horizontal shale gas well – Wei 201-H1 – in

the Weiyuan structure of the Sichuan Basin was successfully completed,

extending 1,079 meters horizontally after sinking vertically 2,823.48 meters.

Major Events

January 17

January 27

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2011 Annual Report

AprilOn April 4, CNPC and the Ministry of Energy of Myanmar signed a letter of

intent on building or upgrading local hospitals in Myanmar. According to

the letter of intent, CNPC will provide USD 6 million by stages to build or

upgrade local medical and educational facilities.

MayOn May 6, Zhou Yongkang, Member of the Standing Committee of

the Political Bureau of the CPC Central Committee and Secretary of

the Committee of Political and Legislative Affairs of the CPC Central

Committee, paid a visit to Tuha Oilfield.

On May 11, Zhang Dejiang, Member of the Political Bureau of the CPC Central

Committee, Vice Premier of the State Council visited Changqing Oilfield.

On May 24, Jiangsu LNG project was put into trial commission, with a

maximum unshipping capacity of 267,000 cubic meters per day. It is

CNPC’S first independently designed, built and operated LNG project.

On May 26, CNPC signed a MOU with Air China, Boeing and Honeywell's

UOP to evaluate and prepare for a biofuel trial flight in China. Under this

agreement, CNPC will provide the aviation biofuel for this trial flight.

JuneOn June 1, Li Yuanchao, Member of the Political Bureau of the CPC Central

Committee, Secretary of CCCPC Secretariat and Head of the Central

Organisation Department, paid a visit to CNPC Southeast Asia Pipeline Co., Ltd.

On June 5, CNPC and CUPET signed three cooperation documents,

including an expanded cooperative framework agreement between the

two state-owned oil companies and a MOU on cooperation in engineering

construction. According to the framework agreement and relevant

documents, the two sides will carry out extensive cooperation in exploring

and developing new onshore and offshore blocks in Cuba, reducing

operation costs and raising oil recovery in some producing oilfields and in

engineering construction.

April 4

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2011 Annual Report

On June 6, Xi Jinping, Member of the Standing Committee of the Political

Bureau of the CPC Central Committee and Vice President of China,

inspected the Cuba project of CNPC Great Wall Drilling Company.

On June 18, Wu Bangguo, Member of the Standing Committee of the

Political Bureau of the CPC Central Committee and Chairman of the NPC

Standing Committee, paid a visit to CNPC Urumqi Petrochemical Company.

On June 20, CNPC and Shell signed a global strategic cooperation

agreement and relevant documents concerning cooperation in Canadian

oil sands development, unconventional natural gas and oilfield services.

On June 21, the Al-Ahdab Oilfield in Iraq (phase-I) became operational

with a 3-million ton annual capacity. This is the first new oil project to start

production in Iraq over the past two decades.

On June 29, N'djamena Refinery, jointly funded by CNPC and Chad’s

Ministry of Petroleum, was completed and went on stream, marking the

full operation of the first phase of Chad's upstream and downstream

integrated project. As the second refinery independently designed and

constructed by CNPC overseas, N'djamena Refinery mainly produces

gasoline, diesel, fuel oil, LNG and polypropylene, etc.

On June 30, the trunk Second West-East Gas Pipeline was put into

operation. The natural gas introduced from Central Asia arrived at

Guangzhou off-take station.

JulyOn July 1, PetroChina Company Limited (PetroChina) and INEOS Group

Holdings plc (INEOS) completed the deal to form trading and refining Joint

Ventures between PetroChina International (London) Company Limited,

and INEOS Investments (Jersey) Limited. The joint ventures will mainly take

charge of trading and refining activities at the Grangemouth Refinery in

Scotland and the Lavéra Refinery in France.

On July 6, Wang Zhaoguo, Member of the Political Bureau of the CPC Central

Committee, Deputy Chairman of the NPC Standing Committee and All-

China Federation of Trade Unions President, paid a visit to Daqing Oilfield.

June 6

June 20

June 30

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2011 Annual Report

On July 9, Jia Qinglin, Member of the Standing Committee of the Political

Bureau of the CPC Central Committee and Chairman of the National

Committee of CPPCC, paid a visit to Jinli Petrochemical Company.

On July 10, Ningxia Petrochemical Company laid the foundation for its

450Kt/a synthetic ammonia and 800Kt/a urea projects, which are planned

to be operational in 2013.

On July 13, CNPC and ADNOC signed a principle agreement on crude oil

supply which will be effective for 20 years. Under the agreement, ADNOC

will provide additional quantities of crude oil to CNPC based on the

existing crude oil supply since 2014.

AugustOn August 13, Jia Qinglin, Member of the Standing Committee of the

Political Bureau of the CPC Central Committee and Chairman of the

National Committee of CPPCC, paid a visit to CNPC Baoji Petroleum Steel

Pipe Co., Ltd.

On August 18, CNPC and National Natural Science Foundation of China

(NSFC) signed an agreement to jointly establish a “United Petrochemical

Fund”. Under the agreement, CNPC will invest RMB 20 million per annum

in the next three years to provide financial support for thereotical research

and technological innovation in heavy oil refining/processing, new

materials and energy-efficent chemical processing.

On August 20, Li Yuanchao, Member of the Political Bureau of the CPC

Central Committee, Secretary of CCCPC Secretariat and Head of the Central

Organisation Department, paid a visit to Daqing Oilfield.

On August 24, CNPC and Ministry of Mineral Resources and Energy of

Mongolia signed a MOU for expanding petroleum cooperation. According

to the MOU, the two sides agreed to set up a steering committee to

coordinate significant matters occurring in cooperation.

On August 27, Li Changchun, Member of the Standing Committee of

the Political Bureau of the CPC Central Committee, paid a visit to Jilin

Petrochemical Company.

July 13

August 24

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2011 Annual Report

SeptemberOn September 6, the phase-II of Kazakhstan-China Gas Pipeline was kicked

off. The pipeline starts from Beyneu in Mangghystau and will meet the

Central Asia-China Gas Pipeline at Shymkent in South Kazakhstan. The

pipeline is designed with an annual capacity of 10 billion cubic meters,

which can be expanded to 15 billion cubic meters.

On Septembe 21, Wu Bangguo, Member of the Standing Committee of the

Political Bureau of the CPC Central Committee and Chairman of the NPC

Standing Committee, paid a visit to CNPC projects in Uzbekistan.

On September 21, CNPC and Uzbekneftegaz signed an agreement on

construction and operation of Line C of Central Asia-China Gas Pipeline. With

a designed capacity of 25 billion cubic meters per year, the 1,840 km-long

pipeline is running parallel with Line A and Line B of the Central Asia-China

Gas Pipeline.

On September 26, CNPC and KazMunaiGas signed an agreement on basic

principles regarding the design, financing, construction and operation of

Line C of Kazakhstan-China Gas Pipeline. It is expected to start gas delivery

in early 2014.

OctoberOn October 10, CNPC, Qatar Petroleum International and Shell (China)

Limited signed a cooperation framework agreement with Taizhou

Municipal Government, to jointly build a refining and petrochemical

complex with such materials as imported condensed oil in Taizhou,

Zhejiang province.

September 26

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2011 Annual Report

NovemberOn November 20, China’s first CP-300 jack-up offshore rig was put in use. A

proprietary innovation of CNPC Liaohe Oilfield Equipment Manufacturing

Corporation, the rig is intended for offshore exploration and development

in relatively shallow waters as deep as 90 meters and a maximum drilling

depth of 9,000 meters.

On November 28, a joint venture with the Ministry of Energy of Niger –

the Zinder Refinery – became operational, marking the completion of the

Phase-I Agadem upstream and downstream integrated project.

DecemberOn December 13, ground breaking ceremony for No.2 Gas Processing

Plant of the Amu Darya project was held in Turkmenistan, with a designed

capacity of 8 billion cubic meters per year.

On December 17, Dalian LNG Project (Phase-I) became operational to

supply natural gas to the Northeast and North China.

On December 27, Changqing Oilfield’s annual production went beyond

40 million tons of oil equivalent, making it the fastest-growing oilfield in China. December 13

December 17

Major Events

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2011 Annual Report

Proven reserves

According to China National Standards, proven reserves are estimated

quantities of mineral deposits. They can be recovered from reservoirs

proved by appraisal drilling during the period of reservoir evaluation, with

a reasonable certainty or a relative difference of no more than 20%.

Remaining recoverable reserves

Remaining recoverable reserves are the remaining portion of recoverable

reserves in an oil (gas) field (reservoir) which have been developed to a

certain stage. They are the recoverable reserves minus the volume of oil

(gas) that have been cumulatively extracted until that stage.

Reserve replacement ratio

The reserve replacement ratio refers to the value of the amount of oil

and gas reserves added in a year divided by the amount of oil and gas

produced during that same year. It can be further expressed in terms of the

oil reserve replacement ratio, gas reserve replacement ratio, and oil and gas

equivalent reserve replacement ratio.

Oil equivalent

Oil equivalent is the conversion coefficient by which the output of natural

gas is converted to that of crude oil by calorific value. In this report, the

coefficient is 1,255, i.e. 1,255 cubic meters of natural gas, is equivalent to

one metric ton of crude oil.

Recovery rate

The percentage of oil/gas in place that is recoverable from underground.

Decline rate

A decline in production occurs in an oil or gas field that has been

producing for a certain period of time. The natural decline rate is defined as

the negative relative change of production over a period of time, without

taking into account an increase in production resulting from EOR (enhanced

oil recovery) techniques. The general decline rate is defined as the rate

of decline in the actual production of such an oil or gas field, taking into

account an increase in production from the new wells and EOR techniques.

Water injection

The pressure of the reservoirs continues to drop after the oilfield has been

producing for a certain period of time. Water injection refers to the method

where water is injected back into the reservoir through the water injection

wells to raise and maintain the pressure, increase oil recovery, and thereby

stimulate production.

Tertiary recovery

Tertiary recovery is also called enhanced oil recovery and is abbreviated as

EOR. It is a method to increase the recovery of crude oil by injecting fluid

or heat to physically or chemically alter the oil viscosity or the interfacial

tension between the oil and another medium in the formation, in order to

displace any discontinuous or hard-to-tap oil in reservoirs. EOR methods

mainly include thermal recovery, chemical flooding and miscible flooding.

Polymer flooding

This is an EOR method by which a polymer solution is used as the agent to

displace oil. Polymer is injected to increase the viscosity of formation water,

changing the oil/water viscosity ratio and reducing the difference between

water flowability and oil flowability in the formation. This will increase the

swept volume of water flooding and thereby the oil displacement efficiency.

ASP flooding

A flooding system is prepared with alkali, surfactant and polymer. It not

only has a high viscosity but also can create ultra-low water-oil interfacial

tension to improve the oil-washing capability.

Redevelopment

It is a process to enhance the ultimate recovery of a mature field which

should have reached its limit or should have been abandoned with the

use of conventional primary-development techniques. The development

system of the oilfield is reconstructed by consolidating new concepts, and

using and developing new secondary recovery technologies.

LNG

Liquid Natural Gas is produced by dewatering, deacidifying, dehydrating

and fractionating the natural gas produced from a gas field and then

turning it into liquid under low temperatures and high pressure.

Processing loss rate

The percentage of the crude oil that is lost when it is processed. It

immediately determines the profitability of a refinery.

Glossary

Glossary

Planning: CNPC International Department

Editing: CNPC Research Institute of Economics & Technology

photographer: Guo Chao, He Bingyan, Jia Weiyuan,

Ma Yidong, Wang Hongyan, Wang Maohuan

Design: Beijing FineDesign Co., Ltd.

Printing: Beijng Duocai Printing Co., Ltd.

About this Report

In this report, the expressions "CNPC", "the corporation",

and "the company" are used for convenience where

references are made to China National Petroleum

Corporation in general. Likewise, the words "we", "us" and

"our" are also used to refer to China National Petroleum

Corporation in general or to those who work for it.

This report is presented in Chinese, English, Russian,

Spanish, and French. In case there is any divergence of

interpretation, the Chinese text shall prevail.

Recycled/recyclable paper are used for this annual report.

Horizontal well

A class of nonvertical wells where the wellbore axis is near horizontal

(within approximately 10 degrees of the horizontal), or fluctuating above

and below 90 degrees deviation. A horizontal well may produce at rates

several times greater than a vertical well, enhance recovery efficiency and

prolong the production cycle, due to the increased wellbore surface area

within the producing interval. Meanwhile, the environmental costs or land

use problems that may pertain in some situations, such as the aggregate

surface "footprint" of an oil or gas recovery operation, can be reduced by

the use of horizontal wells.

Underbalanced drilling

Underbalanced drilling is a well drilling technique in which the hydrostatic

pressure of the drilling fluid column is lower than the pore pressure in the

stratum. Formation fluid is allowed to flow into the well bore, circulate out,

and be controlled on the surface. It plays an important role in discovering

and protecting reservoirs.

EPC

Under an EPC contract, the contractor carries the project risk for quality

assurance, safety, schedule and budget within the scope of work, i.e.

engineering, procurement and construction.

PMC

Under a Project Management Contract (PMC), the contractor is authorized

by the project owner to be responsible for managing the whole process

comprising project planning, project definition, bidding, EPC contractor

selection, project design, procurement and construction.

HSE management system

The HSE management system provides a framework for managing all

aspects of health, safety and the environment. It is defined as the company

structure, responsibilities, practices, procedures, processes and resources

for implementing health, safety and environmental management.

Occupational diseases

A disease or ailment caused due to excessive exposure to noxious fumes or

substances in a working environment.

2011

China National Petroleum

Corporation 2011 Annual Report

9 Dongzhimen North Street, Dongcheng District, Beijing 100007, P. R. China www.cnpc.com.cn


0-cnpc annual report 2011

Documents

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