2012

China National Petroleum Corporation

Energize ∙ Harmonize ∙ Realize
Contents
Message from the Chairman 03
Top Management and Organization 04
Review of the Year 06
Safety, Environment, Quality and
Energy Conservation 08

Human Resources 12
Technology 16
Annual Business Overview 22
Financial Statements 46
Major Events 52
Glossary 56
2012 Annual Report

Operation Highlights
2010 2011 2012

Financial Index

Operating income (billion RMB yuan) 1,720.9 2,381.3 2,683.5

Total profit (billion RMB yuan) 172.7 181.7 183.9

Net profit (billion RMB yuan) 124.2 130.5 139.2

Tax payable (billion RMB yuan) 313.2 401.5 393.0

Oil and Gas Production

Oil production (mmt) 141.44 149.27 151.88

Domestic 105.41 107.54 110.33
Overseas (CNPC's share) 36.03 41.73 41.55

Gas production (bcm) 82.91 88.19 93.52

Domestic 72.53 75.62 79.86
Overseas (CNPC's share) 10.38 12.57 13.66

Refining, Chemicals and Sales

Crude runs (mmt) 160.08 179.62 191.45

Domestic 135.29 144.84 147.16
Overseas 24.79 34.78 44.29

Domestic refined products output (mmt) 86.33 93.00 96.38

Domestic lube oil output (mmt) 1.61 1.57 1.84

Domestic ethylene output (mmt) 3.62 3.47 3.69

Domestic refined products sales (mmt) 102.47 114.98 116.62

Domestic service stations 17,996 19,323 19,840

Pipeline

Oil and gas pipeline mileage (km) 57,328 61,417 67,858

Domestic 47,608 50,923 57,364
Overseas 9,720 10,494 10,494

Oil pipeline mileage (km) 20,705 21,479 23,041

Domestic 14,807 14,807 16,369
Overseas 5,898 6,672 6,672

Gas pipeline mileage (km) 36,623 39,938 44,817

Domestic 32,801 36,116 40,995
Overseas 3,822 3,822 3,822

02

Message from the Chairman
In the past year, CNPC was faced with many challenges as the world
economy experienced a deep transition, China’s economic growth
slowed and market demand changed. Adhering to the Scientific Outlook
on Development and pursuing a shift in the mode of development, we
accomplished our business plans and objectives for the year amid a tough
environment, reporting operating revenues of RMB 2.68 trillion, up 12.7%
from the previous year.
In 2012, with a strong commitment to business strategies on resources,
markets and internationalization, we enhanced our efforts in oil and gas
exploration, strengthening the reserve base for sustainable growth. Newly
proven reserves, oil and gas production, crude runs and oil and gas sales
continued to grow. CNPC became the world’s fourth-largest oil company
and ranked sixth on the Fortune Global 500, with an increasingly strong
presence in the global oil sector.
We continued to expand domestic and international markets, with a
strategic footing in maximizing, diversifying and orderly replacing resource
bases. In 2012, we achieved the biggest annual crude production growth
in recent years, a robust increase in both production and sales of natural
gas, optimized our refining business in terms of capacity building, resource
allocation and product portfolio, and made steady progress in pipeline
construction to support resource distribution and market supply. Our
overseas businesses grew steadily in both upstream and downstream
operations, with a more coordinated layout of exploration & production,
refining, and international trading businesses. Strategic cooperation with
resource countries and international oil companies was further deepened.
Message from the Chairman 2012 Annual Report
Our technical support capabilities continued to grow, benefiting from the
strong synergy across oilfield services, engineering & construction and
equipment manufacturing. In addition to safeguarding and expanding
state-owned assets, CNPC worked closely with private capital, social capital,
financial capital and international investors to make remarkable headway
in a number of projects, including the Third West-East Gas Pipeline,
Hongshan Oilfield, oil and gas exploration in northern Shaanxi and shale
gas development in Changning.
In view of the increasing complexity in exploration and development
activities, we strive to build a flexible and open R&D system to drive the
Company’s sustainable growth through technological innovation. In 2012,
we solved a number of technical bottlenecks in oil/gas field development,
and refining and petrochemical operations, further enhancing our
independent innovative capacity. It remained one of the Company’s top
priorities to provide employees with training in business management,
technological knowledge and operating skills. We continued to foster a
culturally diverse workforce and promote local employment in overseas
operations. Our employees have played an important role in sustaining the
Company’s growth.
Our safety policy was followed throughout business operations. Targeting
“Zero Defect, Zero Injury and Zero Pollution”, we continued to improve
our HSE management system and stepped up efforts in safety risk
control. A series of programs were carried out to share safety knowledge
and experience. In 2012, we saw continuous improvements in key
environmental indicators and no major HSE accidents were reported
throughout the Company. Meanwhile, we attached great importance to
energy conservation, boosting energy efficiency through ongoing R&D and
promotion of energy-saving technologies.
2013 is crucial for a good start to the 12th Five-Year Plan. Sticking to the
goal of “building CNPC into a world-class integrated international energy
company”, we will continue to increase resources, expand markets and
seek a greater international role. Emphasis will be given to technological
innovation, international cooperation, management enhancement and
HSE performance, in order to achieve sustained growth in oil and gas
production and improved profitability. We are committed to providing
more high-quality, clean energy to fuel socio-economic development,
safeguarding national energy security and contributing to the sound and
sustained growth of the national economy.
Zhou Jiping, Chairman
03
2012 Annual Report Top Management and Organization

Top Management and Organization

Zhou Jiping
Chairman

Li Xinhua Liao Yongyuan Wang Guoliang Wang Dongjin

Vice President Vice President Chief Financial Officer Vice President

Yu Baocai Wang Yongchun Shen Diancheng Wang Lixin

Vice President Vice President Vice President, Chief of Discipline &
Chief Safety Officer Inspection Group

04
 General Office
2012 Annual Report

05
Policy Research Office
Holding Companies
Planning Department
Finance & Assets Department
Top Management and Organization

Oil and Gas Fields

Human Resources Department
Budgeting Management Department
M & A Department Refining and Chemical Companies
China National Petroleum Corporation

Legal Department
HSE and Energy Conservation Department CNPC Oilfield Oilfield Service Companies
Service Company
Quality and Standard Management Department
R & D Department CNPC Engineering &
Construction Company Engineering & Construction Companies
IT Department
Procurement Department CNPC Manufacturing Manufacturing Companies
Company
International Department
Supervision Department Overseas Companies
Auditing Department
Corporate Management Department Research Institutions
Logistics Department
Corporate Culture Department Others
Retiree Affairs Department
2012 Annual Report Review of the Year

Review of the Year

Oil Prices in 2012

USD／bbI
130
Brent WTI
120

110

100

90

80
70
1 2 3 4 5 6 7 8 9 10 11 12

2012 saw a fragile recovery in the global economy and sluggish demand for
oil and gas, with international oil prices fluctuating widely and hovering at
high levels. As China’s economic growth slowed, there was a slowdown in
energy consumption growth. Faced with complex and challenging macro
dynamics, CNPC maintained rapid growth by leveraging its advantage in
integrated operations, optimizing production organization and focusing on
the quality and efficiency of growth in line with the strategies on resources,
markets and internationalization. We recorded a full-year operating income
of RMB 2.68 trillion, total profits of RMB 183.9 billion, and tax payable of
RMB 393 billion.
Oil and Gas Exploration: We stepped up efforts in preliminary prospecting and
risk exploration, focusing on natural gas and unconventional resources such as
tight oil, tight gas and shale gas, and obtained a number of major discoveries
in China’s Tarim, Sichuan, Junggar and Ordos basins. In 2012, the newly added
proven oil in place and gas in place were 711 million tons and 450.4 billion
cubic meters respectively, indicating a solid reserve base which exceeded 1 billion
tons of oil equivalent for the sixth consecutive year.
Oil and Gas Production: We strengthened production capacity building for
major projects in an effort to increasing daily output per well, and continued
to promote finely controlled water injection and fine reservoir description in
mature fields. In 2012, our domestic fields produced 110.33 million tons of
crude, representing an increment of more than 2 million tons for the third
consecutive year, and 79.86 billion cubic meters of natural gas, accounting
for 36.6% of the Company’s total production in terms of oil equivalent. In
particular, Daqing maintained its annual production at 40 million tons for
10 years in a row and Changqing produced more than 45 million tons of oil
equivalent, ranking first in China.
Refining and Chemicals: The resource allocation and products mix was
further optimized to ensure steady and balanced production, resulting in key
economic and technical indicators at record levels. In 2012, we processed
147 million tons of crude and produced 96.38 million tons of refined products,
up 1.6% and 3.6% year-on-year respectively. New progress was achieved in the
strategic adjustment of the layout of our refining capacity. A number of key
projects became operational, including Fushun Petrochemical’s refining and
ethylene project, Daqing Petrochemical’s ethylene upgrade/expansion project
and Hohhot Petrochemical’s refining project.
Marketing of Refined Products: In view of a slower growth rate in
domestic demand for oil products, we continued to improve product
offerings, focusing on our retail business and high value-added products.
The sales network was enhanced with a series of initiatives taken to
improve inventory management and sales of CNPC produced products,
enabling a rapid response to market changes. In 2012, we sold 117 million
tons of refined products, up 1.4% year-on-year. In particular, 86.73 million
tons were sold via retail outlets. Our miscellaneous refined products saw a
higher profitability level, with fuel oils and asphalts maintaining the leading
position and jet fuel taking a larger share of the domestic market.

06

Natural Gas: Our natural gas business continued to grow rapidly in terms
of both output and sales. With a focus on key regions and high-valve
markets along newly-operational pipelines such as the Second West-East
Gas Pipeline, we sold 97.3 billion cubic meters of natural gas in 2012, up
17.7% year-on-year. Construction of the backbone pipeline network was
accelerated to bolster natural gas supply. In particular, the Second West-
East Gas Pipeline has become operational and the Third West-East Gas
Pipeline project was launched.
International Operations: In 2012, our overseas projects produced 104 million
tons of oil equivalent, of which CNPC’s share was 52.43 million tons. The 5Mt/a
capacity building project in Iraq’s Halfaya Field, in partnership with Total, started
production and delivered crude oil ahead of schedule. The Al-Ahdab project
was running smoothly with an annual crude processing capacity of up
to 6 million tons. By signing a number of new agreements, we further
deepened strategic cooperation with host countries and international oil
companies. We obtained access to unconventional oil and gas in Canada and
offshore natural gas in Australia. Our international trade continued to expand,
with full-year trade volume standing at 305 million tons, up 22% year-on-year. The
three overseas oil and gas operation centers in Asia, Europe and the Americas
continued to be improved.
Oilfield Services, Engineering & Construction and Equipment Manufacturing:
We continued to build capabilities and competitive advantages in these
sectors. While keeping the largest share of the global onshore geophysical
Review of the Year 2012 Annual Report
prospecting market, we maintained strong momentum in deepwater
prospecting. Our EPC/PMC capabilities were further improved and well
recognized. Meanwhile, we pushed ahead with a structural shift in the
equipment manufacturing business to highlight high-end, environment-
friendly and tailored products. Additionally, our financial business segment
actively expanded financing sources to support business growth.
Technological Innovation: Significant R&D progress was made in our
exploration, production, refining and petrochemical sectors, overcoming a
number of technological barriers. In particular, “Key technologies for multi-stage
fracturing and stimulation in horizontal wells and their industrial application”
won the first prize of National Science and Technology Advancement.
The techniques used in tapping low-pressure, extremely low-permeability
reservoirs were further polished. The proprietary 600kt/a ethylene package
solution was successfully used to expand and upgrade existing ethylene units.
Oilfield service tools such as the G3i seismograph and three-parameter LWD
systems were launched. We also achieved considerable progress in the R&D of
nano-fluid as an oil displacement agent.
07
Safety, Environment, Quality and Energy Conservation
In 2012, CNPC continued to promote concepts underpinning a safe,
environment-friendly and resource-saving development. Throughout the
year, no major HSE incident was reported and the key environment
indicators continued to improve.
We established a new HSE institutional framework and launched
a comprehensive review of the HSE systems of 120 subsidiaries
to check and improve the effectiveness of our HSE management
mechanisms. We collected typical cases and effective practices of
our subsidiaries, and compiled programs to train HSE managers
and auditors.
As part of our ongoing efforts to improve social security management
and HSE management in international operations, we learned from the
industry’s best practices in risk monitoring and control and established
a regular mechanism for emergency response. Despite social unrest and
rising operational risks in some regions, we maintained a good track
record in security and HSE performance.
 Safety, Environment, Quality and Energy Conservation 2012 Annual Report

Operational safety
In 2012, we set up a multi-level risk prevention mechanism based on
different risk factors to strengthen control of safety and environmental
risks from the very beginning. We launched a new round of hidden risk
identification and correction initiative, focusing on oil and gas production,
refining, storage, transportation and distribution, to foster a long-term and
systematic mechanism in risk control. HAZOP was carried out to identify
and evaluate potential hazards in 304 projects as well as 255 installations
currently in operation. A series of risk management measures and tools,
including work permits, safety analysis before operation, energy isolation
and GPS-based vehicle navigation, were used to control risks in key areas
such as contractors’ operations and road transportation.
Ningxia Petrochemical
Maintains Operational Safety
for 12 Consecutive Years
Under the unified HSE management system of CNPC, Ningxia
Petrochemical supervises operational safety, environmental impact
and gas protection throughout the production process. Its HSE
department oversees every link in operations as well as corrective
action to ensure the whole production process is under control.

Accident management was further strengthened and sharing of information
and experiences was promoted to increase employees' safety awareness. An
investigation center was established to inquire into and analyze each accident
in detail. Educational videos were made based on the results of investigations
and shown to over 200,000 employees in 2012.
Aiming to enhance safety and environmental protection awareness among
managers, technicians and operators, the Company issued disciplinary code,
setting forth different types of disciplinary action and levels of responsibility
covering 20 aspects including design and procurement. The disciplinary code
is applicable to any employee who is responsible for a safety incident, fire or
environmental accident.
People are the most important element in ensuring operational safety.
Building safety awareness among employees is critical to achieve our
safety goals. At Ningxia Petrochemical, safety management teams
were formed at each frontline production unit to let every employee
know the importance of inherent safety management. So far, 35 units
of the company have passed the third-party audit on inherent safety
management.
As of the end of 2012, Ningxia Petrochemical has maintained
an excellent safety track record of 4,400 days, that is, 12 years of
accident-free operation.

Environmental Protection
In 2012, we implemented 74 emission reduction projects, including upgrading
of wastewater treatment and desulfurization of flue gas generated from
catalytic cracking units. Verifications were carried out to ensure the progress
and effectiveness of emission projects at key affiliated companies. A real-time
pollution source monitoring network was created, making it possible to report
environmental data and respond to early warnings in a timely manner.

In addition, the existing Technical Requirements for Prevention and Control

of Water Pollution during an Environmental Emergency were amended to
raise the risk control level in sensitive regions and ensure wastewater was
treated properly in case of an emergency.

09
2012 Annual Report Safety, Environment, Quality and Energy Conservation
Planting Trees to Foster
a Green Environment
Tree planting is an important way to increase forest cover, improve
the natural environment and achieve environmental sustainability.
In China, voluntary tree planting for afforestation and landscaping
purposes started in the 1980s.
Over the years, CNPC has encouraged voluntary tree planting among
employees at all levels. Member companies have developed their own
tree planting programs, setting forth the requirements on types of
trees, planting procedures, technical support and follow-up care.
In 2012, employees from Changqing Oilfield planted more than
600,000 trees and shrubs. Thirty-six tree planting programs were
carried out at Liaohe Oilfield. Lanzhou Petrochemical has actively
participated in tree planting in the hilly area of Lanzhou city for many
years, creating two tree farms with a forest coverage rate of up to
88% and providing an ideal place for fitness and recreation activities.
Ningxia Petrochemical raised forest coverage to more than 50%
at its Zhongwei carbon emission reduction base since the project
was launched in 2008. CNPC’s environmental initiatives were highly
recognized by the National Afforestation Committee. In March 2012,
Daqing Oilfield and Lanzhou Petrochemical received the title of
“Outstanding Homeland Afforestation Contribution Unit”.
10
Occupational Health
In 2012, adopting an integrated, prevention-oriented approach and in line
with the newly amended Law of the People's Republic of China on Prevention
and Control of Occupational Diseases, CNPC improved its occupational health
services, prevention and control measures against occupational health
hazards, and workplace health surveillance efforts to ensure a continuous
improvement in our ability to protect the safety and health of our employees.
93.5% of our employees received occupational health checks in 2012 and the
workplace occupational hazard detection rate remained 92.8%.
Special investigations were conducted on workplace noise and dust,
emphasizing the monitoring and protection at fields with relatively high
sulfur content and refining enterprises with high toxic risk. We continued
to deliver healthcare services to frontline workers, especially those
working in remote locations and harsh climate conditions. A mental health
management and training center was established to promote workplace
mental health.
Health management in international operations remained at the top of our
agenda. The Guide to Health Management for Overseas Projects was released,
specifying the procedures and requirements for protecting occupational
health, and the mental and physical health of our overseas employees. In
2012, in view of local climate and healthcare conditions where we operate,
we reinforced initiatives in disease prevention, dietetic hygiene, and mental
health counseling.
With the aim of promoting workplace mental health and improving the
work/life quality of employees in overseas projects, an employee assistance
program (EAP) was launched in 2008 to provide mental health counseling
and services for employees working on long-term assignment abroad and
their family members. After running for five years, the EAP has delivered
4,000 hours of counseling services for more than 3,400 people. In addition,
we sent psychotherapists to hold more than 30 counseling sessions in
six countries to help employees ease their mental stress. As part of this
ongoing program, mental health surveys and personal evaluations were
arranged. So far, we have collected more than 2,100 questionnaires and
developed a mental health model based on the analysis of the survey and
evaluation results to facilitate further assistance efforts.
 Safety, Environment, Quality and Energy Conservation 2012 Annual Report

Energy Eff iciency particular, 86 affiliates passed the third-party audit for quality management
system certification and all production companies had developed and
In 2012, Energy Performance Contracting (EPC) was implemented to received certification for their quality control systems.
ensure energy resources were utilized in an efficient and effective way.
We improved quality control measures, especially spot inspection of key
We established market-based energy conservation mechanisms mainly
products such as gasoline, diesel fuel and natural gas. In addition, we
in the form of EPC to promote conservation efforts and accelerate
implemented tighter quality standards for products from our suppliers,
project construction with continuously improving standards. Key energy
such as valves, pipes and instruments, as these products are essential to
conservation programs were further pushed ahead. A total of 101 projects
safety, environmental protection and engineering quality. In 2012, seven
were launched, including enhancing energy efficiency in mechanical
CNPC products including LSAW steel pipes were named famous brand
extraction systems, phasing out low-efficiency equipment, calibration
products by China Petroleum and Chemical Industry Federation. As part
and upgrading of measurement instruments, energy-saving renovation of
of efforts to enhance quality management in construction projects,
heating furnaces, and low-temperature thermal recycling. These projects,
CNPC issued Quality Management Manual for Construction Projects,
when completed, will reduce energy consumption by 420,000 tons of
clearly stipulating the management responsibilities, basic requirements,
standard coal equivalent.
process control, supervision and penalties related to project quality. We
Petrochemical is an industry which consumes a great deal of water. strengthened quality control and supervision over the entire engineering
Therefore, water conservation has been a top concern for CNPC. We have process including feasibility studies, primary design and post-assessment,
selected 60 energy/water conservation techniques to be applied across and emphasized the accountability of construction companies.
our production units. As a result, energy use and water use were reduced
In 2012, CNPC organized and participated in the formulation and
by 1.31 million tons of standard coal equivalent and 24.35 million cubic
amendment of 167 national and industry standards, and 168 enterprise
meters respectively in 2012.
standards. We undertook the job as the secretariat of ISO/TC263 (ISO
Technical Committee for Coalbed Methane) in 2011, and then hosted the
Quality Control first ISO/TC263 annual session in October 2012. Actively participating in
drawing up standards, CNPC is willing to promote the establishment of
We have a firm commitment to the values of honesty, trustworthiness and
the international CBM standard system and provide effective guidance
excellence in product quality. In 2012, we continued to build our quality
for technical progress, production and business management in the
management system and improve product quality. As of the end of 2012,
CBM sector.
123 affiliates have had their own quality management systems in place. In

Recovery of Rich Gas in Junggar Basin

Rich gas refers to the low-pressure and volatile gas by-produced in the development of
gas condensate reservoirs. Difficult to collect, rich gas used to be flared, causing waste
of resources and environmental pollution.

In some CNPC operated gas fields in the Junggar Basin, such as Kelameili and Mahe,
comprehensive study and analysis were conducted to find a technical solution to
address gas flaring, i.e., using an inverter to enable regulation of the output frequency
of compressors in response to the changes in pressure. This has facilitated the recovery
and utilization of rich gas.

Recovery and utilization of rich gas is currently possible in all of CNPC’s

uncompartmentalized gas fields in the Junggar Basin. A total of 18.09 million cubic
meters of rich gas can be recovered annually and delivered for domestic use. This
additional gas can meet the needs of 50,000 households, helping to ease the tight gas
supply in winter in northern Xinjiang.

11
Human Resources
At CNPC, we always put people first with a firm commitment to
inclusiveness, equality, mutual trust and cooperation in the workplace,
encouraging our employees to display their talents. We operate in
compliance with the applicable laws and regulations on human
resources. It is our goal to provide an ideal career development platform
for all employees and create a human resource management system
in line with our vision of building CNPC into a world leading integrated
international energy company.
We have a comprehensive employee compensation and benefits
system in place and continue to improve it. EVA (economic value
added) measurement and performance review are designed and finely
tuned in order to allow a differentiated approach in employee appraisal
based on the Company’s overall business objectives and the conditions of
a specific business unit, thus making employee appraisal more targeted
and effective. We also continue to optimize the income distribution
mechanism, highlighting the role of compensation as both an incentive
and a restraint.
CNPC upholds the principles of openness, fairness, competition and
meritocracy in selecting and recruiting the right people from internal and
external channels. In 2012, we recruited 10,588 college graduates and
 Human Resources 2012 Annual Report

appointed 150 corporate senior technical experts. As of the end of 2012, we have had 17 academicians of
the Chinese Academy of Sciences and the Chinese Academy of Engineering, 320 senior technical experts,
100 management experts, 322 senior skilled experts, 3,714 senior technicians and 24,029 technicians.

We give priority to employee training and offer a range of training programs to improve the skill levels of
our staff in a variety of ways, such as job-specific training, remote education and skill competitions. In 2012,
we launched 142 training programs with up to 20,000 trainees. To foster competitiveness and innovation
capacity, lectures and hands-on trainings on exploration & development, refining & petrochemicals,
natural gas and pipelines, oilfield services, engineering and construction were provided to more
than 1,500 professional technicians. Key training centers and bases were well equipped to enhance
the effectiveness of the training. In addition to delivering training sessions to mid-level and high-
level executives on a regular basis, a remote training platform was used to provide various training
courses. Statistics show that more than 940,000 employees have received training through the
e-learning platform, with a daily average of 471 employees learning online.

Meanwhile, skill competitions have played an active role in promoting knowledge sharing and
enhancing skill levels. In 2012, skill competitions were held in welding, downhole operation, drilling
fluid preparation, synthetic ammonia plant operation and instrument repair. In national industrial
skill competitions, three CNPC employees won the title of "National Technical Experts" and four CNPC
employees were named "Technical Experts of SOEs" under central government.

An assessment system for highly skilled talents and experts has taken shape and a number of studios
named after technical experts and skill masters are being set up. In 2012, five skill master studios were
newly established, namely Ren Xiangcai Studio and Liu Yongqing Studio at Daqing Oilfield, Liang
Dongping Studio at Changqing Oilfield, Zhao Linyuan Studio at Fushun Petrochemical and Cui Qifu
Studio at Liaoyang Petrochemical. We also encourage our employees to sharpen up their skills by taking
part in various skill competitions at home and abroad. Four young welders from CNPC participated in
the "ARC Cup Welding Contest" and won the first place as a team. Sun Qingxian, an expert in ethylene
plant operations, received the 11th China Skills Award.

Overseas HR Management and Local Employment

To sustain the rapid growth of our international business, we attach great importance to overseas
human resource development and management in line with our vision of building CNPC into an
integrated international energy company. We continue to promote local employment and talent
diversification, striving to create a communicative, cooperative and harmonious atmosphere in our
overseas enterprises.

A series of initiatives have been taken to enhance the training of high-level executives needed
for international operations, including language training courses (Arabic and Spanish etc.),
advanced management and technology training programs in Canada, visiting scholar programs
to Stanford University and the University of Texas at Austin, and the EMBA program at the
University of Houston. In 2012, 227 high-level executives received training in 17 training sessions
held at home and abroad.

The Company has been pushing ahead with local hiring, creating job opportunities for the local
communities where we operate. Meanwhile, we provide a range of training programs in the form of
setting up training centers, providing technical exchange and on-campus courses to build up the

13
2012 Annual Report Human Resources

knowledge and skills of local employees. As of the end of 2012, foreign Most of these trainees have become skilled workers, with some standing
employees accounted for more than 90% of our total overseas headcount. out as technical managers. In Iraq, Daqing Oilfield Company has set up an
integrated training center to provide the Iraqi employees with a wide range
We place great emphasis on training talents for the oil industry in host
of training courses on drilling, business management, HSE management,
countries. To that end, we provide a range of training opportunities for
language and culture etc. These training courses help employees from
local management and technology professionals, as well as educational
different cultural backgrounds understand each other better while
opportunities for local youth who desire to work in the oil industry. In 2012,
enhancing their skill levels. Local employees said the training center will
the Company once again provided the Education Ministry of Kazakhstan
play an important role in building operation skills as well as in fostering a
with supporting 15 Kazakh students to take master’s degree programs
sense of responsibility.
in China. In addition, under a training agreement with the Ministry of
Petroleum and Mining of South Sudan, we will provide two short-term
training programs for local management and technology professionals
and fund three local students to receive higher education in China every
year from 2012 to 2014. Under the training agreement, we arranged a two-
week training trip to China in 2012 for 20 local management and technology
professionals sent by South Sudan’s Ministry of Petroleum and Mining. During
their stay in China, the trainees visited Daqing and Changqing oilfield to
learn about oilfield development experiences. Three students from South
Sudan were selected to attend China University of Petroleum to major in
petroleum-related disciplines.

To help local employees build the right set of skills required for a specific
job, we encourage our overseas subsidiaries to set up training centers in
host countries. In Turkmenistan, Chuanqing Drilling Engineering Company
has established the Surface Engineering Skills Training Center to provide
training courses on welding, oxy-fuel cutting and engineering machinery
etc. The training center has trained 3,850 local employees since 2010.

Local Employee Training in Myanmar

CNPC Southeast Asia Pipeline Company designed and launched
training programs for local employees in order to ensure smooth
operation, management and logistics of the pipelines once the
project goes on stream.

The training program is comprised of three phases, i.e. learning

professional skills at the University of Yangon, Myanmar; taking
Chinese language, English language and pipeline management
courses at Southwest Petroleum University, China; and getting
hands-on experience at CNPC’s pipeline transport stations. So far,
we have trained the first batch of 60 employees from Myanmar.

14
人力资源
Technology
2012 saw our continued efforts in technological innovation, focusing on
solutions to key technical bottlenecks constraining the development of
our core businesses. With boosted capacity in independent innovation
and technical competitiveness, we achieved sound growth in oil and
gas operations.
Oil and Gas Exploration: We innovated seismic data acquisition
technology featuring high-density wide-azimuth observation and
pre-stack depth migration, and made breakthroughs in boosting
drilling speed in ultra-deep and complex formations in mountainous
areas. All of these have effectively guided natural gas exploration in
the Tarim Basin.
Improved understanding of reservoir-forming theory for deltas in inland
lake basins helped us identify a number of new oil and gas fields in western
China, further consolidating our resource base.
Progress was made in molecular geochemical tracing and identifying
of complex oil/gas reservoir forming, providing technical support
to some major discoveries in deep, marine-facies carbonates and
unconventional formations.
Oil/Gas Field Development: Matching technologies for potential release
and EOR by chemical flooding in the ultra-high-water-cut period delivered
remarkable results in field tests and applications, helping Daqing to
maintain stable production.

Technical packages for the development of ultra-low permeability
reservoirs have been improved and major breakthroughs were made in
horizontal well drilling, completion and staged fracturing, resulting in
much higher output per individual well in Changqing Oilfield.
Supporting technologies for tapping ultra heavy oil in Xinjiang’s Fengcheng
Field were improved and saw favorable field test results, enabling large-scale
development of this hard-to-tap resource.
In Jilin Oilfield, years of study and tests have resulted in a series of matching
technologies for CO2 gas field development, carbon emission reduction,
EOR by CO2 flooding and underground storage of CO2 .
Refining and Chemicals: We made new progress in the R&D of inferior
heavy oil processing techniques and saw their profitable application at our
petrochemical companies in Liaohe, Karamay and Guangdong.
A breakthrough was achieved in cracking catalysts development, the
hydrocracking catalysts were successfully put into industrial application for
the first time, and a major step forward was made in the R&D of a family of
refining catalysts, significantly facilitating the upgrading of our oil products.
We successfully developed a technical package for 10Mt/a atmospheric-
vacuum distillation units and put it into use at Sichuan Petrochemical. The
technical package for 600kt/a ethylene units was successfully applied in
the 1.2Mt/a upgrade/expansion ethylene project at Daqing Petrochemical.
We also developed China's first all-in-one technical solution for 450kt/a
synthetic ammonia and 800kt/a urea production with natural gas as feedstock
and applied it at the fertilizer plant of Ningxia Petrochemical.
Oilfield Services and Equipment Manufacturing: We achieved continued
progress in the design and manufacturing of offshore drilling rigs, as demonstrated
by the launching of the construction of our first 400-feet jack-up rig.
Technology for boosting drilling speed saw remarkable performance in
Kuqa mountain front in the Tarim Basin. By using precise PCD (pressure
controlled drilling) technology, the penetration rate was dramatically
increased in drilling the fractured carbonate strata in Tazhong Oilfield.
Our matching technologies for multi-stage fracturing with coiled tubing in
horizontal wells supported the development of unconventional hydrocarbons.
The 15000-channel G3i seismograph and the remote detecting acoustic
reflection imaging logging unit were developed and widely used.
To improve identification of sweet spots, large-area joint pre-stack time migration
and 3D seismic data acquisition and processing in ultra-large complex surface
areas were adopted, resulting in the establishment of an integrated high-precision,
full-3D digital Qikou sag. This has helped expand our reserve base.
Key equipment was developed for natural gas pipelines and X80 large
deformation-resistant welded pipes. Technical know-how and equipment
for natural gas liquefaction became available domestically, and was
Technology 2012 Annual Report
applied at LNG projects at Ansai City in Shaanxi Province and Tai’an City in
Shandong Province.
HSE and Energy Conservation: A boiler technology has been developed in
which wastewater from thermal recovery of heavy oil can be recycled without
the need to remove SiO2 , thereby chemical costs and sludge generation can be
reduced greatly. The promotion of energy system optimization technologies
in the refining sector resulted in significant energy saving. Four series of
technologies for the treatment of oil-containing sludge took shape, namely,
fuel conversion and incineration of heavy oil sludge; tempering and centrifugal
dewatering of chemical flooding sludge; chemical washing of ground oily
sludge; and pyrolysis and carbonization of refining-generated waste. We also
developed technologies for sludge-to-solid fuel and co-firing with coal, which
have been applied in Liaohe Oilfield and greatly facilitated the bio-safety
disposal of sludge and its recycling use.
In 2012, we continued to improve our S&T foundation platforms. The Key Lab
of Underground Oil and Gas Storage and other projects under construction
were promoted as planned. The platform for CO2 flooding & underground
storage and well logging outfits were listed as China's Energy Innovation
Development Projects. The Pilot Test Base for Development of High-Sulfur-
Content Gas Reservoirs was elevated to a state-level R&D (test) center. By the
end of 2012, CNPC had 15 state-level key labs/research centers.
We actively promoted S&T communication and cooperation with research
institutes and universities at home and abroad, and national and international
oil companies in the domains of oil and gas exploration and development,
refining and chemicals, and oilfield services. We also participated in activities
organized by NOC, IEF, IGU, AAPG, SEG, and SPE to provide us with more
opportunities for scientific and technological cooperation.
In 2012, we applied for 4,011 patents (including 1,605 invention patents)
and were granted 2,998 (692 of which were invention patents). In addition,
123 Know-hows were recognized and 47 software copyrights were
registered. Five of our scientific and technological achievements won the
National Science and Technology Advancement Award, of which "Key
technologies for multi-stage fracturing and stimulation in horizontal wells
and their industrial application" won the first prize, and "Major discovery
in metamorphic rocks and the efficient development technologies",
"Development and industrial application of high-end internal combustion
engine oil compounds", "Technologies and industrial application of ultra-
high-temperature drilling fluids", and "Technologies of tower plates
featuring high-flux and efficient 3D mass transfer and their application for
energy conservation in chemical production" won second prizes.
17
2012 Annual Report Technology
Molecular geochemical tracing of complex oil/gas
reservoir forming
This technology developed by CNPC Research Institute of Petroleum
Exploration and Development (RIPED) addresses the difficulty in predicting
hydrocarbon properties and understanding their enrichment levels and
distribution laws in the key exploration areas of China, such as deep and
ultra-deep, and carbonate and unconventional reservoirs. It has provided a
theoretical basis for quantitative evaluation of the potential of multi-source
hydrocarbon accumulation, dynamic tracing of hydrocarbon generation-
migration-accumulation processes and related secondary changes, and
effective prediction of the properties of major formations and hydrocarbon
fluids. It involves four technology series, i.e. using monomers and isotopes
of hopanes and steranes as indicators, tracing of nitrogen compounds,
dating of monomers and inclusions, and using adamantanes to indicate
secondary changes in the accumulation process. The corresponding
system of evaluation parameters that is created enables the identification
of accumulation factors such as kerogen degradation on the high-/post-
mature stage, gas from oil and residual bitumen cracking, and the period of
complex hydrocarbon migration, accumulation, and forming.
It has played an important role in theoretical studies on multi-stage
hydrocarbon accumulation and late-stage transformation in marine, karst
and reef reservoirs, large-scale gas generation, migration and accumulation
mechanism in the late-stage deep reservoirs of the Kuqa depression,
abundance, near-source charging and continuous accumulation of
unconventional resources including shale gas and tight oil/gas, as well as
in discoveries in the exploration of deep and ultra-deep, carbonates and
unconventional resources.
Theories and technologies for marine carbonates exploration
We have established hydrocarbon accumulating theories focusing on
large scale gas generation in the high and post-mature stage due to liquid
hydrocarbon retention in source rocks, bedding/inter-bed karstification
mechanisms, and assemblage patterns. Meanwhile, exploration
technologies based on quantitative description of fracture-cave reservoirs
and identification of reservoirs and fluids have been developed, expanding
the resource potential of carbonates and improving the accuracy of
reservoir prediction and the success rate of exploration wells.
These theories and technologies have facilitated exploration activities in
the Tazhong, Halahatang, Gucheng, Anyue, Longgang, and West Jingbian
areas, resulting in breakthrough discoveries and a significant increase in
reserves in the exploration of marine carbonates.
Exploration and development technologies for low-
pressure and ultra-low permeability reservoirs
Changqing Oilfield Company developed a series of exploration and
development theories and techniques for low-pressure and ultra-low
permeability reservoirs and identified new sedimentation models such
18
as outflowing shallow delta and deepwater sandy debris flow, to help
discover large oilfields including Jiyuan and Huaqing, despite the widely
held view that it was unlikely to find large oilfields in the central part of
inland lake basins.
The techniques support single-well production appraisal and water-
flooding dynamic predication in ultra-low permeability reservoirs, with
the prediction accuracy increasing from 70% to 90%.
A quick productivity prediction/appraisal system based on log data is
developed for ultra-low permeability reservoirs, with the coincidence
rate increasing by more than 15%.
Innovative techniques such as fine description of fractured ultra-low
permeability reservoirs, separate layer advanced water injection, and
integrated profile control have contributed to an increase of 7% in water
drive swept volume, 1.5% in recovery efficiency and 10% in waterflood
producing reserves.
A series of technologies have come into being, including screening
of abundance zones and well-siting in tight and heterogeneous
gas reservoirs, designing of horizontal development well pattern
and trajectory, and dynamic tracking and prediction in ultra-low
permeability reservoirs, effective and massive development of
reservoirs by horizontal wells, and multi-cluster, multi-stage and
multi-fracture fracturing of horizontal wells in ultra-low permeability
reservoirs. In addition, innovative surface processing and standard
construction procedures have been introduced.
Development technologies for ultra-deep and ultra-high
pressure condensate gas reservoirs
Tarim Oilfield Company achieved a breakthrough in tapping ultra-deep,
ultra-high pressure condensate gas fields, delivering a range of techniques,
including integrated fracture evaluation and prediction; precise modeling
for fractured, low porosity and ultra-low permeability reservoirs with a
sparse well pattern; bottomhole pressure calculation, digital well testing
and productivity appraisal for fractured, stress-sensitive condensate gas
reservoirs; well drilling and completion for low-permeability, fractured and
ultra-high pressure condensate gas reservoirs; and cable-based testing for
ultra-deep, ultra-high pressure condensate gas reservoirs.
The concept of double-barrel perforation gun was introduced for the
first time in China to develop Ø127mm high temperature, ultra-high
pressure, full-bore perforator and matching tools. In addition, a high-
temperature acidification inhibitor for super 13Cr tubing was designed
and manufactured and the standard processing flow for high pressure
condensate gas was developed.

This series of techniques enables the efficient development of Dina-2 gas
field and facilitates the development and building of ultra-deep, ultra-high
pressure gas fields such as Dabei and Keshen.
High-density wide-azimuth seismic techniques for complex
mountainous areas
These techniques developed by BGP and Qinghai Oilfield Company adopt
a “field + indoor” noise suppression approach, and are in line with three
basic rules, i.e. first-arrival time error less than a quarter of the valid signal
period, non-aliasing line interval, and cut-off frequency attenuation of a
valid signal less than 3 dB. They lead to high precision geographic data-based
irregular 3D seismic acquisition in complex mountainous areas, efficient
implementation in mountainous areas, marker-based integrated static
correction in shallow layers, and 3D seismic data processing focusing on
pre-stack noise suppression.
High-quality migrated image data has been obtained, using a wide-
azimuth surveying system with 468 folds (max), high source line density,
24 receiver lines, and an aspect ratio of 0.7 or higher. This data helped
identify Yingdong-1 Structure and technically supported the discovery
of the 100-million-ton Yingdong Oilfield.
Technologies and equipment for ultra-deep well drilling
CNPC Drilling Research Institute, Bohai Drilling Engineering Company and
Tarim Oilfield Company developed a series of mission-critical technologies
and equipment for ultra-deep well drilling.
A streamlined and optimized casing program solves difficulties caused
by the coexistence of multi longitudinal pressure strata series, mass
gravel layers and high-pressure saline layers in ultra-deep well drilling,
resulting in a higher target encounter rate.
Innovative organic salts, temperature-tolerant drilling fluids and
new oil-based mud help tackle challenges such as long-section
mudstone necking and salt-gypsum bed creepage occurring
in ultra-deep wells, significantly reducing accidents caused by
complex downhole conditions.
Automatic vertical drilling prevents deviation and ensures fast drilling
in high-steep structures.
Gas-based underbalanced drilling techniques remarkably boost drilling
efficiency in the upper strata and increase the discovery rate in deep
strata in ultra-deep wells.
High-efficiency rock breaking techniques allow for a faster
penetration rate in deeper strata, thus reducing the drilling period
of ultra-deep wells.
Technology 2012 Annual Report
Cementing techniques in huge temperature differences effectively
improve the long-section cementing quality of deep wells, leading to
prolonged wellbore life.
Pressure controlled drilling (PCD) techniques solve the problem caused
by the narrow density window in ultra-deep wells.
The ZJ-5850 8000-meter rig was developed, reducing drilling costs
while safeguarding production.
Imaging logging tools
The imaging logging tools independently developed by CNPC Logging
includes micro-resistivity scanning series and array induction series.
These tools are used in combination with precise image processing and
interpretation techniques.
With technological breakthroughs in self-adaptive plates and in a
dynamic resistivity measurement range as wide as 10,000 ohm-meters,
micro-resistivity scanners feature a working temperature/pressure
of 175 oC/140 MPa at maximum, and have been successfully used in
7,000m-deep wells at Tarim Oilfield.
Array induction tools with a highly reliable coil system and fast
synthetic focusing capabilities have replaced dual induction logging
devices, and perform well in quantitative saturation evaluation of low
porosity, low permeability reservoirs. With innovative mechanical and
software combined focusing and monitoring in addition to multi-
frequency nanovolt-scale measurements, the array lateral logging unit
provides information about lateral formation resistivity with a vertical
resolution of 0.3m.
Through a unified high-speed transmission interface, quick integration of
array induction tools with conventional tools, or micro-resistivity scanners
with array acoustic instruments is possible, to achieve much more efficient
logging and cost-saving exploration and development.
By the end of 2012, 240 imaging logging units had been used more than
6,800 well-times at more than a dozen oilfields including Changqing,
Qinghai and Tarim, resulting in an average 5% increase in reservoir
identification accuracy.
19
2012 Annual Report Technology

Technologies and equipment for high-grade steel, high-pressure,

large diameter and long distance pipelines
We made breakthroughs in the R&D of technologies and equipment for high-grade steel,
high-pressure, large diameter and long-distance pipelines. The fracture control approach
for X80 steel pipes has been worked out, marking an important technological advance
in China’s long distance, large diameter gas pipelines in three aspects, i.e. material
science, transportation and construction. A series of engineering techniques for X80
steel long-distance pipelines with a working pressure of 12 MPa have been developed.
X80 steel pipes have been made for the first time in China. The first two 20-megawatt
electric compressor units have been developed for industrial application testing; the first
30-megawatt fuel-driven compressor unit was developed; and the first 30 40”/48” high
pressure, large diameter fully welded ball valves (600lb and 900lb) have been developed.
These products have been used in the Second and the Third West-East Gas Pipelines and
greatly reduced construction costs.

Hydrocracking catalysts
Hydrocracking is the process whereby distillates are converted into China V clean-
burning diesel and 3# jet fuel with a sulfur content of less than 10μg/g. Its tail oil is a high-
quality feedstock for ethylene cracking and the production of lube base oil.

CNPC Petrochemical Research Institute has enabled the modification of DAY zeolites
through organic coordination, DQ-35 zeolite synthesis in concentrated systems,
composition of carrier materials, and preparation of hydrocracking catalysts. With
these key technologies, challenges faced in the coordination between hydrotreating
and cracking have been addressed. Hydrocracking catalyst PHC-03 which has
been developed boasts stable activity, a wide choice of medium oil, and excellent
isomerization. A test for industrial application was conducted in the 1.2Mt/a hydrocracker
at Daqing Petrochemical in 2012. The test delivered satisfactory products, with a yield
rate approximately 3% higher for diesel and jet fuel, a 5oC+ decrease in the condensation
point of diesel, and a drop in BMCI value of tail oil by 2.

Package of technologies for large ethylene plants

After years of research, China Huanqiu Contracting & Engineering Corp independently
developed an industrial solution for large-scale ethylene units. The solution addresses a
number of technical issues, including expression of a large amount of unidentified petroleum
distillates in the quench system, calculation of stress in relation to pyrolysis gas in the cracking
furnace and thermal expansion of ultra-high pressure steam piping, and binary interaction
parameters of quantum gases such as hydrogen. Models were created for C2 hydrogenation
and C3 hydrogenation and major breakthroughs were made in cracking, dielectric and cold
box technologies. In 2012, the solution was applied to a newly built 600kt/a ethylene unit at
Daqing Petrochemical and the unit yielded qualified products.

20
Ethylene unit at Daqing Petrochemical
Annual Business Overview

In the past year, the Company maintained a focus on oil and gas operations and
leveraged its integrated business approach to ensure fast and steady growth in
production and revenue, with key business indicators within expectations and
operating results remaining robust as a whole.
 Annual Business Overview 2012 Annual Report

Exploration and Production

In 2012, we continued to strengthen oil and gas operations and maintained
steady growth in proven reserves and production. A number of important
discoveries were made in China’s major petroliferous basins, heralding a
boom in reserve growth. Meanwhile, oil and gas production grew steadily
in our main oil and gas fields.
developments in lithologic reservoir exploration in Fushan Depression
of the Beibu Gulf Basin.
In addition, we made 14 major achievements in Jiyuan and Huaqing of the
Ordos Basin, Keshen and Tabei of the Tarim Basin, Lukeqin of the Turpan-Hami
Basin and Mabei Slope of the Junggar Basin.

Exploration
In 2012, our domestic exploration resulted in newly proven oil and gas in
place of 711 million tons and 450.4 billion cubic meters respectively, and
proven oil and gas reserves exceeding 1 billion tons of oil equivalent for
the sixth consecutive year. A large part of the newly proven reserves are
Newly proven oil in place Newly proven gas in place
entrapped in low-permeability, lithologic, low-abundance and medium- (Domestic) (Domestic)
to-deep reservoirs, which however, are relatively producible thanks to
715.12 570.10
formation integrity, massive scale and certainty of reserves. The reserve 711.00

replacement ratio remained above 100%. 655.77

487.90
450.40

Major Discoveries
New exploration breakthroughs were made in the Tarim, Sichuan, Ordos,
Junggar and Qaidam basins, including a major natural gas discovery in
Kuqa Depression of Tarim Basin, new progress in carbonatite exploration
in Tadong, an enriched gas accumulation identified in the Cambrian
strata in Sichuan Basin, tight oil discoveries in Junggar Basin, favorable 2010 2011 2012 2010 2011 2012
(mmt) (bcm)
prospects in Liaohe Depression of the Bohai Bay Basin, and new

Reserves and operating data (Domestic)

2010 2011 2012

Newly proven oil in place (mmt) 655.77 715.12 711.00

Newly proven gas in place (bcm) 570.10 487.90 450.40

2D seismic (kilometers) 31,023 33,912 23,987

3D seismic (square kilometers) 13,463 12,954 16,105

Exploration wells 1,640 1,794 1,898

Preliminary prospecting wells 949 1,020 1,190

Appraisal wells 691 774 708

23
2012 Annual Report Annual Business Overview
Development and Production
In 2012, our domestic oil and gas production was steady and balanced.
With a focus on key capacity expansion projects, innovative techniques and
processes such as multi-stage fracturing of horizontal wells were widely
used to boost per-well flow rates and economic benefits.
We achieved production capacity increments of 16.16 million tons for crude
oil and 15.11 billion cubic meters for natural gas. Throughout the year, we
produced 173.97 million tons of oil equivalent, up 3.7% year-on-year.
Crude Oil
In 2012, we continued to promote finely controlled water injection, take a
series of measures to enhance per-well output at matured fields and boost
production growth at new fields. The full-year domestic crude output
reached 110.33 million tons, 2.6% higher than the previous year.
Daqing Oilfield maintained steady production at 40 million tons
for 10 consecutive years through finely controlled water injection
and efficient polymer flooding. Both the natural decline rate and
the composite decline rate of water flooding decreased by 2%
from the 2009 levels. Production by tertiary recovery, mainly polymer
flooding, accounted for about one-third of the field’s total output. At
Changqing Oilfield, an integrated approach was used in the exploration
and development of Sulige Gas Field and ultra-low permeability oil
reservoirs, boosting full-year oil and gas production to 45.74 million tons of
oil equivalent.
Waterflood Control Campaign
To enhance the oil recovery of mature fields, CNPC continued to implement
a comprehensive development approach based on finely controlled water
injection since 2009. By introducing separate layer waterflood, adjusting
the development well pattern and carrying out pilot tests in key blocks,
the production structure was further optimized, with more reserves
being producible and maturing wells accounting for a greater share of
the total output. In 2012, the natural decline rate of our mature fields was
0.35% lower year-on-year, with the rise in water cut less than 0.5% and
Crude production Natural gas production
(Domestic) (Domestic)
110.33 79.86
107.54
105.41
75.62
72.53
2010 2011 2012 2010 2011 2012
(mmt) (bcm)
24
waterflood-enabled producing reserves accounting for more than 80% of
the Company’s total production.
Daqing Oilfield continued to unlock potential oil production through
finely controlled water injection, keeping the natural decline rate and
the composite decline rate of its major field at Changyuan at 5.41% and
2.86% respectively. At Liaohe Oilfield, the temperature of injected water
was adjusted and combined water+gas/chemical agent injection was
adopted, depending on fault block types, hydrocarbon properties and
reservoir characteristics. As a result, 35 waterflooded blocks in the field saw
enhanced oil displacement efficiency and 6.5% higher thin oil production
than the previous year.
Development of Ultra-low Permeability Reservoirs
In 2012, Changqing Oilfield produced 7 million tons of crude oil from ultra-
low permeability reservoirs which accounted for nearly one-third of its total
crude production. At Jilin Oilfield, with ultra-low permeability formations
becoming major pay zones, the Daqingzijing Block was selected to be a
demonstration project where maturing well reviews and horizontal drilling
were deployed, identifying significant reserves. Meanwhile, SRV-based
horizontal fracturing was successfully used in the Qianbei-Putaohua Block,
leading to an obvious increase in the production rate.
Heavy Oil Production
A range of heavy oil development projects were carried out at Xinjiang,
Liaohe and Tuha oilfields, with progress achieved in technological
R&D and production capacity building. Fengcheng Oilfield, located
at the northwestern edge of the Junggar Basin, has the largest
uncompartmentalized heavy oil reservoir in China. SAGD and pilot fireflood
have been conducted there since 2005, resulting in a number of innovative
technologies such as electric ignition, air injection and fireflood yield
monitoring, as well as some matching techniques. In 2012, Fengcheng
Oilfield achieved capacity growth amounting to 1.63 million tons.
Fireflood was also successfully used at Liaohe Oilfield, tripling its heavy oil
production compared with the conventional approach. In particular, seven
well groups under a pilot fireflood test saw a surge in daily yield from
16 tons to more than 100 tons.
Pilot Development
We launched a number of research programs and pilot tests to enhance
development efficiency in high water cut, low permeability and heavy
oil reservoirs. In 2012, EOR methods for mature fields were studied and
tested at Daqing, Xinjiang and Liaohe oilfields, gaining satisfactory results.
Polymer flooding test in Qidong-1 Block of Xinjiang Oilfield resulted in 12%
growth in recovery efficiency, making it ready for commercial application.
ASP flooding methods were tested at Daqing Oilfield. In particular, strong-
base ASP flooding showed a 19% increase in its recovery factor while weak-
base ASP flooding showed a 24% increase in its recovery factor, providing
an important replacement technology to maintain stable production at

Changyuan Oilfield. Meanwhile, polymer-surfactant flooding methods were
tested at Jin-16 Block of Liaohe Oilfield, raising the daily output 2.7 times and
reducing the total water cut by 7.2%, marking the successful utilization of a
non-alkaline flooding system in developing fields with a high water-cut and a
high recovery percent of reserves.
Natural Gas
In 2012, our domestic natural gas production reached 79.86 billion cubic
meters, up 5.6% year-on-year. Changqing produced 29 billion cubic meters of
natural gas. In particular, Sulige Gas Field achieved a daily output of 49.7 million
cubic meters, with an annual production of up to 21 billion cubic meters.
Tarim Oilfield produced 19.3 billion cubic meters of natural gas, ensuring a
reliable source of supply for the West-East Gas Pipelines. Southwest Oil and
Gas Field took measures to boost the production capacity of new blocks,
yielding 13.2 billion cubic meters throughout the year.
Phase III Project of Changling Gas Field
As part of the Jilin Oilfield, Changling Gas Field is the first CNPC operated
high-CO2 gas field in China. The gas field has been developed in three phases.
The first and second phase projects became operational in 2009 and 2010
respectively. In October 2012, the third phase project, mainly including
gathering systems, processing installations, auxiliary facilities, and public
utilities, was put into operation. Consequently, Changling Gas Field is capable
of processing 2 billion cubic meters of natural gas on a yearly basis to support
natural gas consumption in Jilin.
Exploration and Development of Unconventional
Oil and Gas
CNPC attaches great importance to the exploration and development of
CBM, shale gas, tight gas and other unconventional hydrocarbon resources.
Annual Business Overview 2012 Annual Report
We continue to push ahead with the construction of CBM industrial bases,
speed up shale gas demonstration projects, and promote the development
of tight sandstone gas.
CBM
Our CBM production capacity continued to grow in Qinshui Basin and the
eastern edge of Ordos Basin. In 2012, we newly proved 78.8 billion cubic
meters of CBM in place, built an additional 1.35 billion cubic meters of
production capacity, and supplied 600 million cubic meters of commercial
CBM, an increase of 42.9% year-on-year.
Important progress was made in building CBM production capacity. A
0.9bcm/a project went on stream in Zhengzhuang Block of Qinshui Basin.
Mass CBM reserves were identified in the Baode Block, with the thickness of
major coal seams larger than 11 meters.
Shale Gas
In 2012, we continued our efforts in the R&D and application of new
technologies for shale gas exploration and development, and achieved
breakthroughs in resource evaluation and SRV-based horizontal fracturing,
facilitating the building of two shale gas demonstration zones at Weiyuan-
Changning in Sichuan and Zhaotong in Yunnan respectively.
Throughout the year, nine vertical wells and two horizontal wells were
drilled, with fracturing operations being conducted in seven of them,
yielding 17.25 million cubic meters of commercial shale gas. Several wells
at the Weiyuan-Changning Block obtained high yields. In particular, Well
Ning 201-H1 produced at a daily rate of 150,000 cubic meters, showing the
promising prospects of this block.
Shale gas development in Changning
25
2012 Annual Report Annual Business Overview

Joint Exploration and Development in China

As authorized by the Chinese government, CNPC works with international South Sulige Natural Gas Project
partners to explore and develop oil and gas resources in China. Most of
South Sulige Block is located in the Ordos Basin, covering an area of
the joint projects concern low-permeability reservoirs, heavy oil, tidal and
2,392 square kilometers. Total is our partner in the project and CNPC is
shallow water zones, sour gas, high-temperature and high-pressure gas
the operator. In 2012, favorable results were achieved in the preparation
reservoirs, CBM and shale gas.
for development, as evidenced by satisfactory per-well output obtained
By the end of 2012, we had 35 joint exploration and development projects during the production test.
in operation, including 15 conventional crude oil projects, 10 conventional
gas projects and 10 CBM projects. In addition, two joint evaluation Jinqiu Natural Gas Project
agreements are currently in effect. These projects produced 4.11 million Jinqiu Block covers an area of 4,068 square kilometers in the Sichuan Basin.
tons of crude oil and 4.22 billion cubic meters of natural gas, which totaled Shell Group is our partner and the operator of the project. In 2012, 14 wells
7.47 million tons of oil equivalent, up 6.3% year-on-year. were drilled and 11 were completed at this block, showing favorable potential
for tight gas development.
Executive Summary of Major Projects
Fushun-Yongchuan Shale Gas Project
Changbei Natural Gas Project
Fushun-Yongchuan Block covers an area of 3,500 square kilometers in the
Changbei Block is located in the Ordos Basin, covering an area of 1,691 square
Sichuan Basin. Shell Group is our partner and the operator of the project.
kilometers. Shell Group is our partner and the operator of the project. In 2012,
In 2012, commercial shale gas flows were obtained from four horizontal
the project was running smoothly, producing 3.55 billion cubic meters of
wells at the block, showing a promising resource potential. In particular,
natural gas from 33 horizontal wells, of which 20 wells had a daily flow rate
Well Yang 201-H2, completed at a depth of 4,544m, produced at a daily
above 1 million cubic meters during the initial stage.
rate of 430,000 cubic meters at the initial stage of production test, making
it China’s most productive shale gas well.
Zhaodong Oilfield Project
Zhaodong Block is located in the tidal and shallow water zone of the Bohai
Bay Basin, covering an area of 77 square kilometers. Australia's Roc Oil
(Bohai) is our partner and the operator of the project. In 2012, the block
produced 1.04 million tons of crude oil, with the annual output exceeding
1 million tons for the ninth consecutive year. Since its start, the project
has produced more than 10 million tons of crude oil and 77 million cubic
meters of natural gas.

Operation at Zhaodong Block

26

Natural Gas and Pipelines
In 2012, our natural gas operations and sales revenues continued
to grow. The trunk and eight branches of the Second West-East Gas
Pipeline became operational and a diversified-source, well distributed
and centralized controlled nationwide pipeline network has taken
shape, further enhancing our market deliverability. We sold 97.3 billion
cubic meters of natural gas in 2012.
By the end of 2012, we operated 66,801 kilometers of pipeline in China,
including 16,369 kilometers for crude oil, 40,995 kilometers for natural gas,
and 9,437 kilometers for refined products, about 67%, 77%, and 48% of
China’s total respectively.
Operation and Control
In 2012, based on the principle of “operating in a stable, balanced, efficient
and controlled manner”, our pipeline operations were further optimized
through centralized management, coordinated resource configuration
and balanced allocation. PetroChina Southwest Pipeline Company was
established to take charge of pipeline operation and pipeline gas and
refined product distribution in Southwest China.
Collective measures were taken to ensure stable gas supply to the
domestic market, especially in key regions and during peak seasons,
including boosting gas production in major gas fields, importing more
pipeline gas, and increasing LNG purchases.
Crude pipeline mileage Natural gas pipeline mileage
in the nation's total in the nation's total
67% 77%
Annual Business Overview 2012 Annual Report
Underground Gas Storages
In 2012, we extracted more gas from our underground gas storages
in Dagang, Huabei and Jintan to meet the needs of seasonal/daily
peak shaving.
The main underground facilities of the Shuang-6 gas storage were
completed at Liaohe Oilfield. The gas storage is expected to be completed
in 2013 and will deliver natural gas to the Qinhuangdao-Shenyang pipeline
and the Dalian-Shenyang pipeline during the peak period. Xiangguosi gas
storage is ready for gas injection and is expected to become operational by
the end of 2013.
Storage and Transportation Facilities
In 2012, we commenced the construction of the Third West-East Gas Pipeline
and the Jinzhou-Zhengzhou Refined Product Pipeline. A number of pipeline
projects were completed and became operational, including the Second West-
East Gas Pipeline, Shandong Gas Pipeline Network, Changqing-Hohhot Crude
Pipeline, Dushanzi-Urumqi Crude Pipeline, Rizhao-Dongming Crude Pipeline,
and Fengcheng Heavy Oil Pipeline in Xinjiang.
The Second West-East Gas Pipeline
The Second West-East Gas Pipeline, comprising one trunk and eight
branches in a total length of 8,704 kilometers, runs from Horgos
in Xinjiang—where it joins the Central Asia-China Gas Pipeline—to
Shanghai in East China and Guangzhou and Hong Kong in South China.
The project was divided into two parts, i.e. the 2,461km-long western
section from Horgos to Zhongwei which became operational in December
2009, and the 2,517km-long eastern section from Zhongwei to Guangzhou
which went on stream in June 2011.
The pipeline was fully operational at the end of 2012, connecting with
more than 20 inland and cross-border pipelines to form a 40,000km-long
pipeline network with gas supply covering 28 provinces, municipalities and
autonomous regions, as well as Hong Kong SAR.
The Third West-East Gas Pipeline
The Third West-East Gas Pipeline, including one trunk and eight branches,
will run from Horgos in Xinjiang to Fuzhou in Fujian via Zhongwei in
Ningxia, with a total length of 7,378 kilometers. As part of the project, three
gas storages and one LNG station will be built. The 5,220km-long trunk line
has a designed pipe diameter of 1,016-1,219 mm, pipe pressure of 10-12 MPa
and an annual delivery capacity of 30 billion cubic meters.
Launched in October 2012, the project is divided into three parts, i.e.
the western section from Horgos to Zhongwei, the central section from
Zhongwei to Ji’an in Jiangxi and the eastern section from Ji’an to Fuzhou.
The three sections are expected to be operational at the end of 2013, by
2015 and 2014 respectively.
27
2012 Annual Report Annual Business Overview

After its completion, the Third West-East Gas Pipeline, together with
the First and Second pipelines, will increase the share of natural gas in
China’s primary energy consumption by more than 2%, facilitate emission
reduction efforts and bolster socio-economic development in the adjacent
regions along the pipelines.

Zhongwei-Guiyang Gas Pipeline

Linking Zhongwei in Ningxia with Guiyang in Guizhou, the pipeline runs
1,613 kilometers through Gansu, Shaanxi, Sichuan and Chongqing, with a
pipe diameter of 1,016 mm, designed pressure of 10 MPa and an annual
delivery capacity of 15 billion cubic meters.

The project was launched in 2011. The Zhongwei-Tongliang section was

completed at the end of 2012. The Tongliang-Guiyang section is expected
to become operational in 2013. After its completion, the pipeline will join
the Sichuan-Chongqing natural gas pipeline network and the West-East
pipeline network to deliver natural gas from Central Asia and Xinjiang to
the natural gas market in Southwest China.

Dushanzi-Urumqi Crude Pipeline

The 231km-long pipeline runs from Dushanzi—where the Alashankou-Dushanzi
Crude Pipeline ends—to Wangjiagou in Urumqi, with a pipe diameter of
610 millimeters, a designed pressure of 8-12 MPa and an annual delivery
capacity of 10 million tons. In December 2012, the pipeline was put into
operation to further optimize the structure of crude oil transportation in
Northwest China.
Changqing-Hohhot Crude Pipeline
The 578km-long pipeline runs from Yulin in Shaanxi to Hohhot in Inner
Mongolia, with a pipe diameter of 457 millimeters, designed pressure of
6.3-8 MPa and an annual delivery capacity of 5 million tons. The project
was launched in June 2011 and completed in October 2012. Connecting
Changqing Oilfield and Hohhot Petrochemical, the pipeline helps to create
a flexible crude oil transportation network for the Changqing Oilfield while
providing a reliable source of crude oil for Hohhot Petrochemical.
Jinzhou-Zhengzhou Refined Products Pipeline
The pipeline runs from Jinzhou in Liaoning to Zhengzhou in Henan, with
a total length of 1,636 kilometers, designed pressure of 8-10 MPa and
an annual delivery capacity of 13 million tons. It will join the Lanzhou-
Zhengzhou-Changsha Refined Products Pipeline to further expand the
existing refined products network, optimize the allocation of refined
products in northeast and east-central regions and alleviate tight supplies
in the northern and central areas of China. Launched in August 2012, the
project is expected to become operational in 2014.
“Global Pipeline Award” Winner
Established by the Pipeline Systems Division of ASME in
2005, the“Global Pipeline Award” is presented annually to
the organization that has been responsible for the most
outstanding innovations and technological advances in the
field of pipeline engineering for that year. At the International
Pipeline Conference 2012, PetroChina Pipeline Company won
the GPA for the"Application of Inline Inspection Technology and
Feature Assessment for Spiral Weld Defects in Pipeline Integrity
Management", making PetroChina the first GPA winner from
Asia’s pipeline transportation sector.
"Application of Inline Inspection Technology and Feature
Assessment for Spiral Weld Defects in Pipeline Integrity
Management"provides an innovative approach to detect and
characterize spiral weld flaws such as lack of
fusion and incomplete welds, and enables the
assessment of the size and impact of weld
defects. Successfully used in a number of
pipelines including the Tieling-Qinhuangdao
Pipeline and the Qinhuangdao-Beijing
Pipeline for the inspection and assessment
of spiral weld defects, the technology will be
introduced into the integrity management
system of new pipelines.

28

Natural gas Utilization and Marketing
In 2012, we maintained strong momentum in natural gas market development.
The eastern section of the Second West-East Gas Pipeline and the Shandong
Natural Gas Pipeline Network started to deliver natural gas to 33 new users. The
Company expanded its gas distribution reach to Guangxi and Hong Kong, with
its pipeline network covering 29 provinces, municipalities and autonomous
regions. Throughout the year, we sold 97.3 billion cubic meters of natural gas,
an increase of 17.7% year-on-year.
Our natural gas utilization business was managed in a more professional
and regulated manner with a focus on market coverage and growth
efficiency. The Company enjoyed a rising share of the urban gas market
and the CNG market, seeing a shift in market development from extensive
management to economies of scale. Urban gas distribution networks were
constructed and operated through cooperation with local enterprises to
receive natural gas supplied by trunk pipelines. The urban gas distribution
network projects in Yunnan, Hunan, Guangdong, Liaoning and Tianjin were
well underway.
Liquefied Natural Gas (LNG)
In 2012, the LNG terminals in Jiangsu and Dalian maintained steady
operation, playing an effective role in peak shaving and providing
emergency supplies. Significant progress was made in expanding the LNG
market and substantial advancement was made in the “substitution of
natural gas for oil” program.
LNG projects
Jiangsu LNG Project
The project includes a dedicated dock, receiving terminals and a sea-
crossing pipeline for unloading, storage and regasification of imported LNG
which will then be supplied to the Yangtze River Delta and the neighboring
Annual Business Overview 2012 Annual Report
areas through pipelines and LNG tank trucks. Phase-I has an annual
receiving capacity of 3.5 million tons and an annual gas delivery capacity
of 4.8 billion cubic meters. Since becoming commercially operational in
November 2011, the phase-I project has unloaded 3.5 million tons of LNG
and delivered 4.86 billion cubic meters of natural gas, playing an important
role in supporting energy supply in the Yangtze River Delta region.
Dalian LNG Project
Phase-I of the project has an annual receiving capacity of 3 million tons and
a gas delivery capacity of 4.2 billion cubic meters per year. The LNG terminal
is connected to the Northeast Natural Gas Pipeline Network to deliver natural
gas to users in Northeast China. Becoming operational in December 2011, the
phase-I project unloaded 1.5 million tons of LNG and delivered 1.93 billion
cubic meters of natural gas in 2012.
LNG Marketing
To support the “substitution of natural gas for oil” program, we have taken
a series of initiatives to expand the LNG customer base and push forward a
number of LNG plant projects in Shandong, Shaanxi and Hubei provinces.
In particular, the Ansai project in Shaanxi is in operation as China’s largest
natural gas liquefication plant. Meanwhile, we work in partnership with
local enterprises in Beijing, Jilin and Chongqing to promote the use of
LNG as a fuel for cars and vessels. In addition, we have made remarkable
progress in the building of LNG filling stations.
Jiangsu LNG Project
29
2012 Annual Report Annual Business Overview

Refining and Chemicals

In 2012, in response to market changes and in line with the growth the Guangdong petrochemical project, a Sino-Venezuelan joint venture.
efficiency principle, we continued to lead in the yields of light oil, The integrated refining/petrochemical complex at Sichuan Petrochemical
ethylene and diene by optimizing resource allocation and our product was basically completed. The sour crude oil processing plant at Guangxi
portfolio, enhancing production management and maintaining Petrochemical, the 10Mt/a refining plant at Huabei Petrochemical
balanced and steady operations. and a number of high-grade gasoline projects, including one at Jinxi
Petrochemical, were well underway.
In China, we processed 147.16 million tons of crude oil and produced
96.38 million tons of refined products, up 1.6% and 3.6% year-on-year
respectively. Refining technologies were further improved to upgrade
Guangdong Petrochemical’s 20Mt/a Heavy Oil
the quality of our oil products. As a result, there was a significant year-on-
Processing Project
year increase in the output of high-grade gasoline and jet fuel, taking our The project is a joint venture between CNPC and PDVSA of Venezuela.
product offerings to the next level. Managed and operated under a shareholding system, the project
represents the first downstream project under the integrated energy
We also stepped up marketing efforts for chemicals. The stock level was
cooperation agreement between China and Venezuela.
reduced through optimizing production plans, expanding exports and
promoting specialty products. The amount of major marketable chemicals Launched in April 2012, the project is expected to be fully operational by
reached 22.64 million tons, up 8.6% year-on-year. In particular, ethylene the end of 2014. CNPC’s proprietary delayed coking technology will be
output was 3.69 million tons. used to process extra heavy oil from Venezuela. The produced gasoline,
diesel fuel and jet fuel products will be in compliance with the Euro IV
emission standards, or even the Euro V standards. After its completion,
Construction of Large Refining Bases there will be an integrated refining/petrochemical complex in East
In 2012, our major refining and chemical projects were pushed forward steadily Guangdong to form a complete petrochemical business chain.
with an improved structure and distribution. The 10Mt/a refining +1Mt/a
ethylene project at Fushun Petrochemical, the 5Mt/a refinery expansion and
upgrading project at Hohhot Petrochemical and the 1.2Mt/a ethylene expansion
Refining and chemicals operating data (Domestic)
and upgrading project at Daqing Petrochemical went on stream as scheduled.
A number of petrochemical projects also became operational, including the 2010 2011 2012
300kt/a polypropylene plant (Phase-II) at Daqing Refinery, the 400kt/a ABS
Crude runs (mmt) 135.29 144.84 147.16
plant (Phase-I) and 320kt/a styrene plant at Jilin Petrochemical, the diesel
hydrogenation unit and delayed coking unit at Karamay Petrochemical, Utilization rate of refining units (%) 91.3 91.3 89.5
the continuous reforming unit at Liaohe Petrochemical and the delayed
Refine products output (mmt) 86.33 93.00 96.38
coking unit at Jinzhou Petrochemical. In addition, construction started at
Gasoline 26.76 28.89 31.00

Kerosene 3.66 3.68 4.78

Crude runs (Domestic) Refined products output (Domestic)
Diesel 55.91 60.43 60.61

147.16 Lubricating oil output (mmt) 1.61 1.57 1.84

144.84
96.38

135.29
93.00 Ethylene output (mmt) 3.62 3.47 3.69
86.33
Synthetic resin output (mmt) 5.65 5.78 6.18

Synthetic fiber output (mmt) 0.12 0.09 0.09

Synthetic rubber output (mmt) 0.62 0.61 0.63

Urea output (mmt) 3.76 4.48 4.41

2010 2011 2012 2010 2011 2012
Synthetic ammonia output (mmt) 2.61 3.03 2.97
(mmt) (mmt)

30

Fushun Petrochemical’s 10Mt/a Refining+1Mt/a
Ethylene Project
The project comprises eight production units and auxiliary utilities, including
an 8Mt/a atmospheric/vacuum distillation unit, a 2.4Mt/a coker and a 2Mt/a
hydrocracking unit. The 8Mt/a atmospheric/vacuum distillation unit and the
2.4Mt/a coker were put into operation in 2008 and 2009 respectively. In August
2012, the 2Mt/a hydrocracking unit went on stream, ensuring a steady
feedstock of supplies to the 1Mt/a ethylene plant. The 1Mt/a ethylene plant
comprises eight units, including a new 800kt/a ethylene unit, which were
completed and became operational in October 2012.
After the completion of the entire project, Fushun Petrochemical will be
capable of processing 11.7 million tons of crude and producing 940,000 tons of
ethylene every year. In addition, four feedstock bases are taking shape for the
production of paraffin, lubricant base oils, alkyl benzene and synthetic resins.
Sichuan Petrochemical’s Integrated
Refining/Petrochemical Project
The project comprises a 10Mt/a atmospheric/vacuum distillation unit, a
3Mt/a residue hydrodesulfurization unit, a 2.2Mt/a wax oil hydrocracking
unit, a 3.5Mt/a diesel hydrotreating unit, a 2.5Mt/a heavy oil catalytic
cracking unit, a 600kt/a gas fractionation unit, a 170kt/a MTBE unit, an
integrated 2Mt/a continuous reforming + 60kt/a PX unit, a 65kt/a butene
unit and a 300kt/a polypropylene unit. The planned capacity includes
processing 10 million tons of crude and producing 800,000 tons of
ethylene every year. Launched in 2009, the project was largely completed
in 2012 and will go on stream in 2013.
Hohhot Petrochemical’s 5Mt/a Refinery Expansion Project
The project comprises 10 refining units, including a new 5Mt/a
atmospheric/vacuum distillation unit and a 2.8Mt/a fluid catalytic cracking
unit, and a 150kt/a polypropylene unit. Launched in August 2010 and
becoming operational in October 2012, the project mainly processes crude
oil from Changqing Oilfield, Erlian Oilfield and Tamsag Oilfield, capable of
supplying 1.7 million tons of gasoline, 2.1 million tons of diesel fuel,
200,000 tons of jet fuel and 150,000 tons of polypropylene to Inner
Mongolia and Shanxi every year.
Daqing Petrochemical’s 1.2Mt/a Ethylene Expansion/
Upgrading Project
As China’s first commercialized project using the proprietary ethylene
production method, the project comprises nine production units, including
a new 600kt/a ethylene unit, a 500kt/a pyrolysis gasoline hydrogenation unit,
a 300kt/a full-density polyethylene unit, an 80kt/a butadiene rubber unit, and
auxiliary utilities in addition to the existing 600kt/a ethylene unit. Launched in
2009, the project was put into operation in October 2012, increasing Daqing
Petrochemical’s ethylene capacity to 1.2 million tons per year.
Annual Business Overview 2012 Annual Report
Aksu Fertilizer Project
As the largest natural gas deep processing project in southern Xinjiang, the
Aksu Fertilizer Plant comprises a 450kt/a synthetic ammonia unit, an 800kt/a
urea unit and auxiliary facilities. Breaking ground in October 2012, the project
is expected to be completed in 2015 to provide synthetic ammonia and urea
products to surrounding areas.
Daqing Refinery’s 300kt/a Polypropylene Project (Phase-II)
The project comprises the main polypropylene unit, the propylene storage
tanks, public utilities and auxiliary facilities. Launched in June 2012, the
project became operational in August 2012, doubling Daqing Refinery’s
annual polypropylene capacity from 300,000 tons to 600,000 tons, with a
product portfolio of 68 homopolymer and random copolymer grades.
Upgrading of Refined Products and New
Product Development
We continued to optimize the product portfolio, resulting in a significant
increase in the production of high-grade gasoline and jet fuel, and steady
progress in quality improvement. In 2012, high-grade gasoline accounted
for 92.3% of the Company’s total gasoline production, up 4% year-on-year.
Production of 97# gasoline and jet fuel increased by 34% and 30.3% year-
on-year respectively. Jinzhou, Huabei and Liaoyang Petrochemicals
produced 1.32 million tons of Beijing V oil products in total, meeting
the demands of regional markets.
In 2012, CNPC launched more than 80 new petrochemical products with
a total output of 870,000 tons. The percentage share of brand products
rose by 4.3%. In particular, PE100/PE 80 pipe, PPR pipe, pipes for underfloor
heating and bimodal homopolymerized HP550J are highly recognized
by the market. Eco-friendly styrene-butadiene rubber from Lanzhou
Petrochemical has become a good choice for major tire manufacturers
such as Bridgestone, Goodyear and Michelin. Our proprietary liquid rubber
was successfully used in the Chang'e II Lunar Exploration Program and the
Tiangong-I target aircraft.
Ethylene plant at Sichuan Petrochemical
31
2012 Annual Report Annual Business Overview
Marketing and Sales
In 2012, our marketing initiatives were targeted to optimize product
offerings and bolster our retailing business. New progress was made in
sales of refined products, enabling a fast response to market changes.
Refined Products
We sold 116.62 million tons of refined products in 2012, up 1.4% year-on-year.
In particular, retail sales were 87.73 million tons, up 1.4% year-on-year. While
gasoline sales went up 11.8% and 97# gasoline sales surged by 27.5%. The
operating efficiency of our service stations further improved, resulting in an
increase in average daily sales per individual station by 0.5% over the previous
year. And 90.6% of refined products were sold through retail outlets.
Marketing Network
The Company’s marketing network continued to expand. In 2012, 707 new
service stations were opened to add 4.95 million tons to the existing retailing
capacity. 18 new oil depots were built, increasing our current storage capacity
by 840,000 cubic meters. As of the end of 2012, we had 19,840 service stations
in operation across the country.
With a view to improving the management of service station construction,
Construction Standards for Oil Depots and Service Stations (2010) were
amended to include the standards for gas filling stations and expressway
gas stations.
Our fuel card business continued to grow. In 2012, 14 million Kunlun fuel
cards were sold, bringing the total number of cards issued to 33 million.
The cards have played an important role in broadening our customer base
and expanding our market reach.
Non-oil Services
In 2012, our non-oil services maintained strong momentum in expanding
our business scale and improving profitability. Full-year revenues and
profits grew 25% and 30% year-on-year respectively. The business mix of
fuel products and non-oil services took shape. By the end of the year, we
had 13,000 uSmile convenience stores in operation.
Lube Oil
Faced with strong competition in the domestic lube oil market, we adopt a
flexible marketing approach and continue to optimize product formulas and
product lines, resulting in steady improvements in both product quality and
profitability. In 2012, we sold 2.23 million tons of lube oil and achieved sales
growth of 3% for top grade lube and 6.7% for packaged lube over 2011.
32
Specialty Asphalt Products at
Liaohe Petrochemical
Liaohe Petrochemical is China’s largest heavy oil processing base.
Using low-pour-point heavy oil and ultra-heavy oil as feedstock, the
company’s colored asphalt, flame-retardant asphalt and asphalt for
steel bridge decks are warmly received in the market. These asphalt
products have been successfully used in the construction
of 18 airports and 12 hydraulic engineering and expressway
projects across the country.
In 2012, Liaohe Petrochemical’s hydraulic engineering asphalt
products were used for seepage control in the dams of Hohhot
Pumped Storage Power Station, marking the world’s first use
of specialty asphalt for seepage control in high-latitude, alpine
regions and enabling effective seepage control within a wide
temperature range from 70 degrees Celsius to minus 40 degrees
Celsius. Liaohe Petrochemical is now working on other specialty
asphalts including rubberized asphalt and asphalt products for
high-speed rail and bridge deck
applications to meet the diverse
needs of the market.
Boasting premium Kunlun motor oils, our quick lube replacement centers
also provide additional auto maintenance services such as free disassemble
cleaning of engines and gearboxes. Sixteen quick lube replacement outlets
were opened in eight cities including Beijing, Daqing, Lanzhou and Dalian.
In 2012, the replacement service maintained good momentum with full-
year sales revenue, filling volume of top grade lube, and the number of
serviced vehicles increasing by 29%, 26% and 21% respectively.
Miscellaneous Ref ined Products
In 2012, we continued to expand the marketing network for miscellaneous
refined products, resulting in an 11% increase in product sales over the
previous year. In particular, a differentiated marketing approach was
introduced to create a high value-for-money portfolio. Full-year asphalt
sales reached 6.28 million tons, continuing to lead in the domestic market
with its market share increasing 0.13% year-on-year.
Annual Business Overview 2012 Annual Report

33
2012 Annual Report Annual Business Overview

Overseas Oil and Gas Operations

Despite challenges from the changing external environment, we maintained progressive exploration at mature blocks in Kazakhstan, Sudan and
safe and smooth operation of our overseas oil and gas business by continuing Ecuador, significant natural gas discovery in Turkmenistan, and progress in
to enhance our risk prevention and control capability. Production and unconventional hydrocarbon exploration in Australia.
operation were optimally arranged and generally under control across the five
In Chad, we discovered the oil-rich Lanea block in the Bongor Basin and
oil and gas cooperation regions in Central Asia-Russia, Africa, the Americas, the
made important progress in lithologic reservoir exploration in Raphia
Middle East, and Asia-Pacific. With a further consolidated scale of international
region. In Niger, our progressive exploration in the Bilma and Agadem
operations and an improved business layout, we fulfilled all the production and
blocks resulted in new discoveries. In Kazakhstan, CNPC-International
operation objectives of the year.
Aktobe’s exploration activities in the peripheral Hope Oilfield enlarged the
oil-bearing area of the field, and PetroKazakhstan obtained commercial
Exploration and Development discoveries from a number of exploration wells. New recoverable reserves
were identified in Ecuador and Sudan’s Block 4 and 6 through enhanced
We made important achievements in overseas oil and gas exploration,
progressive exploration in new strata sequences. Our progress in gas
including breakthroughs at new blocks in Chad and Niger, continued
exploration on the Right Bank of Amu Darya in Turkmenistan included
major discoveries from risk exploration in Ji Sal mountain front in the
Crude production Natural gas production eastern area, and high-yield oil and gas flows from well Shi-21 and several
(Overseas) (Overseas)
other wells in the central area.
89.78 18.20
89.38 17.06
75.82
13.70 13.66
Production
12.57
41.73 41.55 10.38
In 2012, we optimized production planning, strengthened integrated E&P
36.03
efforts and promoted the use of proven technologies such as waterflood
and horizontal drilling to further exploit mature fields and enhance
recovery efficiency. Throughout the year, we produced 104.28 million tons
of oil equivalent, of which CNPC’s share was 52.43 million tons. The total
2010 2011 2012 2010 2011 2012 production included 89.78 million tons of crude oil and 18.2 billion
CNPC's share Total CNPC's share Total cubic meters of natural gas, with CNPC’s share being 41.55 million tons
(mmt) (bcm) and 13.66 billion cubic meters respectively.

34

In Central Asia and Latin America, fine reservoir description, studies on
residual oil distribution law, horizontal drilling and other proven techniques
were promoted, with satisfactory results. In Kazakhstan, CNPCI Aktobe and
PetroKazakhstan maintained stable production by inaugurating new wells
and enhancing the integration of exploration and development, and the
Mangystau project registered a record high oil output by drilling more
horizontal wells. In Venezuela, our MPE3 project maintained a production
rate of 115,000 barrels per day by speeding up the commissioning of
new wells. Our Andes project in Ecuador stabilized oil production by
stimulating mature wells and applying horizontal well completion for
faster commissioning of new wells, setting an example for the potential
release of mature fields with ultra-high water cut in the country. In Peru,
we exceeded the annual production objectives of the Block 6/7 project by
taking stimulation measures, rejuvenating long idle wells, and optimizing
bailing wells.
We worked with our partners and made excellent progress in all our joint
projects in Iraq. In June 2012, the 5Mt/a production capacity building project
was put into operation and produced oil ahead of the contract schedule in our
joint Halfaya project with Total. The joint project with BP in Rumaila maintained
a rapid increase in oil output thanks to enhanced reservoir study and
stimulation measures. At present, the average daily output of Rumaila accounts
for 44% of Iraq's daily total. The Al-Ahdab project maintained smooth operation
since its inauguration, with the capacity to produce and process 6 million tons
of oil and 800 million cubic meters of natural gas annually. The rapid increase
in production at Al-Ahdab met the oil needs of the power plant and refinery
in Baghdad. In addition, high-standard waste mud treatment technology was
introduced to the project, which can extract more than 99% of the oil from oil
sludge. The treated effluent, meeting Iraq National Class I-B, can be used for
irrigation and fish cultivation. This treatment technology is highly recognized
by the Iraqi government, which requires it to be used in other projects.
In 2012, our gas project on the right bank of Amu Darya in Turkmenistan
delivered 5.5 billion cubic meters of commercial gas to the Central Asia-
China Gas Pipeline. Since the Phase-I project became operational in 2009,
no accidents have been reported and the lost time injury frequency rate
(LTIFR) was zero for 95.75 million person-hours.
In Afghanistan, the phase-I 250kt/a production capacity building project
was put into operation at Angot Oilfield as part of our AD project.
In Canada, steam-assisted gravity drainage (SAGD) technology was successfully
used at our first well in the MacKay River oil sand project. This was a good start
for us in drilling shallow horizontal wells in the development of unconventional
oilfields and ultra-heavy oil resources overseas.
Annual Business Overview 2012 Annual Report
Pipeline Construction and Operation
2012 saw the smooth operation and extension of our overseas pipelines.
We operated 10,494 kilometers of overseas oil/gas pipelines, including
6,672 kilometers of oil pipelines and 3,822 kilometers of gas pipelines,
which transported 20.56 million tons of crude and 26.1 billion cubic
meters of natural gas throughout the year.
With No.7 and No.2 compressor stations being operational, the Central
Asia-China Gas Pipeline had its deliverability boosted to 30bcm per year. By
the end of 2012, the pipeline had transported more than 44 billion cubic
meters of natural gas. Construction of its Line C has already commenced,
which will run in parallel to Line A and Line B. Completion of Line C will
further boost the pipeline’s deliverability to 55bcm per year.
Construction of the Myanmar-China Oil and Gas Pipelines was well
underway. Control works including the span over the Myitnge River,
directional drilling crossing of the Irrawaddy River, and crossing of the
Shweli River were completed, bringing an end to the main works of the
northern section in Myanmar. Care for the environment was prioritized
during the construction of the pipelines. A third party was engaged
through international bid invitation to evaluate the environmental
impact at the feasibility study stage. Construction did not commence
until the evaluation was accepted by the Myanmar government and our
project partners. During the construction, environmental supervisors
were given full play to ensure effective environmental supervision and
management. Whenever a section of the pipelines was installed, the
landscape was immediately restored so that farming could be resumed
in the next year. The project has experienced no accidents, pollution, or
casualties since its commencement.
Oil and gas process center at Halfaya Oilfield in Iraq
35
2012 Annual Report Annual Business Overview

Ten Years of Operation in Indonesia

2012 marks the tenth year of CNPC's oil and gas operations in people, and contributed more than USD 7 billion to the Indonesian
Indonesia. Over the past decade, our holding company PetroChina Government in terms of entitlements and tax payments. The
International (Indonesia) has achieved remarkable results in company’s donations to education and infrastructural construction,
crude exploration, oil and gas development and production, HSE and other public welfare initiatives have helped improve the education
management, and communication with local communities. and medical conditions in neighbouring communities and facilitated
local socio-economic development. For these efforts, PetroChina
We acquired all of Devon Energy's assets and activities in Indonesia’s
International (Indonesia) has won the respect and recognition of
six blocks in 2002 and operated eight E&P projects in the country
local people and the government. In October 2012, the company
in 2012. In the past 10 years, by applying CNPC’s unique reservoir
was awarded the “Ten Years' Excellent Operation Prize” by the state
management expertise and optimal solutions for overall development
upstream oil and gas regulator BPMIGAS.
based on residual oil distribution study, separate layer production
and water injection, and progressive development, we achieved an
average annual production growth rate of 15.7%. In 2012, PetroChina
International (Indonesia) became the seventh-largest oil company in
Indonesia, with its oil output more than 2.38 times of that in 2002.

PetroChina International (Indonesia) runs its projects strictly in

accordance with the international HSE standards and management
system, and has seen 2,807 consecutive accident-free days, as well
as 3,891 pollution-free and injury-free days. Moreover, 99.2% of its
employees are locally hired, in addition to more than 20 international
employees from 10 countries such as United States, Canada and Italy,
who work in an atmosphere of respect, equality, mutual trust and
cooperation, regardless of nationality, ethnicity or religion.

In the past decade, our projects in Indonesia has provided more

than 3,300 direct and nearly 5,000 indirect job opportunities for local

Ref ining and Chemicals

Our overseas refineries ran smoothly and processed 44.29 million tons of
crude, 27.3% more than in 2011. Despite short oil supply, our Khartoum
Refinery kept its units running safely. PetroKazakhstan's Shymkent
Refinery was smoothly overhauled and fulfilled the annual objective
of oil processing. Chad’s N'Djamena JV Refinery and Niger’s Zinder JV
Refinery maintained smooth operation in a long cycle, thanks to optimized
production plans. Our JV refineries in Singapore and Osaka, Japan, also saw
smooth operations.
2012 witnessed the first full year of the operation of our upstream-
downstream integrated projects in Chad and Niger, which achieved
excellent performance in oilfield production, pipeline operation, and crude
refining. The N'Djamena JV Refinery in Chad and Zinder JV Refinery in Niger
smoothly fulfilled their operating objectives, and produced diesel, gasoline,
and LPG products meeting local market demand. The refineries attached
great importance to local hiring and provided training courses to share
technologies and experience with local employees. N'Djamena Refinery
recruited more than 120 local employees to work in major production
posts. Since its startup in 2011, the refinery has launched training
programs on the English language, refining and chemical knowledge,
management, and HSE. Local employees have mastered refining and
chemical know-how with the help of Chinese employees as their personal
coaches. To help cultivate future talents for the development of Chad's

36

refining industry, the refinery reconstructed its temporary premises into a
campus for the petrochemical department of a local petroleum college,
and provides interim and training opportunities to students majoring in
refining and chemicals. The campus includes two academic buildings,
where 100 students can receive lectures at the same time. According to
Mr. Makaye Hassane Taisso, Chad's ex-Education Minister, the opening of
the petrochemical department at the refinery will provide the students
with a better and more practical educational environment and some of the
students may start their career at this refinery.
Excellent Operation in Oman
CNPC has been engaged in oil and gas operations in Oman
since 2002. By carefully organizing and managing production
activities and promoting waterflood and horizontal drilling, we
have achieved a satisfactory operating performance. The daily
output of the contracted oilfield increased from 4,500 barrels to
40,000 barrels, thanks to a 100% success rate in horizontal well
drilling by adopting tailored wellbore configuration and casing
assemblies, as well as the open-hole completion method. In
addition to maintaining the high-level operation of the oilfield, we
have established a sound relationship with local communities by
donating to education and community development. This is why
CNPC International (Oman) was recognized as the "Oil Producer of
the Year 2011-2012" by the Ministry of Oil and Gas (MOG), Oman
Society for Petroleum Services (OPAL) and Petroleum Development
Oman (PDO) in September 2012.
Annual Business Overview 2012 Annual Report
International Trade
In 2012, our international trade maintained rapid growth with expanding
business scale. Major gains were obtained from trading in crude oil, refined
products, natural gas and petrochemicals through imports and exports,
consigned processing and oil refining, blending, storage, transportation,
wholesaling, and retailing, as well as transactions in oil futures. Throughout the
year, we posted a trade volume of 305 million tons, up 22% year-on-year, worth
USD 239.4 billion.
We are more able to control and globally deploy crude resources as a
result of improved know-how in trading and sufficient utilization of storage
facilities. In addition, we further optimized our crude purchasing plans to
minimize the cost of materials for domestic refineries.
Our refined products business enjoys improved operations on an extended
trading value chain that is based on a global network and facilities. In addition
to maintaining our market share in Southeast Asia and Northeast Asia, we
expanded our market share in Vietnam, India and Australia, and entered the
market in Saudi Arabia, Pakistan, Yemen, Nigeria and Mozambique.
We made more efforts to tap overseas resources and markets to supply
materials to domestic refineries and sales companies. We made progress
in natural gas business and extended LNG supply channels. Working with
China Light & Power, Castle Peak Power, and other partners, we ensured the
smooth inauguration of the Hong Kong gas supply project.
We continue building and operating oil and gas operation centers which
integrate trading, processing, transportation and storage. In 2012, the Asian
center enjoyed increasing regional competitiveness and an enhanced
reputation, as well as improved operations. The European center maintains
sound growth by integrating and optimizing business operation plans
and improving the trading team. We also accelerated the construction
of the American center and expanded our trading scale in the region by
cooperating with Total.
Our JV Refinery in Singapore
37
2012 Annual Report Annual Business Overview

Oilfield Services, Engineering & Construction, and

Equipment Manufacturing

Our oilfield services, engineering & construction, and equipment
manufacturing sectors continued to optimize their teams and equipment
and have been more capable of providing services and supporting the
growth of our oil and gas business and the construction of major projects.
In 2012, we had 1,155 crews in 63 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
for oil/gas field production capacity building projects, large refining and
chemical installations, and pipelines and storage facilities. Our petroleum
equipment and materials were exported to 78 countries and regions
through a marketing network covering all major oil producing states
around the world.
Oilfield Services
In 2012, we saw increased workload and operation efficiency in all aspects
of oilfield services. This was realized through improved management, cost
control, risk prevention, enhanced production organization, and optimized
resource allocation.
Geophysical Prospecting
In 2012, CNPC deployed 209 seismic crew-times (100 2D and 109 3D), nine
VSP crew-times, and 34 non-seismic (gravity and magnetic survey, electric
survey and geochemical prospecting) crew-times. We acquired data on
96,739 kilometers of 2D lines, up 3.7% year-on-year. Our 3D seismic workload
increased to 57,682 square kilometers, a rise of 57.3% year-on-year, thanks to
the remarkable growth of our overseas business.
In a 3D seismic project in the Tarim Basin, BGP's digital seismic crews
registered the highest number of shots on a single and average day
among the 3D seismic projects in the basin by using efficient acquisition
technology with vibroseises. This points to a promising future for the
application of wide-azimuth high-density prospecting technologies.
Improved quality data was acquired from the Yingzhong 3D seismic project
in the Qaidam Basin, with helicopter support for field works, as well as the
arrangement of acquisition points based on precise remote sensing data
obtained from aerial photography taken by unmanned aerial vehicles.
Our share of the high-end international geophysical prospecting market
increased in 2012. We won 3D seismic contracts for a United Energy
project in Pakistan, Total's projects in Uganda and Indonesia, and the
Block Junin-4 project in Venezuela. Our S69, S70 and S71 large-scale 3D
seismic data acquisition projects in Saudi Arabia saw improvements in
the dynamic sliding scanning of vibroseises, ISS data separation, and
suppression processing of adjacent shots. By employing a pile mark-
free navigation system, low-frequency scanning, and DS3 acquisition
technologies, our 3D seismic project for Oman’s PDO registered the
highest number of 20,651 shots in a single day and 19,000 shots on an
average day. Moreover, the project team has maintained safe operations
for 10 million working hours, a result recognized by PDO.
Geophysical prospecting operations
2010 2011 2012

Seismic crews in operation 170 169 168

Domestic 105 98 102

2D seismic data acquired 3D seismic data acquired
Overseas 65 71 66
57,688 39,782
55,348 38,667
2D seismic data acquired (kilometers) 81,130 93,306 96,739
48,171
41,391 Domestic 32,959 35,618 41,391
35,618 22,059
32,959
17,900 Overseas 48,171 57,688 55,348
15,671 14,619

3D seismic data acquired (square kilometers) 54,338 36,678 57,682

2010 2011 2012 2010 2011 2012 Domestic 15,671 14,619 17,900
Domestic Overseas Domestic Overseas Overseas 38,667 22,059 39,782
(kilometers) (square kilometers)

38
 Annual Business Overview 2012 Annual Report

Our deep sea prospecting business maintained fast growth. Seismic data Well Drilling
obtained in 2012 included 30,481 kilometers of 2D lines and 12,834 square
2012 saw the wider application of horizontal drilling, underbalanced
kilometers of 3D and 4D profiles. Our Pioneer fleet successfully operated Total's
drilling, snubbing, reservoir stimulation, and other new techniques, and
4D high-resolution acquisition project, realizing 4D towing acquisition in the
an increased drilling speed in key regions. This was an important support
deep sea for the first time. BGP Surveyor and BGP Explorer fleets operated
for the increase of our oil and gas production. Overseas high-end market
a deep-sea towing project in Qatar, demonstrating improved dual-vessel
development led to a great increase in the number of new contracts and
operation in areas with densely distributed platforms. In addition, we
our operating revenue. Cooperation with international oil companies
successfully launched a multi-user 2D deepwater project in Madagascar,
and industrial players was deepened. Our JV with Shell, Sirius Well
creating a new business mode of geophysical prospecting services.
Manufacturing Service became operational.
In 2012, new CPU and GPU editions of our independently developed
In 2012, our 1,019 drilling rigs spudded 13,272 wells and completed
GeoEast-Lightning pre-stack migration processing software were issued,
13,153 wells, with a total footage of 27.2 million meters, 0.79% more
which are more efficient and precise than their international rivals in the
than in 2011. The drilling speed was further increased, with the average
imaging of sophisticated textures, deep strata and subsalt structures.
penetration rate increasing by 4.64% despite the average along-hole
The major functions of GeoEast integrated processing and interpretation
depth increasing by 85 meters year-on-year. In particular, the average
software continued to improve. The G3i seismograph has been successfully
drilling cycle of wells deeper than 4,000 meters was reduced by 10.4%
applied in seven domestic projects. With 28 new software function
year-on-year, and the average drilling cycle at Kuqa Mountain Front of
modules, GeoMountain V2.0 became a mountainous exploration software
the Tarim Basin decreased by more than 20%.
system featuring an integrated platform of acquisition, processing and
interpretation, multi-channel data flow execution control, pre-stack depth In 2012, we drilled and completed 1,701 horizontal wells, 31.3% more than
migration, fracture prediction and micro-seismic monitoring. Wide-azimuth in 2011, including 1,351 wells at home and 350 wells abroad. We have put
and high-density seismic data acquisition technology saw remarkable into production a total of 350 horizontal wells at Sulige Gas Field since
application results in complex mountains, contributing to more precise the start of its development, accounting for just 6% of the total producing
migration imaging in foreland thrust-folds in Kuqa, Yingxiongling, etc. wells, but contributing 30% to the field’s total gas output.

Drilling operations
2010 2011 2012

Drilling rigs in operation 1,000 1,009 1,019

Domestic 835 833 827

Overseas 165 176 192

Wells drilled 13,043 13,706 13,153

Domestic 11,919 12,509 11,894

Overseas 1,124 1,197 1,259

Footage drilled (million meters) 25.20 26.98 27.20

Domestic 22.97 24.39 24.30

Overseas 2.23 2.59 2.90

Drilling operation in New Zealand

39
2012 Annual Report Annual Business Overview

With the increasing scale of its application, underbalanced drilling is

playing a more significant role in reservoir protection and boosting per-
well production. In 2012, we completed 502 underbalanced wells, an
increase of 43.4% year-on-year. By using underbalanced drilling technology,
Chuanqing Drilling Engineering Company obtained favorable oil and gas
shows in well Penglai-101 and other wells in central Sichuan Province.
Daqing Drilling Engineering Company increased its average production per
individual well by 27.5% through the widespread application of micro-foam
underbalanced drilling, and has developed a low-cost technical package
for reservoir protection.

With the active expansion of the overseas drilling market, we won drilling
contracts in Venezuela, Algeria, Kazakhstan, Uzbekistan, Iraq and Australia.
Great Wall Drilling Company (GWDC) signed a comprehensive service
contract for 80 geothermal wells in Kenya. An integrated upstream and
downstream service mode for geothermal resource development took
shape in the country. High-yield gas flows were obtained from the well
WAEX-1 and well WA-2A drilled by Xibu Drilling Engineering Company
as part of the Aral Sea project in Uzbekistan. This was an important
exploration discovery in the Aral Sea Basin. Well logging operations

We attach importance to the R&D and promotion of drilling technologies. 2010 2011 2012
In 2012, our independently developed new technologies and processes
saw excellent application. A continuous gas circulation system developed by Logging crews 675 678 721
Chuanqing Drilling Engineering Company saw success in its first field drilling Domestic 556 546 579
test. The system can extend the application of gas drilling in water-producing Overseas 119 132 142
formations and address the challenge of formation water production. A
precise PCD system CQMPD-I developed by the company was used in drilling
Well logging operations (well-time) 80,319 88,727 99,353
four wells at Jidong Nanpu Oilfield. It reduced the drilling cycle by 10 days
and increased the penetration rate by more than one time compared with Domestic 74,826 83,317 93,585
the average at adjacent wells. A complete industrial chain has been formed Overseas 5,493 5,410 5,768
for the GW-AMO full-white-oil-based drilling fluid system and its matching
technologies developed by GWDC. The XZ-AVDS automatic vertical drilling
system independently developed by Xibu Drilling Engineering Company has
been successfully used in drilling eight wells in the Xinjiang and Tarim oilfields,
with an average penetration rate two to three times higher than adjacent wells.

Well Logging and Mud Logging

In 2012, CNPC deployed 721 well logging crews to provide well logging and
testing operations and services to users at home and abroad. These crews
completed 99,353 instances of well logging and perforation and 11,674 instances
of mud logging, up 12% and 4.5% year-on-year, respectively.

By promoting wireline logging with the bypass nub out of casing in horizontal
wells, logging while drilling (LWD), through-bit logging, and tractor logging,
the operational efficiency per individual well improved by an average of
nearly 20%. New progress was made in multi-stage perforation technologies.
Currently, we can perform perforation ignition for 20 stages. This can support
the separate-layer fracturing and stimulation of horizontal wells.

Open-hole Logging in Canada by EILog logging unit

40
 Annual Business Overview 2012 Annual Report

The EILog logging unit independently developed by CNPC has been
gradually improved and was first used in complete open-hole logging in
Canada. Forty sets of our Huiyan-2000 Well Logging System have been
put into application. The system enables high-speed data over cable at a
rate of 2Mbps. Its multi-pole array acoustic loggers (MPAL) and eight-arm
electric imaging loggers can deliver clear images in field tests. Our remote
detection acoustic transmission imaging logging system was applied in the
Tarim Basin, where it contributed to a geological discovery by identifying
fracture-cave reservoirs.
We continue to improve our Formation Evaluation LWD (FELWD) system,
with the three-parameter LWD system already in widespread use, and tests
completed for dual-induction, neutron, high-temperature and pressure
gamma and induction, and mud resistivity LWD. The LEAP-800 well logging
system has been successfully applied for 200 well-times, and its stability and
reliability have been greatly improved. CIFLOG-GeoMatrix integrated well
logging and interpretation software went online and was rolled out in China.
In 2012, multi-stage fracturing was applied to stimulate 775 horizontal
wells, a 54% increase year-on-year. By the end of 2012, 57% of our
total horizontal wells in China were multi-stage fractured. By using our
independently developed open-hole staged fracturing tool, up to 21 stages
were fractured in well Dabei-G-Ping-2 in the Tarim Basin. GWDC conducted
multi-crack fracturing in open-hole-completed intervals of well Su-53-
74-29H, resulting in 18 cracks at six stages, and a great increase in the
average daily output. Ten-stage fracturing conducted by Chuanqing
Drilling Engineering Company at well Ning-201-H1 in Changning shale
gas block delivered gas at a daily rate of 132,000 cubic meters, 12 times
as much as any adjacent vertical well.

Overseas, we consolidated our traditional service market by renewing well

logging, mud logging, and testing operation contracts with the Halfaya
Downhole operations
and Al-Ahdab projects in Iraq, as well as the well logging and mud logging
contract with Uzbekistan's Silk Road Company. In addition, we won 2010 2011 2012
contracts for offshore mud logging in Venezuela, BAPEX well logging in
Bangladesh, and a well logging and perforation service in Mongolia, further Downhole operation crews 1,877 2,117 2,023
extending our service object and business scope. Domestic 1,698 1,913 1,818
Overseas 179 204 205
Downhole Operations
In 2012, CNPC had 2,023 downhole operation crews providing services 136,382 142,753 149,262
Downhole operations (well-time)
including fracturing and acidizing, formation test, well intervention, workover
Domestic 134,201 140,283 146,826
and sidetrack drilling. We completed 149,262 downhole operations throughout
the year, and conducted formation tests in 7,402 layers, up 4.6% and 6.5% Overseas 2,181 2,470 2,436
year-on-year, respectively.

We continued to roll out snubbing operations. In 2012, our 96 crews

applied snubbing 3,096 well-times, up 35% year-on-year. Paraffin
plugging with a total depth of 2,105 meters was removed from tubings
under a 95 MPa wellhead pressure, the highest in China's snubbing
operations, in well Wushen-1 at Tarim Oilfield. Snubbing was proved
effective in energy conservation and emission reduction. In fact, it has
enabled us to reduce wastewater discharge by 2.04 million cubic meters
and cut transportation by 136,000 tanker-times throughout the year.

Fracturing of tight oil reservoirs in Xinjiang

41
2012 Annual Report Annual Business Overview

Engineering and Construction

Oriented toward the implementation of key projects, CNPC's engineering
and construction business maintained sound development through
workforce coordination, construction organization, and quality supervision.
As a more experienced contractor of large-scale projects, we made
progress in high-end market development at home and abroad, with
enhanced EPC and PMC capabilities. In 2012, our EPC contracting, design
and PMC business accounted for more than 70% of newly signed contracts.
CPECC, China Huanqiu Contracting & Engineering Corp., and CPPB have
been consecutively listed in the "Top 225 International Contractors" by
Engineering News Record (ENR) for many years.

Oil and Gas Field Surface Engineering

We maintained our position as the domestic leader in the construction
of 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. We have the capacity to
build surface works to accommodate facilities with 20Mt/a oil production
capacity and 10bcm/a gas production capacity.
In 2012, the Phase-III project of Changling Gas Field became operational
and progress was made in the surface construction of Hetian River Gas
Field at Xinjiang Oilfield. The surface system of Sulige Gas Field was further
improved to gather, transport and process 23 billion cubic meters of
natural gas a year. In Iraq, the phase-I surface project of Halfaya Oilfield
was put into production, and the phase-II productivity building project of
Al-Ahdab Oilfield and the phase-II surface project of Halfaya Oilfield were
about to be completed. In Turkmenistan, construction of the gathering and
transport system at Metejan Gas Field, as well as the Galkynysh Natural Gas
Processing Plant and matching works, was well underway.
China Construction Engineering Luban
Prize (Overseas Projects) Goes to CNPC
The biannual China Construction Engineering Luban Prize (Overseas
Projects) was launched by China Construction Industry Association
in 2009. Its objective is to improve the construction quality of
overseas works, as well as the competitiveness and reputation
of Chinese construction enterprises. In January 2013, CPECC
was awarded the 2012 prize for its capacity upgrading work at
Sudan’s Block 3/7. This was CPECC's third consecutive winning of
the prize since its launch, following the EPC-contracted capacity
expansion project of Khartoum Refinery in Sudan in 2009 and the
phase-I project of the Third Zhanazhol Oil & Gas Processing Plant in
Kazakhstan in 2011.

CPE and CPPB launched a Tanzanian project, which includes two natural
gas processing plants (2bcm/a and 1.5bcm/a respectively) and 542km-long
gas pipeline linking the plants and Dar-es-Salaam.

Construction of Refining and Chemical Facilities

In 2012, we ensured smooth progress at major projects. Fushun
Petrochemical’s 800kt/a ethylene unit, Hohhot Petrochemical's 5Mt/a refining
capacity expansion project, Daqing Petrochemical’s 1.2Mt/a ethylene upgrade
and expansion project, Daqing Refinery’s 300kt/a PP unit (phase-II), Liaohe
Petrochemical's 600kt/a continuous reforming unit, Jinzhou Petrochemical's
1.6Mt/a delayed coking unit, and Karamay Petrochemical's 1Mt/a delayed
coking unit became operational. Sichuan Petrochemical's integrated refining
and chemical project was generally completed. In the construction of
Daqing Petrochemical's ethylene unit, China Huanqiu registered a 99.6% first- Third Zhanazhol Oil & Gas Processing Plant in Kazakhstan
run yield in welding and 100% acceptance of unit construction, indicating
a breakthrough in the package of technologies for the industrialization of
ethylene units in China.

42

The coal-based fertilizer plant in Ninh Binh, Vietnam, which was
independently designed, procured, constructed, and launched by China
Huanqiu, as the EPC contractor, became operational. Registering 19 million
safe working-hours during construction, the project was recognized as a
model among foreign-funded construction projects in the country.
Pipeline and Storage Tank Construction
As the domestic leader in building onshore long-distance oil and gas
pipelines and the world leader in construction technologies in this field,
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 tanks and
10,000 cubic meters of gas tanks, and we are capable of designing and
building 26 million cubic meters of crude tanks and 16 million cubic meters
of refined product tanks annually.
In 2012, we installed more than 8,000 kilometers of long-distance pipelines,
and completed two crude storage bases and one LNG project. The trunk
and branches of the Second West-East Gas Pipeline were completed and
became operational. The Dushanzi-Urumqi Crude Pipeline, Changqing-
Hohhot Crude Pipeline, and Zhongwei-Guiyang Branch (Zhongwei-
Chengdu Section) were completed as scheduled. The Lanzhou-Chengdu
Crude Pipeline, Rizhao-Dongming Crude Pipeline, and Nanning-Liuzhou
Refined Products Pipeline were basically completed. Construction of the
Third West-East Gas Pipeline and the Jinzhou-Zhengzhou Refined Products
Pipeline commenced.
Construction of the Myanmar-China Oil and Gas Pipelines, Line C of the
Central Asia-China Gas Pipeline, and the oil and gas export pipeline in
Halfaya proceeded smoothly. The 75Mt/a Abu Dhabi Crude Pipeline built
by CPPB and CPECC was put into operation successfully, which includes
a 405.36km-long onshore section and a 18.86km-long subsea section. In
addition, CPPB began to build the Myanmar-Thailand Gas Pipeline.
The State Petroleum Storage Base in Lanzhou, which was EPC-contracted
by CPECC, and the Lanzhou Crude Storage Base for Production and
Annual Business Overview 2012 Annual Report
Operation and the peak shaving LNG station at Ansai, which were EPC-
contracted by China Huanqiu, were completed and put into operation.
Construction of Hutubi gas storage base of Xinjiang Oilfield, Tangshan LNG
terminal, Tai'an LNG terminal, and a 5mcm/d LNG plant in Hubei Province
saw smooth progress.
Offshore Engineering
We have the capacity to provide integrated and comprehensive support
for offshore production. Our services include well drilling, well completion,
well cementing, production test, downhole operations, design and
construction of marine engineering, and vessel services.
In 2012, we conduct drilling operations in the Bohai Sea, Yellow Sea, South
China Sea, and Persian Gulf. At well group CB22FB in Chengbei Block
of Shengli Oilfield, CPOE 6 rig registered an average penetration rate of
50.37m/h, 56% faster than in previous well groups with a similar along-hole
depth. The Northern Yellow Sea Project and well Chengbei-326 witnessed
excellent large-scale fracturing operations thanks to our unique techniques
in reservoir stimulation and coiled tubing, where 340 and 300 cubic meters
of fluid was involved respectively.
To install the Shenzhen-Hong Kong subsea pipeline as part of the Second
West-East Gas Pipeline, our proprietary technologies including sand
blasting and spraying techniques, quick patching, and nondestructive
testing for seabed pipeline installation addressed the technical challenges
of pipeline welding, delivering a 99.2% first-run yield in welding and 100%
acceptance of corrosion-proof patching. Construction of the matching
facilities for our Qingdao offshore engineering base is underway. The
Tangshan production support base was put into trial operation, with
improved capacity in ship service and shore-based support.
In 2012, CNPC had 40 large-scale offshore equipment units, including
nine mobile drilling platforms, one modular drilling and workover rig, five
production test platforms, and a variety of 25 vessels. In 2012, our 23 vessels
provided transportation service for 6,700 days.
Ethylene unit at Fushun Petrochemical
43
2012 Annual Report Annual Business Overview

Petroleum Equipment Manufacturing

In 2012, our petroleum equipment manufacturing sector experienced restructuring,
transformation and upgrading. In addition to strengthening technical innovation
and management, we speeded up the construction of large-scale equipment
manufacturing bases. In addition, we continued to enhance business integration
and product competitiveness, actively expanded the market, and provided the best
possible service and support to our core businesses.

2012 saw the inauguration of Baoji Petroleum Steel Pipe Company’s petroleum pipe
plant in Xi'an City and Bohai Petroleum Equipment Manufacturing Company’s steel
pipe plant in Xinjiang, increasing our manufacturing capacity by 300kt/a for petroleum
pipes and 220kt/a for steel pipes. Bohai Petroleum Equipment Manufacturing
Company became the first accredited state-level corporate technical center in the
steel deep processing sector of the petroleum industry.

In 2012, we had a more complete portfolio of drilling rig products. Our independently
developed 8,000m AC VFD (variable frequency drive) electric drilling rigs were
deployed in the Tarim Basin. ZJ90/6750DB-S, a four-single stand-based 9,000m
high-efficiency drilling rig with our independent intellectual property rights, began
operating in the mountain front areas in the Tarim Basin. The rig is believed to greatly
increase the drilling speed and efficiency.

We made progress in the R&D of high-steel-grade pipelines. The first submerged

arc welded steel pipe of X80 steel grade, 1,422 mm in diameter and 21.4 mm in
wall thickness was made on a trial basis in China. The pipe will meet the domestic
market demand for large-diameter steel pipes that can withstand high pressure.
A pre-welded and precisely submerged arc welded steel pipe of X70 steel grade,
1,219 mm in diameter and 15.01 mm in wall thickness, was produced. High-tensile
coiled tubing of CT90 steel grade, 38.1 mm in diameter and 3.18 mm in wall
thickness, saw successful application in Jilin Oilfield.

Our power units boast improved reliability and stability. The highly-reliable diesel
engine BL12V190ZL1-2 and the high-speed and heavy-duty reciprocating piston
compressor 6CFC were developed. As China's most powerful gas compressor of its
type, 6CFC is promising in terms of pressurized gas gathering and transportation and
operation of gas storages.

With respect to offshore engineering outfits, the CP-300 jack-up rig with our
independent intellectual property rights was commissioned, tested, and delivered to
customer. The CP-400 jack-up rig, with more advanced design parameters, and already
approved by CCS, ABS and DNV, was being designed and built. We also developed
equipment products, such as offshore thermal recovery wellheads, thermal insulation
pipes for offshore applications and seabed oil and gas transportation pipes that
delivered specification-compliant performance.

In 2012, our petroleum equipment and materials were exported to 78 countries and
regions, through an international marketing network with offices in 51 countries
and regions providing complete functions of storage, consignment sales, repair and
service, product leasehold, assembly, and integration. The exported products were
of more than 70 types covering the whole industrial chain, including drilling rigs,
workover rigs, offshore drilling rigs, long-distance line pipes, refining and chemical
production equipment, power engines, well completion tools, bits, and mud pumps.

44
Annual Business Overview 2012 Annual Report

45
2012 Annual Report Financial Statements

Financial Statements

Consolidated Balance Sheet million RMB yuan

2010 2011 2012

Current assets
Cash and cash equivalent 235,670.40 278,416.84 293,696.71
Tradable financial assets 1,431.72 3,064.12 2,323.12
Bills and accounts receivable 88,233.81 101,809.68 132,746.01
Prepayments 37,657.95 51,975.04 48,201.93
Other accounts receivables 43,307.85 55,533.84 57,788.42
Inventories 227,676.04 314,589.98 360,150.69
Other current assets 40,940.08 81,823.47 86,813.51
Total current assets 674,917.85 887,212.97 981,720.39
Fixed assets
Available-for-sale financial assets 45,553.44 45,588.19 71,297.57
Held-to-maturity investments 160,513.86 138,700.62 123,563.27
Long-term equity investments 66,070.31 71,785.95 79,370.53
Fixed assets-net value 555,665.29 619,741.11 725,436.36
Construction in progress 284,671.93 319,252.25 369,470.56
Oil and gas assets 636,605.70 699,907.96 790,132.31
Intangible assets 47,721.77 60,451.38 69,707.18
Other fixed assets (other long-term assets) 158,236.11 185,235.81 198,722.20
Total fixed assets 1,955,038.41 2,140,663.27 2,427,699.98
Total Assets 2,629,956.26 3,027,876.24 3,409,420.37
Current liabilities
Short-term loans 60,943.52 92,165.76 110,124.15
Bills and accounts payable 286,325.64 327,909.63 394,373.95
Prepayments 57,032.51 73,298.16 76,128.13
Employee pay payable 23,130.42 23,164.33 19,041.00
Taxes payable 53,071.31 132,842.21 92,768.24
Other payables 82,353.68 92,315.83 90,255.67
Other current liabilities 157,953.82 241,099.05 214,653.86
Total current liabilities 720,810.90 982,794.97 997,345.00
Non-current liabilities
Long-term loans 34,393.32 29,671.92 22,633.17
Estimated liabilities 65,440.66 73,384.11 88,965.18
Deferred income tax liabilities 23,752.57 25,319.25 27,253.49
Other non-current liabilities 217,448.21 216,024.16 409,112.90
Total non-current liabilities 341,034.76 344,399.44 547,964.74
Total liabilities 1,061,845.66 1,327,194.41 1,545,309.74

46
 Financial Statements 2012 Annual Report

Consolidated Balance Sheet (continued) million RMB yuan

2010 2011 2012

Owners equity
Paid-in capital 348,953.24 379,863.46 397,540.32
Capital reserves 267,207.03 261,852.85 265,360.66
Special reserves 26,645.64 32,442.96 31,178.59
Surplus reserves 749,117.88 841,139.88 942,093.06
General risk preparation 1,117.06 1,480.42 2,392.73
Retained profits 13,129.06 14,241.18 15,498.38
Converted difference in Foreign Currency Statements -10,517.80 -17,096.43 -17,826.16
Total owners' equity attributable to parent company 1,395,652.11 1,513,924.32 1,636,237.58
Minority interests 172,458.49 186,757.51 227,873.05
Total owners' equity 1,568,110.60 1,700,681.83 1,864,110.63
Total liabilities and owners' equity 2,629,956.26 3,027,876.24 3,409,420.37

Consolidated Profit Statement million RMB yuan

2010 2011 2012

Operating income 1,720,885.19 2,381,278.23 2,683,480.30
Income from core businesses 1,716,365.86 2,376,592.51 2,678,563.64
Income from other businesses 4,519.33 4,685.72 4,916.66
Less: Operating cost 1,154,873.26 1,716,446.17 2,026,837.02
    Cost of core businesses 1,151,017.90 1,712,817.27 2,022,621.55
    Cost of other businesses 3,855.36 3,628.90 4,215.47
   Business tax and supertax 188,782.79 268,676.76 257,977.86
   Sales expenses 63,531.85 61,139.91 64,277.62
   Management expenses 101,427.99 120,923.24 116,260.26
   Financial expenses 8,406.80 14,251.20 16,592.13
   Loss on depreciation of assets 7,248.65 13,352.40 8,195.50
   Others 27,140.64 26,460.65 25,735.97
Plus: Income from change in fair value (Loss is presented with "-") -44.98 -67.22 17.46
   Income from investments (Loss is presented with "-") 12,844.91 21,735.58 17,214.24
Operating profit (Loss is presented with "-") 182,273.14 181,696.26 184,835.64
Plus: Non-operating income 7,594.28 14,434.13 15,780.33
Less: Non-operating expense 17,210.44 14,406.35 16,715.87
Total profit (Loss is presented with "-") 172,656.98 181,724.04 183,900.10
Less: Income tax expense 48,473.02 51,196.20 44,725.51
Net profit 124,183.96 130,527.84 139,174.59
Net profit attributable to owners' equity of the parent company 97,252.32 105,490.19 114,802.85
Loss and gain from minority 26,931.64 25,037.65 24,371.74

47
2012 Annual Report Financial Statements
Notes to the Financial Statements
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.
48
(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 in a systematic approach at the
reference rates for RMB announced 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 in a systematic approach at reference rates
for RMB announced 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
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.
Financial Statements 2012 Annual Report
(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.
49
2012 Annual Report Financial Statements
(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.
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.
50
(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 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.
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 expected 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.
Financial Statements 2012 Annual Report
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.
51
2012 Annual Report Major Events

Major Events
January

January 14 Li Yuanchao, Member of the Political Bureau of the CPC Central Committee,
Secretary of CCCPC Secretariat and Head of the Central Organization Department, visited
CNPC’s projects in Sudan.

January 17 A strategic cooperation agreement was signed with Abu Dhabi National Oil
Company (ADNOC), proposing cooperation in oil and gas exploration & development,
oilfield services, engineering and construction, equipment & materials, oil trade, and
education & training.

January 21 Wen Jiabao, Member of the Standing Committee of the Political Bureau of
January 17
the CPC Central Committee and Premier of the State Council, visited Changqing Oilfield.

February

February 3 An agreement was signed and the deal was completed between PetroChina
and Royal Dutch Shell Plc, with PetroChina buying a 20 percent stake in Shell's 100 percent-
owned Groundbirch assets in northeastern British Columbia, Canada.

February 6 A strategic cooperation agreement was signed with the Beijing Municipal
Government on promoting the use of LNG-fueled vehicles for public transit. Under this
January 21
agreement, CNPC donated 100 LNG-fueled buses in the first half of 2012 and constructed
the required number of LNG filling stations.

March

March 2 Hong Kong Branch of the Second West-East Gas Pipeline started construction
offshore Dachan Island in Shenzhen, Guangdong Province. With a total length of 29.04 km
and a designed capacity of 6 billion cubic meters of natural gas per year, it boasts the largest
subsea pipe diameter in China. The pipeline became operational on December 19, ready to
deliver natural gas to Hong Kong.
April 27 March 28 Li Changchun, Member of the Standing Committee of the Political Bureau of
the CPC Central Committee, visited Guangxi Petrochemical.

April

April 1 Wen Jiabao, Member of the Standing Committee of the Political Bureau of the
CPC Central Committee and Premier of the State Council, visited Guangxi Petrochemical.

April 19 A framework agreement on MDI integration project for natural gas supply
and an agreement on LNG utilization were signed with the Chongqing Municipal
Government. Under the agreements, an integrated LNG project will be built in
Chongqing for storage, peak shaving, power generation, air-conditioning and LNG filling.

April 27 The 20Mt/a heavy oil processing plant, a Sino-Venezuelan joint venture, started
construction at Guangdong Petrochemical. Due to be operational by the end of 2014, it
is the first downstream project in energy cooperation between the two countries.

52
 Major Events 2012 Annual Report

May

May 15 PetroChina, Shell Canada Ltd., Korea Gas Corporation (KOGAS), and Mitsubishi
Corporation announced they would jointly develop a proposed LNG export facility
near Kitimat, British Columbia, Canada. Shell holds a 40% working interest, with KOGAS,
Mitsubishi and PetroChina each holding a 20% working interest.

May 30 CNPC inked a joint stock and cooperation framework agreement on the
Third West-East Gas Pipeline with the National Council for Social Security Fund,
Urban Infrastructure Construction Investment Fund, Baosteel, and the Industrial and
Commercial Bank of China. As shareholders, the first three parties will invest in the
May 30 project. Private capital from ICBC will flow to the project through the urban infrastructure
facilities investment fund.

June

June 4 A Memorandum of Cooperation was signed with the Ministry of Energy and
Industry of Tajikistan.

June 6 A cooperation agreement was signed with Turkmengaz State Concern, to

increase gas supply from Turkmenistan to China via the Central Asia-China Gas Pipeline.

June 24 June 16 The 5Mt/a capacity building project run by CNPC and Total at Iraq’s Halfaya Field
started production and delivered crude oil ahead of schedule.

June 24 CNPC's AD Project in Afghanistan was launched, marking the official start of the
production phase. On October 20, 2012, the phase-I production facilities were put into
operation at the Angot Oilfield.

June 29-30 Li Changchun, Member of the Standing Committee of the Political Bureau
of the CPC Central Committee, visited Liaoyang Petrochemical and the offshore
engineering base of CNPC Bohai Equipment Manufacturing Company.

July
June 29

July 1 Yan’an Petroleum and Natural Gas Co. Ltd. was incorporated in Yan’ an, Shaanxi Province,
with PetroChina holding a 51% stake and Yanchang Petroleum Group holding a 49% stake.

July 11 Petrochina Southwest Pipeline Company was established for operating and
constructing oil and gas pipelines and supplying crude oil and natural gas in Sichuan,
Chongqing, Yunnan, Guizhou and Guangxi.

53
2012 Annual Report Major Events

July 25 PetroChina’s acquisition of a 40% stake in Qatar’s No.4 Offshore Block from GDF
SUEZ was approved by the Ministry of Energy and Industry of Qatar.

July 28 Jia Qinglin, Member of the Standing Committee of the Political Bureau of the
CPC Central Committee and Chairman of the Chinese People's Political Consultative
Conference (CPPCC), visited Daqing Oilfield.

August

July 28 August 8 An agreement was signed with the Government of Xinjiang Uygur
Autonomous Region and Xinjiang Production and Construction Corps for the exploration
and development of Karamay’s Hongshan Oilfield. On September 12, 2012, Karamay
Hongshan Oilfield Co. Ltd. was incorporated.

August 16 A framework agreement on training was signed with RECOPE. Under the
agreement, CNPC will provide training to petroleum and non-petroleum professionals,
management personnel and technicians in Costa Rica.

August 19 The Ansai LNG Project went on stream and started to produce LNG, marking the
successful application of CNPC’s proprietary double mixed refrigerant (DMR) technology.

August 16 August 30 A new 300kt/a polypropylene plant became operational at Daqing Refinery,
boosting the company’s annual polypropylene production capacity from 300,000 tons to
600,000 tons.

September

September 11 Three agreements were signed with Siemens, including a framework

agreement on procurement and supply of merchandise and services, a memorandum
on sharing best practices and experiences, and a memorandum on cooperation in
equipment manufacturing. Under the agreements, the two sides will cooperate in global
September 14 procurement, knowledge sharing and equipment manufacturing.

September 11 and 14 Wu Bangguo, Member of the Standing Committee of the Political

Bureau of the CPC Central Committee and Chairman of the Standing Committee of
the National People's Congress, visited CNPC’s projects in Iran and the Myanmar-China
pipeline project.

October

October 5 A new 600kt/a ethylene plant went on stream at Daqing Petrochemical

and started to produce qualified ethylene products, enabling the company to
October 16
produce 1.2 million tons of ethylene per year.

54
 Major Events 2012 Annual Report

October 16 Construction commenced of the Third West-East Gas Pipeline. Running 7,378
kilometers from Horgos in Xinjiang to Fuzhou in Fujian, the pipeline consists of one trunk
and eight branches with an annual deliverability of 30 billion cubic meters.

October 19 A cooperation agreement was signed with Ecopetrol, proposing a series of

cooperation initiatives in exploration, production and storage of crude and heavy oil.

October 20 All compressor stations along Line A and Line B of the Central Asia–China
Gas Pipeline were operational, enabling the pipeline to transmit 30 billion cubic meters
of natural gas per year.
November 7
October 28 A new 800kt/a ethylene plant became operational at Fushun Petrochemical,
marking the full operation of the company's "10Mt/a refining and 1Mt/a ethylene"
project and boosting the company’s refining capacity and ethylene production capacity
to 11.7Mt/a and 0.94Mt/a respectively.

November

November 7 A gas processing plant went on stream at Al-Ahdab in Iraq. Comprising two
2,000m3 LPG spherical tanks and one LPG loading station, as well as associated facilities
December 16
and safety control systems, the plant has a daily capacity of 400 cubic meters.

November 8 CNPC started construction of two natural gas processing plants and a gas
pipeline in Tanzania. The two gas processing plants have an annual capacity of 2 billion
cubic meters and 1.5 billion cubic meters respectively. The pipeline has a total length of
500 kilometers, which will connect the two gas processing plants and Dar es Salaam.

December

December 16 A strategic cooperation agreement on SNG development was signed with

the Government of Xinjiang Uygur Autonomous Region to promote cooperation in the
coal chemical industry and boost gas pipeline construction in Xinjiang.

December 21 CNPC entered into an equity transfer agreement with Kulob Petroleum of
Canada, with CNPC holding a 33.335% stake in the Bokhtar Production Sharing Contract.

December 28 The Fengcheng Heavy Oil Pipeline at Xinjiang Oilfield went on stream.
With a total length of 102.26 kilometers and a designed annual deliverability of 4 million
tons, it is the largest and longest heavy oil pipeline in China.

December 30 The Second West-East Gas Pipeline was fully operational. As a result,
more than 20 pipelines were interconnected and a 40,000km-long nationwide natural
gas pipeline network has taken shape, covering 28 provinces, municipalities and
autonomous regions, and Hong Kong SAR.

55
2012 Annual Report Glossary
Glossary
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.
56
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.
 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
Horizontal well "our" are also used to refer to China National Petroleum
Corporation in general or to those who work for it.
A class of nonvertical wells where the wellbore axis is near horizontal
(within approximately 10 degrees of the horizontal), or fluctuating above This report is presented in Chinese, English, Russian,
Spanish, and French. In case there is any divergence of
and below 90 degrees deviation. A horizontal well may produce at rates
interpretation, the Chinese text shall prevail.
several times greater than a vertical well, enhance recovery efficiency and
Recycled/recyclable paper are used for this annual report.
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.
Planning: CNPC International Department
Editing: CNPC Research Institute of Economics & Technology
photographer: Liu Yanzhi, Liao Zongheng, Wang Min,
Wang Maohuan, Wang Tieheng
Design: Beijing FineDesign Co., Ltd.
Printing: Beijng Duocai Printing Co., Ltd.
9 Dongzhimen North Street, Dongcheng District, Beijing 100007, P. R. China www.cnpc.com.cn