China National Petroleum Corporation

Energize Harmonize Realize

China National Petroleum Corporation (CNPC) is an integrated international

energy company, with businesses covering oil and gas operations, oilfield
services, engineering and construction, equipment manufacturing, financial
services and new energy development.

Contents
Message from the Chairman

03

Report of the President

04

Top Management and Organization

07

2013 Industry Review

08

Safety, Environment, Quality and

Energy Conservation

10

Human Resources

14

Technology

16

Annual Business Overview

20

Financial Statements

42

Major Events

48

Glossary

52


2013 Annual Report

02

Message from the Chairman 2013 Annual Report

Technological innovation is the driving force behind CNPCs sustained

growth. Adhering to an innovation-driven approach and putting
innovation at the core of the companys strategy, CNPC has benefited
from technological progress in its business growth through ongoing
efforts to bolster innovation management, talent cultivation and
technological cooperation. In 2013, an integrated solution for shale gas
development was applied in Sichuan and Yunnan, exhibiting promising
results. Together with Shell, we established a shale oil joint research
center as part of the initiative to step up efforts in unconventional
oil and gas technology research. In the refining sector, we upgraded
the quality of gasoline by commercially applying our proprietary
hydrodesulphurization technologies for FCC gasoline.

Message from the Chairman

The year 2013 witnessed a faltering global economic recovery, and increasing
operational risks and cost pressures in the oil and gas industry. Stabilizing
energy supply and minimizing environmental impact still remain the greatest
challenges faced by the company. With the goal of building a major integrated
international energy company, we are committed to promoting technological
progress and international cooperation, and developing and utilizing energy
in a more efficient and environmentally-friendly way. We are well positioned
to achieve industry-leading operational performance with enhanced
competitiveness and profitability by 2020 through strategic development
initiatives, technological innovation, and an accelerated shift to a new
development mode highlighting quality and efficiency.
In the past year, we were steadfast in implementing our strategies for
resources, markets and internationalization. In addition to conventional
onshore oil and gas, we put a new premium on the exploration and
development of unconventional and offshore resources. In China, our
newly added proven oil and gas reserves exceeded 1 billion tons of oil
equivalent for the seventh consecutive year, with the reserve replacement
ratio staying above 100%. Delivering more than 60% of Chinas total oil
and gas, we did a good job in meeting the burgeoning demand in the
domestic market through our nationwide distribution network. Meanwhile,
we started to partner with private, social and international investors in
pipeline construction and operation, nonproducing reserves, and shale gas
exploration and development. We entered a number of oil and gas projects
in Central Asia, Russia, offshore East Africa, Latin America and the Middle
East, consolidating the foundation for the scale and quality development
of our overseas business.

CNPC has significantly enhanced its strength through years of efforts.

We realized that a transition from a development mode focused on
scale to one which focuses on quality and efficiency is a must to achieve
sustainable business growth and build a major energy company. To this
end, we continue to optimize our investment portfolio and business
layout while maintaining a focus on oil and gas operations, improving
asset quality and delivering premium engineering solutions, products and
customer services. In response to the Chinese Governments air pollution
control plan, we have accelerated oil products upgrading and natural
gas development in order to boost our clean fuel supply. Meanwhile, we
have been following the market rules in improving corporate governance
and internal control to ensure regulatory compliance and responsible
operation. Our HSE performance has been constantly improved as we
regard safety and environmental protection as our fundamental principles.
We are determined to foster safety awareness and an attitude that all
accidents are preventable throughout the company, in order to achieve an
industry-leading HSE record.
The global economy is expected to pick up slowly and the Chinese
economy will continue to grow steadily in 2014. To ease air pollution,
there will be an increasing demand for clean fuels including natural gas.
Following the guideline of pursuing quality, efficient and sustainable
development, we will continue to push ahead with our strategies for
resources, market and internationalization, and strive to achieve the
objectives set for 2014 by deepening reform, enhancing corporate
governance, optimizing our business structure, promoting technological
innovation and strengthening cooperation, in order to better serve socioeconomic development.

Zhou Jiping, Chairman

03

2013 Annual Report Report of the President

and Tarim basins, and made significant progress in tight oil exploration in
the Songliao and Ordos basins.
To increase daily output per well and enhance profitability of oil and
gas production, we optimized technologies and implemented fine
management in project design, production organization, field operation,
and follow-up analysis. In 2013, we produced 112.6 million tons of crude
oil, 2 million tons more than the previous year. Our natural gas output
rose to 88.8 billion cubic meters, accounting for 75% of the nations total.
In particular, Daqing Oilfield continued to produce at the 40 million tons
level for the eleventh consecutive year. Changqing Oilfield produced
51.95 million tons of oil equivalent, becoming the most productive
onshore oil-gas field in China.

Report of the President

In 2013, amid a range of risks and challenges both inside and outside
the company, CNPC continued its strategies for resources, market and
internationalization and capitalized on both domestic and international
resources and markets. Maintaining a focus on oil and gas operations
and emphasizing the quality and efficiency of our business growth, we
achieved operating results better than the industry average. The company
recorded a full-year operating income of RMB 2.76 trillion, total profits of
RMB 188 billion, and tax payable of RMB 407.8 billion, up 2.8%, 2.2% and
3.8% year-on-year, respectively.

Steady growth in domestic oil and gas operations

We achieved favorable exploration results by prioritizing high-quality
producing reserves in major petroliferous basins as our exploration
targets. In 2013, newly added proven oil in place and gas in place were
670 million tons and 492.3 billion cubic meters respectively, exceeding
1 billion tons of oil equivalent for the seventh consecutive year. The
reserve replacement ratio remained over 100%. We identified Chinas
largest monomer uncompartmentalized gas reservoir at Longwangmiao
Formation of Moxi block in the Sichuan Basin, proved several large-scale
uncompartmentalized blocks with considerable oil reserves in the Ordos

04

In 2013, we improved resource allocation, optimized process routes and

streamlined product offerings in the refining and chemicals sector. Our
crude runs and the output of refined products totaled 146.02 million tons
and 97.9 million tons, respectively. High efficiency products proportion
reached 35%. We continued to improve product quality to boost the
supply of clean oil products. Our 14 gasoline upgrading projects became
operational, adding 14.05 million tons to our clean gasoline production
capacity. All of our motor gasoline products have met National IV standards.
With regard to oil products marketing, given frequent price adjustment and
easing market supply, we focused on developing the distribution network
and retail business in key markets in order to increase profitability. In 2013,
the company sold 118.33 million tons of oil products in domestic market, up
1.5% year-on-year, with retail sales reaching 87.3 million tons and high-grade
gasoline sales increasing by 30%. We have set up an integrated marketing
model comprising retail, fuel cards and non-fuel businesses. Meanwhile, in
view of the strong demand for natural gas, we managed to allocate various
gas sources including self-produced, imported and SNG, and leveraged the
peak-shaving capabilities of our LNG terminals, underground gas storage
and pipeline storage, ensuring stable market supply. The company sold
110.6 billion cubic meters of natural gas in 2013, up 13.6% year-on-year. A
number of key projects went on stream, including the Myanmar-China Gas
Pipeline, Zhongwei-Guiyang Gas Pipeline, Lanzhou-Chengdu Crude Pipeline,
Lanzhou-Zhengzhou-Changsha Refined Products Pipeline and Tangshan LNG
Terminals, bolstering our oil and gas supply capacity and extending our gas
supply network to 29 provinces, municipalities and autonomous regions as
well as Hong Kong SAR throughout the country.

Major breakthroughs in international operations

In 2013, we picked up pace in implementing our internationalization
strategy and continued to optimize our overseas business structure,

Report of the President 2013 Annual Report

achieving fruitful results in international cooperation. We signed

agreements on oil and gas development and LNG projects with Russia,
Kazakhstan and some other Central Asian countries. We also acquired a
number of offshore projects in Brazil, Mozambique, Australia and the United
Arab Emirates, in cooperation with some IOCs. In addition, cooperation was
expanded between CNPC and its counterparts in Latin American countries
such as Peru and Ecuador.
We made significant discoveries in the Bongo Basin in Chad, the Agadem
Block in Niger and the right bank of the Amu Darya in Turkmenistan, by
drawing on domestic expertise and experience and focusing on new
zones, new strata and new types of reservoirs. In 2013, our overseas
operating production amounted to 123 million tons of oil equivalent,
of which CNPCs equity was 59.2 million tons. Thanks to our overseas oil
and gas operation centers in Asia, Europe and the Americas and a global
marketing network, our international trade business continued to grow
both in terms of scale and performance. The full-year trade volume stood
at 350 million tons, up 15.6% year-on-year.

Consolidated comprehensive and integrated strength

Oilfield services, engineering & construction, and equipment
manufacturing are essential parts of CNPCs comprehensive and integrated
strength. In 2013, we maintained our focus on intensive and specialized
development, and saw continuous improvement in service capabilities.
We pushed ahead with R&D and application of key techniques, equipment
and software in oilfield services. Horizontal and underbalanced drilling
techniques were widely applied and we have secured a leading position
in the global onshore geophysical prospecting market for 10 consecutive
years. The proportion of EPC and PMC contracting and engineering design
in our engineering & construction business rose steadily as we further
promoted the application of new technologies, processes and materials
to improve project quality and construction efficiency. Our equipment
manufacturing sector optimized product offerings and further improved
its product and service quality, despite sluggish market demand. Our
petroleum equipment marketing network covers all major oil and gas
producing areas worldwide. We also further improved the settlement
and financing platforms in our financial services, to support the sustained
growth of our core businesses.

Enhanced sustainability

with social investors from the insurance and banking sectors, and became
the first State-owned enterprise to issue preference shares through China
Reform Holdings Corporations platform.
Technological progress is playing an increasingly important role in driving
the companys business growth. ASP flooding contributed remarkably
in stabilizing production at Daqing Oilfield. Horizontal well drilling
and completion and SRV fracturing in a factory-like operation mode
enabled efficient development of the ultra-low permeability reservoirs
at Changqing Oilfield. Progress in the R&D of technologies for large-scale
shale gas development, integral development of giant carbonate reservoirs,
full-range refining catalysts, and natural gas liquefaction equipment
underpinned the sustainable growth of corresponding businesses.
We give top priority to operational safety, environmental protection, energy
efficiency, and emission reduction. In 2013, we achieved a satisfactory HSE
performance by improving the HSE management system, reinforcing risk
identification and control, and enhancing pollution control and treatment
measures. By launching a number of key energy efficiency projects and
promoting the use of resource-saving technologies, we cut our energy use
by 1.18 million tons of standard coal and fresh water use by 24.4 million
cubic meters throughout the year.
2014 is a critical year for us to achieve the objectives of the 12th Five-Year
Plan. We will adhere to the development guideline of quality, efficiency
and sustainability, while pressing ahead with our strategies for resources,
market and internationalization. Emphasis will be given to oil and gas
operations, the building of innovative capabilities, strategic business
adjustment, a shift in our development mode, and the improvement of
profitability, in order to build CNPC into a major integrated international
energy company. We remain committed to safeguarding national energy
security and fueling sound and sustained socio-economic development.

Liao Yongyuan, President

The company partnered with private capital, social and international

capital to make headway in the construction and operation of key projects.
We set up the PetroChina United Pipelines Company Limited joint venture

05

2013 Annual Report

Operation Highlights
2011

2012

2013

2,381.3

2,683.5

2,759.3

Total profit (billion RMB yuan)

181.7

183.9

188.0

Net profit (billion RMB yuan)

130.5

139.2

140.8

Tax payable (billion RMB yuan)

401.5

393.0

407.8

149.27

151.88

159.81

107.54

110.33

112.60

41.73

41.55

47.21

88.19

93.52

103.89

Domestic

75.62

79.86

88.84

Overseas (CNPC's share)

12.57

13.66

15.05

Financial Index
Operating income (billion RMB yuan)

Oil and Gas Production

Oil production (mmt)
Domestic
Overseas (CNPC's share)
Gas production (bcm)

Refining, Chemicals and Sales

Crude runs (mmt)

179.62

191.45

188.55

Domestic

144.84

147.16

146.02

Overseas

34.78

44.29

42.53

93.00

96.38

97.90

Domestic lube oil output (mmt)

1.57

1.84

1.89

Domestic ethylene output (mmt)

3.47

3.69

3.98

Domestic refined products sales (mmt)

114.98

116.62

118.33

Domestic service stations

19,323

19,840

20,272

Domestic refined products output (mmt)

Pipeline
60,257

66,801

72,878

Crude oil

14,807

16,369

17,640

Natural gas

36,116

40,995

45,704

Oil products

9,334

9,437

9,534

Domestic pipeline mileage(km)

10,494

10,494

13,257

Crude oil

6,672

6,672

6,671

Natural gas

3,822

3,822

6,586

Overseas pipeline mileage(km)

06

Top Management and Organization 2013 Annual Report

Top Management and Organization

Yu Baocai

Shen Diancheng

Liu Yuezhen

Wang Lixin

Liu Hongbin
Vice President,
Chief Safety Officer

Chief Financial
Officer

Chief of Discipline &

Inspection Group

Vice President
Vice President

Vice President

Liao Yongyuan Wang Dongjin

Zhou Jiping

President
Chairman

China National Petroleum Corporation

General Office
Policy Research Office
Planning Department
Finance Department
Treasury Department
Tax Department
Human Resources Department
Production & Operation
Management Department
M & A Department
Legal Department
HSE and Energy Conservation
Department
Quality and Standard
Management Department
R&D Department
IT Department
Procurement Department
International Department
Supervision Department
Auditing Department
Corporate Management
Department
Logistics Department
Corporate Culture Department
Retiree Affairs Department

Holding Companies

Oil and Gas Fields

CNPC Engineering &

Construction Company

CNPC Oilfield
Service Company

Manufacturing Companies

Engineering & Construction

Companies

Oilfield Service Companies

Refining and Chemical

Companies

CNPC Manufacturing
Company

Overseas Companies

Research Institutions

Others

07

2013 Annual Report 2013 Industry Review

2013 Industry Review

Oil Prices in 2013

USD / bbl

130
120
110
100
90
80
70

10

11
Brent

In 2013, the world economy recovered slowly from slump. The petroleum
industry maintained steady growth, along with ample oil supply and
volatile oil prices at high level. As China accelerated its economic structural
adjustment, the Chinese economy grew at a slightly slower but stable pace,
leading to a declining growth rate of oil consumption but rising demand
for natural gas.
Under the influence of long-term structural adjustment and economic
stimulus policies, 2013 saw signs of global economic revival. The
economies of the US, Europe and Japan improved to varying degrees while
the emerging economies experienced slower growth rate. Global primary
energy consumption increased 1.5% year-on-year, with energy demand
shifting towards the emerging markets in the east. China consumed 3.8%
more energy than in 2012, registering a slower increase, attributable to the
country's transitioning economy.
Despite ample supply, 2013 witnessed oil price volatility as a result
of geopolitical influences and economic stimulus. Global oil demand
and supply were 91.17 million bbl/day and 91.65 million bbl/day, up
1.2 million bbl/day and 0.7 million bbl/day year-on-year, respectively.
However, oil prices fluctuated by USD 20/bbl due to a number of
political and economic factors such as the ongoing Syria crisis, the
bleak prospects of Iran's nuclear crisis, disturbances in Libya and South
Sudan, and the currency stimulus policies launched by the European

08

12
WTI

Union and Japan. The Brent spot price fluctuated between USD100120/bbl, averaging USD108.66/bbl in 2013, down USD2.92/bbl from
2012. The growth rate of Chinas oil consumption slowed as a result of
the transition and adjustment of its economic structure. The country's
apparent oil consumption increased 1.7% year-on-year, 2.8% lower than
the rate in 2012. Around 58% of domestic consumption was dependent
on imported oil. With further changes to the economic development
mode, oil consumption in China will grow more rationally.
The world petroleum industry kept investing more in the upstream,
focusing on deepwater and unconventional resources. Oil production
increased significantly in the US, thanks to the massive development
of shale oil. Global E&P investment in 2013 increased 10% year-on-year,
with new hotspots such as deepwater resources in East Africa, Brazil, and
the Gulf of Mexico, as well as shale oil and gas in North America. Driven
by strong investment, the world saw a steady increase in remaining
proven reserves and continued growth in the production of oil and gas.
In particular, the US has enhanced investment in shale oil to raise the
daily output by 800,000 barrels from 2012, bringing its total daily crude
production to 7.5 million barrels. As the US increases investment and
production of shale oil and gas, the country is catalyzing a significant
change in the supply-demand pattern, prices, and the global trade flow
of oil and gas. In fact, the oil originally exported from the Middle East and

2013 Industry Review 2013 Annual Report

Africa to the US, as well as the natural gas from the US, Russia, Canada, and
Australia, will be transferred to the Asia-Pacific market.
China has sustained a high reserve growth by exploring oilfields in central,
western and offshore regions. An intensified degree of development has
helped stabilize production in major fields and yielded 2% more oil than in
2012. Gas output registered an increase of 8.6% year-on-year, as production
capacity building for conventional gas proceeded smoothly with increasing
output from major gas fields, and breakthroughs were made in tapping
unconventional gases.
In 2013, global refining capacity totaled 4,588 million tons, up 10.1 million
tons year-on-year, with per refinery capacity at 7 million tons per annum.
Daily crude runs totaled 75.96 million barrels, the highest since the
outbreak of the global financial crisis. But the overall refining margin was
weaker than in 2012. The Asia-Pacific contributed 32% of the global refining
capacity. Revamping/upgrading existing refineries and building a number
of joint venture refineries led to squeezed margins in local refineries. In Europe,
refineries made a meager profit due to high oil prices and declining demand.
North America became the most competitive region, thanks to accessible
cheap refinery feedstocks from shale oil and gas development. Global ethylene
capacity totaled 149 million tons per annum, up 2.3% year-on-year, with newly
added capacity mainly from Singapore, Iran and China.
Chinas primary crude processing capacity reached 627 million tons in
2013, up 5.6% year-on-year, and the crude runs was 484 million tons. The
average utilization rate of refineries declined to 83% from 85% in 2012. With
processing capacity growing at a faster pace than demand, there was an
ever increasing surplus supply of refined products in the past three years.
Chinas ethylene capacity totaled 17.88 million tons, up 9.8% year-on-year,
featuring diversified feedstock and a higher proportion of domestically
developed equipment and technology.

compared with 286 million tons of apparent consumption, up 3.5%

year-on-year, which was 1.8% lower than the increase in 2012. While
passenger cars and aviation transport pushed up demand for gasoline
and kerosene, diesel consumption was slightly sluggish. The countrys
net exports of refined products increased 98.7% year-on-year.
As China continues its economic transition and attaches more importance
to environmental protection, natural gas and other cleaner energy
products will be more recognized in the domestic market. In 2013,
China became the worlds third-largest gas consumer, with apparent
consumption reaching 167.6 billion cubic meters, up 13.9% year-on-year,
and the proportion of gas in primary energy consumption increasing by
0.5% year-on-year. As much as 31.6% of the countrys gas consumption
depended on imports of LNG and pipeline gas, totaling 53 billion cubic
meters. The Chinese Government will enforce the National IV standard for
gasoline beginning in 2014, the National IV standard for diesel in 2015, and
the National V standard for both gasoline and diesel in 2018.
In 2014, the global economic recovery is expected to continue. The Chinese
economy will grow steadily, with more focus on balance and quality. Driven
by the economic recovery, global oil demand will keep increasing although
the ample supply may suppress oil prices. In China, the growth rate of oil
demand may rise again, and gas consumption will maintain rapid growth.
Oil companies will continuously increase their global upstream investment
to stabilize oil and gas supply.

In 2013, the world saw an overall ample supply of major oil products.
Specifically, the supply and demand for gasoline was generally
balanced, while diesel and jet fuel were over supplied. Global demand
for gasoline, diesel and kerosene increased by 1.5%, 1.5% and 0.8%
year-on-year, and supply increased by 1.7%, 2.3% and 0.8%, respectively.
The supply-demand pattern varied significantly by region, with surplus
supply in Central Asia, Russia, North America, and the Middle East,
but tight markets in Latin America, the Asia-Pacific, and Africa. China
saw product-specific demand growth, year-round ample supply, and a
significant increase in net exports of refined products. The ample supply
was reflected by 296 million tons of production, up 5.2% year-on-year,

09

Safety, Environment, Quality and Energy Conservation

1.18

mmt of standard coal equivalent

Energy saved

24.4

Water saved

94%

Employee occupational health check

million cubic meters

92%

Workplace occupational hazard detection

Safety, Environment, Quality and Energy Conservation 2013 Annual Report

In 2013, CNPC further promoted safe, environmentally friendly and

resource-saving development, and continued to improve its HSE system
focused on risk assessment and control. With enhanced management
of hidden risks and strict control of pollutant emissions, we maintained
satisfactory HSE performance.
Faced with challenges such as unpredictable social insecurity, we managed
to address various risks by intensifying security and HSE management in
overseas projects, with zero reporting of major security and HSE incidents
in our international operations.

Operational Safety
In 2013, we developed and implemented management rules on
operational safety, and witnessed improvements in the companys HSE
responsibility system. One of these rules was Management Procedures
of Operational Safety and Environment Accountability , which specifies
the fundamental principles, formulation procedures, responsibilities, and
performance evaluation of safety and environment accountability.
To improve prevention and control of safety and environmental risks, we
continued building a multi-level risk control mechanism and emergency
response system. Subsidiaries were organized to identify and evaluate
hidden safety and environmental risks, and work out level/disciplinespecific risk management measures. As a result of emergency drills
featuring major road transport accidents involving hazardous chemicals,
we enhanced a joint response mechanism with local governments and
improved our emergency response capacities. In addition, we allocated
dedicated funds to identifying and correcting hidden safety risks related
to pipelines intersecting with each other or subject to surface load, and
facilities subject to corrosion and aging. Through our operational accident
investigation center, we shared experiences and best practices in accident
precaution and prevention, launching three such campaigns throughout
the year, covering 150,000 employees.

monitoring devices and data network connectivity. We also formulated

the Procedures for Evaluating Total Reduction of Major Pollutant
Emissions , which specifies stricter and more detailed objectives and
requirements for our affiliates, in order to ensure minimal emissions.

Occupational Health
In view of the long industrial chain and widespread geographic distribution
of our operations, we adopt and implement an integrated, preventionoriented approach which strictly abides by the Law of the People's
Republic of China on Prevention and Control of Occupational Diseases , to
continuously improve staff occupational health management and services.
Occupational health checks are the key measures for staff health monitoring.
In 2013, more than 94% of our employees received occupational health
checks and 92% of the specific workplaces received occupational disease
hazards detection. We regularly dispatched medical professionals to work
sites for health hazard and hidden risk screening and treatment, to safeguard
the occupational health of our frontline workers, especially those in remote
locations. We intensified management of food and drinking water hygiene, and
took effective measures to prevent the occurrence of occupational poisoning,
heat stroke, food poisoning, and epidemics.
At our overseas projects, giving consideration to the living, working and
sanitary conditions in host countries, we provide employees with targeted
medical care and mental counseling services through well-equipped
medical facilities and the employee assistance program (EAP). In 2013, we
sent medical teams to Chad, providing employees with health checks for
342 person-times and one-to-one psychological counseling for 73 persontimes, and holding seven mental health lectures. In Niger, the incidence
of malaria among our employees declined substantially as we provided
training on the prevention and treatment of malaria and other tropical
diseases, and prepared test kits and anti-malaria drugs in advance.

Environmental Protection
With continuing socio-economic development and industrialization,
people are increasingly demanding a healthier and low-carbon living
environment. As an energy company, CNPC is always committed to
promoting environmentally friendly development and clean operations to
minimize pollutant emissions.
In 2013, we pushed ahead with our emission reduction projects. Nine
projects for the desulfurization of flue gas generated from catalytic
cracking units and 11 refining wastewater treatment projects became
operational. Emission reduction practices at our affiliates were more
closely supervised through an improved network for online monitoring
of pollution sources, in which 71 monitoring stations for wastewater
and 101 monitoring stations for flue gas were equipped with online

Afforestation for emission reduction at Xinjiang Oilfield

11

2013 Annual Report Safety, Environment, Quality and Energy Conservation

Energy Efficiency
We constantly promote major energy conservation projects and
demonstration technologies, and perform evaluation and monitoring
of energy conservation practices, as we strive to enhance energy
efficiency, realize resource-saving development, and build a resourceefficient enterprise.
We have adopted a quarterly reporting system to monitor the progress
of major energy conservation projects, and evaluate and examine the
results. In 2013, we launched 64 energy efficiency projects, mainly focusing
on mechanical lifting systems, surface systems and steam systems in our
oilfields. Upon completion, these projects are expected to save energy
equivalent to 335,300 tons of standard coal every year.
We collected relevant data by monitoring and evaluating major
energy and water consuming equipment and systems such as heating
furnaces, oil transfer pumps, gas compressors and diesel generators, to
facilitate the planning of targeted and workable energy-conservation
programs. We also promoted the application of demonstration energyefficiency technologies, took measures to enhance the efficiency of
heating furnaces in oilfields, and validated and applied energy system
optimization proposals. In 2013, the companys energy use and water
use were reduced by 1.18 million tons of standard coal equivalent and
22.4 million cubic meters, respectively.

Quality Control
With a firm commitment to honesty, trustworthiness and quality,
we provide society with products and services of high standard and
quality. In 2013, we issued the Implementation Plan of the State
Council's Quality Development Outline (2011-2020) , which specifies the
objectives and measures in quality control of our products, engineering
projects and services by 2020. We developed a quality index system
and improved the quality statistics and assessment system, making our
quality management more scientific and standardized. Our 103 affiliates
obtained third-party certificates for quality management system (QMS)
and QMS promotion reviews were initiated at major operating units and
research institutes.
We continued to strengthen the supervision of product quality. To
ensure the maximum protection of consumers' rights and interests,
we carried out spot checks of 2,140 batches of products in 2013, most
of which were consumer-interfacing products such as gasoline and
diesel for automobiles and LPG, or purchased products related to safety
and environmental protection, such as valves, pipes and chemicals.
Supervision of engineering quality was also enhanced. We supervised
2,674 ongoing engineering projects throughout the year, identified

12

and addressed hidden quality risks, and specified the quality control
behavior of the parties responsible for these projects. As a result, risks in
engineering quality were significantly eliminated.
In 2013, we further improved our corporate standard system by
developing 173 enterprise standards, and formulated or amended
137 national and industrial standards. Commissioned by the National
Energy Administration, we set up the Shale Gas Standard Committee of
China's energy industry, established a technical standard organization
based in CNPC, and developed a standard system for unconventional
hydrocarbon. In addition, the company deepened its cooperation
with the American Petroleum Institute (API) on quality standards, and
undertook the job as the secretariat of the ISO Upstream Natural Gas
Technical Committee (ISO/TC193/SC3).


2013 Annual Report

Environment protection during the drilling operation in Sichuan Basin

13

Human Resources

19

433

100

322

Academicians of the CAS and CAE

Management experts

Senior technical experts

Senior skilled experts

Human Resources 2013 Annual Report

At CNPC, we pay a great deal of attention to talent cultivation. We are

committed to building good career development platforms for our
employees and creating a fair, equitable, honest and trusting working
environment. We are trying to develop a human resource development
and management system serving the companys goal of building a major
integrated international energy company.
We maintain the principles of openness, fairness and competitiveness in
selecting and recruiting technical professionals and management personnel
from inside and outside the company. In 2013, we recruited 10,752 college
graduates and 95 overseas students. A total of 211 new senior technical
experts were added to the existing list and two senior experts were
elected academicians of the Chinese Academy of Engineering. We had a
performance-focused and skill/integrity-based evaluation system in place
to inspire our technical professionals. Under this system, 200,000 employees
were evaluated in terms of professional skills in 2013 and 129,000 were
promoted to a higher level of professional qualification, including
2,438 technicians and 608 senior technicians. As of the end of 2013,
CNPC had 19 academicians of the Chinese Academy of Sciences or
the Chinese Academy of Engineering, 433 senior technical experts,
100 management experts, 322 senior skilled experts, 4,069 senior
technicians and 24,268 technicians.
We provide a wide range of career development and training opportunities
for employees and launch training programs periodically to build their
professional skills. In 2013, 166 training programs were conducted by the
headquarters for around 20,000 person-times. In addition, 16 technician
training courses were arranged, covering 562 technical talents. In
cooperation with the German Welding Society, 35 of our skilled welders
were trained to serve as full-time or part-time welding instructors for the
company. Meanwhile, we sent some selected senior technical experts to
Tsinghua University and China University of Petroleum for advanced studies.
We organize skill competitions every year covering a wide range of
occupations to recognize and inspire skilled workers. In 2013, skill
competitions were held for gathering and transportation workers, well
drillers, well control crews, logging operators, foremen at 5Mt/a refineries
and catalytic reforming unit operators, and pump maintenance fitters. Five
CNPC employees attended an international welding contest in Germany,
ranking first in TIG welding and CO2 welding, second in arc welding and
third in gas welding.

University, quality management training at Siemens, advanced technology

training in Canada, and an internship program at Baker Hughes.
We value the contributions of local employees and attach great
importance to local talent cultivation. We continue to promote local
hiring and encourage our overseas project companies and oilfield service
companies to offer more jobs to surrounding communities. Meanwhile,
we provide local employees with training in engineering, business
management and HSE, in order to enhance their skills and competence.
In Iraq, the company has set up training centers and works with local
colleges as part of its ongoing efforts for employee development. At the
training center of the CNPC-affiliated China Petroleum Engineering and
Construction Corp (CPECC) in Iraq, more than 110 local workers have
mastered welding skills. In 2013, this training center was authorized by
South Oil Company (SOC) to provide training services on petroleum
engineering for SOC employees. In addition, CPECC signed a MOU with
the University of Basrah to recruit 40-50 college students annually over the
next four years to work in the companys local projects.
During the second CNPC excellent Iraqi employee commendation activity
in 2013, 10 Iraqi employees were named Outstanding Employees and
58 were named Excellent Employees. Asmaa Nasef Jasim Mohammed, a
representative of the excellent employees, said that the company regarded
the local employees as important members of this big family and she
would make more efforts to do her job well.
CNPC Bohai Drilling Engineering Company has been operating in
Venezuela for over a decade, with local employees accounting for more
than 90% of its workforce. The company adopts a three-stage approach to
skill training, i.e. induction training in the first stage, on-site training in the
second stage, and advanced training for outstanding employees in China
in the third stage. Those who have received the three-stage training are
then able to train other local employees. This enables a training cycle that
is more targeted and efficient. Meanwhile, the Chinese employees can also
learn from experienced local employees in terms of improved management
practices and techniques, thus creating a positive atmosphere in the
workplace for the Chinese and Venezuelan employees to grow together.

Overseas HR Management and Localization

We continue to build a strong workforce and promote workplace diversity
in our overseas operations through international talent management and
local employment.
In 2013, the company worked with industry peers and research
institutions to launch training programs for senior managers and technical
professionals at our overseas projects. These include the EMBA program
at the University of Houston, the visiting scholar program at Stanford

15

Technology

4,481

3,639

Second-class National Technical

Invention Award

Second-class National Scientific and Technological

Advancement Award

Diverting acid fracturing for carbonate reservoirs

and its industrial application

Construction of CNPC's technological innovation system

Patents applied

Patents granted

Development and application of the GeoEast ultra-large integrated

seismic data processing and interpretation system

Technology 2013 Annual Report

In 2013, CNPC continued to improve its technological innovation system

and deepen communication and cooperation in technology R&D.
Research work and field tests were enhanced for solutions to key technical
bottlenecks constraining the development of our core businesses. Progress
in the exploration and development of conventional and unconventional
oil and gas resources, refining and chemicals, oilfield services, storage and
transportation, and cutting-edge technologies strongly supported the
companys sustained growth.

Construction of Technological Innovation System

In 2013, CNPC further improved the technological innovation system to
reallocate and optimize R&D resources in its affiliated research institutes,
technology centers and enterprises, in order to leverage the companys
overall R&D strength.
We also pushed ahead with the construction of technology enablement
platforms, resulting in enhanced lab/testing capabilities. Backed by our
Southwest Oil and Gas Field Company, we set up a national R&D center
to facilitate the development of high-sulfur-content gas reservoirs.
Construction of our Houston research center proceeded well as planned,
which will attract excellent international talents and further facilitate
international cooperation in technology R&D.

Major R&D Advancements

Exploration and Production: We took an innovative approach to
studying the geology of deep natural gas resources, and made
breakthroughs in exploration depth and engineering technologies
of extremely-thick salt layers. This has supported the exploration and
development of the Kelasu gas field.

Refining and Chemicals: We made breakthroughs in the R&D and

application of a complete set of refining catalysts. Our FCC catalysts have
been sold on a large scale to the US and Singapore. The hydrocracking
catalysts were successfully put into industrial application at Daqing
Petrochemical.
Our independently developed catalysts for slurry polyethylene and copolypropylene have been used industrially for a long period. Industrial
tests of ethylene propylene rubber, polyisoprene rubber, and rare earth
butadiene rubber have proceeded smoothly.
Production technologies for National IV and National V standard diesel fuel
have passed industrial application tests at Liaoyang Petrochemical's
1.2Mt/a diesel hydrogenation unit and Changqing Petrochemical's
600kt/a diesel hydrogenation unit.
The technical package for 10Mt/a atmospheric-vacuum distillation units
has been successfully applied at Sichuan Petrochemical, with the main
technical and economic indicators achieving the globally-advanced level.
Core technical packages for 2Mt/a catalytic cracking, 4Mt/a delayed coking,
and 3Mt/a wax oil hydrocracking units were developing smoothly, and will
provide effective support for the construction of our refining bases.
Oilfield Services: Regarding geophysical prospecting, GeoEast integrated
processing and interpretation software was upgraded and massively
deployed; the matching technologies for wide-azimuth, broadband and
high-density seismic prospecting with our independent intellectual
property rights were put into commercial application; the G3i full-digital
seismic acquisition system was improved to have a channel capacity of
more than 100,000; and the KLSeis ll new-generation seismic acquisition
software system was upgraded.

Better understanding of the reservoir-forming theory of large, ancientcarbonate gas fields guided the discovery and resource evaluation of the
Gaoshiti-Moxi giant gas field.
New understanding on the composite reservoir-forming pattern at the edge
of the Qaidam Basin guided gas exploration at the piedmont of the Altun
Mountains, identifying a gas reserve volume of 100 billion cubic meters.
Streamlined ASP flooding with diverse surfactant series enabled Daqing
Oilfield to stabilize its oil output at 40 million tons per year.
Large-scale SRV fracturing of horizontal wells has been worked out in
addition to a series of development technologies for ultra-low-permeability
reservoirs, boosting Changqing Oilfields annual production capacity to
50 million tons.
An optimal development program and tailored waterflood techniques for
giant carbonate fields greatly facilitated production capacity building at
the Al-Ahdab, Halfaya and Rumaila oilfields in Iraq.

17

2013 Annual Report Technology

In terms of logging, our newly developed formation element logging unit

provided important technical support for evaluating unconventional oil
and gas; digital core imaging technologies enabled accurate, efficient, and
integrated reservoir logging evaluation; and logging-based identification
of effective inhomogeneous carbonate reservoirs yielded favorable results
in the Tarim and Changqing oilfields.
In well drilling and completion, technologies for factory-like drilling,
completion, and reservoir stimulation proved successful; improved
technologies for fast drilling and completion of deep and ultra-deep wells
helped to speed up the penetration rate and enhance efficiency at the
Kuqa Mountain Front and Anyue area; and breakthroughs in nitrogenbased underbalanced drilling and drill pipe completion contributed
significantly to the discovery and protection of reservoirs in the Tarim Basin.
Oil & Gas Storage and Transportation: The 20MW electric compressor
units passed a 4,000-hour industrial test at Gaoling Compressor Station
of the Second West-East Gas Pipeline, and will be deployed on the Third
West-East Gas Pipeline; and domestically manufactured 30MW fuel-driven
compressor units were ready for field testing.
CNPC is capable of building LNG tanks of 180,000 cubic meters in volume
and manufacturing four categories of key equipment, namely, large-scale
LNG refrigerant compressors, steam turbines, cold boxes, and LNG Boil Off
Gas (BOG) compressors. Our liquefaction techniques and equipment have
been successfully applied at LNG projects in Ansai City in Shaanxi Province,
Taian City in Shandong Province, and Huanggang City in Hubei Province.
X80 steel pipes of 1,422 mm in diameter and X90 steel pipes of 1,219 mm
in diameter have been in short run production. We also designed heavy
duty oil transfer pumps and mission-critical valves, some of which have
been ready for leave-factory check and acceptance.
HSE and Energy Conservation: Successful application of optimization
technologies and matching devices for tertiary recovery improved the
efficiency of our mechanical extraction system for polymer flooding in
high-water-cut oilfields, and saved electricity by more than 40 million kWh
and reduced CO2 emissions by more than 83,000 tons per year. A technique
based on pre-combustion desulfurization increased the efficiency of
refining furnaces from 90% to 93%.

Cutting-edge Technology Research

CNPC pays great attention to basic research and advanced research of the
industrys cutting-edge technologies in order to meet the ever increasing
energy demand. In 2013, we made remarkable progress in the research of
EOR technologies, state-of-the-art refining and petrochemical techniques, and
unconventional hydrocarbon exploration and development technologies.
To tap unconventional hydrocarbon, we developed a series of innovative
technologies for CBM exploration and development and formed a

18

preliminary standard system for Chinas CBM industry, which have greatly
facilitated our demonstration projects in the Qinshui and Edong CBM fields.
In addition, a technical series for shale gas "sweet point" prediction was
developed, promoting the establishment of a field test block at Changning
in Sichuan Province. Regarding the development of conventional oilfields,
we have initially grasped the mechanisms of intelligent nanometer oil
displacement and underground crude oil upgrading, and developed
indoor samples of oil displacement agents to provide new solutions
for future development and EOR of oil and gas fields. In refining and
chemicals, we developed a high-performance crystallization-based Na-Y
synthesis technique that will serve as an important platform for preparing
catalytic cracking catalysts and other essential materials. We also made
available a new catalytic cracking process featuring coordinated multizone control with our independent intellectual property rights, which can
reduce energy consumption by 15% and increase the yield of light oil by 2%.
In drilling engineering, based on bionics techniques, we created a drilling
system featuring wall consolidation, which succeeded in the field test of
horizontal wells at Sulige Gas Field.

Technological Cooperation
In 2013, CNPC became a Contracting Party in the Enhanced Oil Recovery
IA (EOR IA) of the International Energy Agency (IEA), and will build a liaison
and information sharing mechanism to facilitate international cooperation
for faster and better development of EOR technologies in China. CNPC also
worked with peer companies and research institutions at home and abroad
on technological cooperation and joint research. Progress was made in
joint technology R&D with Exxon Mobile and Shell in terms of exploration
and development, refining and chemicals, and oilfield services. A CNPCShell joint shale oil research center was established for research on the
theory, methodology, and frontier technologies for shale oil development.
We set up a technical committee together with the Chinese Academy
of Sciences (CAS), and have initiated six cooperative research projects,
including the "R&D of high precision digital geophones (MEMS)". We also
participated in the communication activities of international and industrial
organizations to extend our scientific and technological cooperation.

Technology 2013 Annual Report

Diverting Acid Fracturing for Carbonate Reservoirs and Its Industrial Application
In China, acidizing and fracturing is a prerequisite to discover

volumes and acid etching networks 3.1-7.2 times bigger than

and effectively extract oil and gas from carbonate reservoirs,

those by the conventional acid fluid system. We also developed

which feature inferior physical properties of matrix and

design optimization software and matching equipment and tools

discontinuously developed oil/gas bearing fracture-caves.

for diverting acid fracturing to ensure safe operations at high

However, conventional acid fracturing cannot generate enough

temperatures and under high pressure.

interconnected fracture-caves, resulting in small swept volume

by acid fluid, and a limited yield increase.

Diverting acid fracturing has been applied 921 well-times at

major carbonate fields in China as well as at some overseas

After years of research, we have developed the diverting acid

oilfields in Kazakhstan, Turkmenistan, Iraq, Iran and Syria. Field

fracturing technology for carbonate reservoirs, which combines

application has proven fruitful, as evidenced by a cumulative

fluid diversion and fracture reorientation. By temporarily blocking

oil production increment of 2.842 million tons and a gas output

exited fractures with our independently developed fracture

increment of 1.49 billion cubic meters over the past three years.

diverting materials, more fractures are induced in new places

In 2013, the technology won the Second-class National Technical

and new directions to link up more fracture-cave spaces and

Invention Award.

maximize the oil and gas flow channels. We invented two selfviscosifying acidizing fluid diverting systems to allow in-depth fluid
diversion and intelligent fluid diversion, resulting in enlarged swept

Carbonate reservoir description

19

Annual Business Overview

Focusing on oil and gas operations, the company made great efforts to
improve the quality and efficiency of its business growth in 2013, with
production and revenue being steady, key business indicators continuing to
grow year on year, and operating results were better than expected.

Annual Business Overview 2013 Annual Report

Exploration and Production

In 2013, we made a number of important discoveries in Chinas major
petroliferous basins, maintaining a boom period of reserve growth. We
stepped up the construction of major projects and enhanced oilfield
management, resulting in steady growth in oil and gas production.

54%

Crude Production of the Nations Total

75%

Exploration
In 2013, our domestic exploration resulted in newly proven oil and gas
in place of 670 million tons and 492.3 billion cubic meters respectively,
and proven oil and gas reserves exceeding 1 billion tons of oil
equivalent for the seventh consecutive year. A large part of the newly
proven reserves are entrapped in low-permeability, lithologic, and
deep reservoirs, which are massive in scale and relatively producible.
The reserve replacement ratio remained above 100%, providing a solid
resource base for oil and gas production.

Natural Gas Production of the Nations Total

Major Discoveries
We obtained 24 important exploration achievements in the Sichuan, Ordos,
Tarim, Junggar, Songliao, and Bohai Bay basins throughout the year.

Newly proven oil in place

(Domestic)
715.12

492.30

711.00
670.13

2011

2012

Newly proven gas in place

(Domestic)

2013
(mmt)

487.90
450.40

2011

2012

2013
(bcm)

A giant uncompartmentalized marine-facies carbonate gas reservoir was

discovered in the Longwangmiao formation of Moxi Block in the Sichuan
Basin, where high-yield gas flow was obtained during production test of the
exploration wells. Massive reserves were identified in Keshen tectonic zone in
the Tarim Basin, enlarging the gas-bearing area. A number of oil enrichment
zones were proven in Jiyuan and Longdong of the Ordos Basin. Proven oil in
place in Tabei and Hadexun regions of the Tarim Basin continued to increase.
New discoveries were made in Mahu region of the Junggar Basin and Yubei
region of the Tuha Basin, respectively. We also made progress in tight oil
exploration, including the discovery of massive reserves in the Ordos Basin,
high-yield flow from several wells in Fuyu Field of the Songliao Basin, and a
new breakthrough in Jimusaer sag of the Junggar Basin.

Reserves and operating data (Domestic)

2011

2012

2013

Newly proven oil in place (mmt)

715.12

711.00

670.13

Newly proven gas in place (bcm)

487.90

450.40

492.30

2D seismic (kilometers)

33,912

23,987

27,089

3D seismic (square kilometers)

12,954

16,105

12,477

1,794

1,898

1,746

1,020

1,190

1,006

774

708

740

Exploration wells
Preliminary prospecting wells
Appraisal wells

21

2013 Annual Report Annual Business Overview

Development and Production

In 2013, our domestic oil production was steady and gas production
maintained rapid growth. The economic benefits of oil and gas field
development were boosted by the continued application of waterflooding,
promoting mature field redevelopment and major development tests, and
rolling out proven techniques such as horizontal drilling and underbalanced
drilling. We achieved production capacity increments of 15.12 million tons for
crude oil and 23.1 billion cubic meters for natural gas. Throughout the year, we
produced 183.39 million tons of oil equivalent, up 5.4% year-on-year.

Crude Oil
In 2013, focusing on boosting per-well output and economic benefits, we
optimized technical solutions, implemented fine management throughout
the production process and further tapped the potential of domestic
oilfields to address the harsh reality that most of our mature fields are in
the late high-water-cut development period. We produced 112.6 million
tons of crude throughout the year, maintaining an increment of more than
2 million tons for the fourth consecutive year.
Daqing Oilfield stabilized its production at more than 40 million tons for
11 consecutive years through continued waterflooding and efficient
polymer flooding. Both the natural decline rate and composite decline
rate were effectively controlled. In particular, production by tertiary
recovery, mainly polymer flooding, maintained a steady growth to reach
13.84 million tons, with the average incremental oil per ton of polymer
rising by 2.8 tons year-on-year. Changqing, Chinas most promising and by
far the largest onshore oilfield in terms of production, produced 51.95 million
tons of oil equivalent by promoting the model of development management
for ultra-low-permeability oil reservoirs, and deploying a series of unique
technologies suitable to local reservoirs.

Waterflooding
To enhance the oil recovery of mature fields, CNPC has continued to
implement a comprehensive development approach since 2009 based
on finely controlled water injection. Adjusting the development well

Crude production
(Domestic)
107.54

110.33

Natural gas production

(Domestic)

112.60

88.84
79.86
75.62

2011

2012

2013
(mmt)

22

2011

2012

2013
(bcm)

pattern and introducing separate layer water injection have become the
normal method for mature fields in order to increase the rate of producible
reserves and per-well output. In 2013, we completed water injection
operations 18,462 well-times, with the natural decline rate and composite
decline rate being well controlled, and the rise in water cut being less than
0.5% for the fourth consecutive year.
The natural decline rate and composite decline rate of waterflooding
were controlled at 6.85% and 4.19% respectively at Daqing Oilfield, thanks
to precise geological study, adjustment of the injection/production
system, and finely categorized quantitative injection standards. In fact,
waterflooding accounted for 64% of the total output of the field. Similarly,
Tuha Oilfield reduced the natural decline rate of its mature wells by 1.2%
year-on-year, by improving the water injection well pattern, optimizing the
injection/production system, and developing a specific injection plan for
individual oil layers.

Development of Ultra-low Permeability Reservoirs

Low and ultra-low permeability reservoirs account for a large proportion
of our newly proven reserves. In Changqing Oilfield, we have realized the
efficient development of ultra-low permeability reservoirs by using six
series of technologies, including quick reservoir evaluation, well pattern
optimization, and multi-stage fracturing in horizontal wells. In 2013,
Changqing produced 8 million tons of oil from ultra-low permeability
reservoirs, accounting for one-third of its total crude output. As for its
Huaqing Oilfield, daily output from horizontal wells is four times as much
as that from conventional ones, thanks to the use of SRV-based horizontal
fracturing. At Jilin Oilfields Hei-168 block, in-casing multi-stage and multicluster fracturing techniques were applied in 58 horizontal wells, resulting
in an average daily output per well of 6.5 tons.

Pilot Development
In 2013, we pushed forward with research programs and pilot tests
targeting heavy oil, high-water-cut and unconventional reservoirs. ASP
flooding was tested at four pilot blocks at Daqing Oilfield, enhancing
recovery efficiency by 18-28%. Polymer-surfactant flooding was tested
at block Jin-16 of Liaohe Oilfield, increasing the daily output 5.5 times
and reducing the composite water cut by 13%; and steam flooding was
deployed in 150 well groups at block Qi-40, increasing the daily output
of medium-to-deep heavy oil by 18.9%. A fire flooding pilot test was
deployed at Hongqian-1 block in Xinjiang Oilfield for four years, increasing
oil production by 38,300 tons and recovery efficiency by 9.1%. Faced with
the challenge that a majority of our new proven reserves are from lowpermeability reservoirs, we conducted pilot tests for EOR by gas medium
injection. In Jilins Daqingzijing Oilfield, a 500kt/a pilot development with
CO2 flooding has covered 135 steam injection wells and 683 producing
wells. In addition, we made progress in air/foam flooding tests at Dagang
and Changqing oilfields.

Annual Business Overview 2013 Annual Report

Natural Gas
In 2013, we produced 88.84 billion cubic meters of natural gas domestically,
up 11.2% year-on-year. Gas output from Changqing Oilfield maintained its

Exploration and Development of

Unconventional Oil and Gas

fields, yielding 12.61 billion cubic meters throughout the year.

CNPC attaches great importance to the exploration and development of

CBM, shale gas and other unconventional hydrocarbon resources. We have
conducted pioneering work and technological innovation in this field, and
made progress in CBM industrial bases and shale gas demonstration projects.

Sulige Gas Field

CBM

Sulige, located in the Ordos Basin, is a tight sandstone gas field featuring

We continuously promoted CBM exploration and development in the

Qinshui Basin and the eastern edge of the Ordos Basin. In 2013, we built an
additional 1.02bcm/a CBM in production capacity, and supplied 870 million
cubic meters of commercial CBM, an increase of 44.1% year-on-year. At the
eastern edge of the Ordos Basin, the 800Mcm/a capacity building project
in Baode block proceeded smoothly, with its daily output continuing to
rise. At Hancheng block, the production plan was optimized to increase the
average daily output per well by 44.3% year-on-year. In the Qinshui Basin,
the daily output from Fanzhuang block reached 1.6 million cubic meters.

rapid growth, reaching 34.68 billion cubic meters. Tarim Oilfield produced
22.28 billion cubic meters, ensuring reliable gas supply to the West-East
Gas Pipelines. Southwest Oil and Gas Field accelerated the building of new

low permeability, low pressure, and low abundance. CNPC has been
scientifically organizing production and rolling out a series of technologies
since 2008, such as multi-layer fracturing in vertical wells and staged
fracturing in horizontal wells, enabling the large-scale and effective
development of this field. In 2013, Sulige produced 21.18 billion cubic
meters of natural gas, with its annual capacity reaching 24 billion cubic
meters. In March 2013, Sulige was chosen as one of the three finalists
for the Excellence in Project Integration Award by the 6th International
Petroleum Technology Conference (IPTC).

Shale Gas

Hetianhe Gas Field

In 2013, we drilled 16 shale gas exploration and production wells, including

six vertical and 10 horizontal wells. Application of SRV fracturing technologies
and tools in horizontal wells facilitated the building of our two state-level shale
gas demonstration zones at Weiyuan-Changning in Sichuan and Zhaotong
in Yunnan, respectively. Shale gas development at Weiyuan-Changning zone
was accelerated. Well Wei-204H was fractured on eleven stages using our
independently developed staged fracturing techniques with composite bridge
plugs, achieving a daily output of 160,000 cubic meters of gas at the initial
stage. This laid a basis for the industrial application of the techniques.

Hetianhe Gas Field is located at the southern edge of the Taklamakan

Desert in the Tarim Basin. The field was put into production in 2004 and
is one of the major gas sources for the southern part of the Xinjiang
Uygur Autonomous Region. In May 2012, we started to build a new gas
processing plant with a daily capacity of 5 million cubic meters and its
auxiliary facilities. In November 2013, the new plant became operational,
boosting the fields daily processing capacity to 6 million cubic meters.

We began to build a trunk pipeline for the trial production in the

Changning block in June 2013. This 93.7km-long pipeline is designed to
transport 4.5 million cubic meters of shale gas per day. It will run from the
gathering station at well Ning-201-H1 to Shuanghe terminal station, where
it will be connected to the gas pipeline from Naxi in Sichuan Province to
Anbian in Yunnan Province. The pipeline will begin exporting shale gas
from Weiyuan-Changning block in 2014.

Hetianhe Gas Field in Tarim Basin

23

2013 Annual Report Annual Business Overview

Joint Exploration and Development in China

As authorized by the Chinese government, CNPC works with international
partners to explore and develop oil and gas resources in China. Most of
the joint projects concern low-permeability reservoirs, heavy oil, tidal and
shallow water zones, sour gas, high-temperature and high-pressure gas
reservoirs, and CBM and shale gas.
By the end of 2013, we had 37 joint exploration and development projects
in operation, including 16 conventional crude oil projects, 10 conventional
natural gas projects, 10 CBM projects and one shale gas project. In 2013,
these projects produced 3.95 million tons of crude oil and 5.43 billion cubic
meters of natural gas, which totaled 8.28 million tons of oil equivalent, up
10.8% year-on-year.

Newly Agreed Projects

CNPC signed four documents in 2013 to cooperate with overseas partners.
These include a contract on Malang block with Hess Corporation, and
three joint research agreements on Neijiang-Dazu shale gas block and
Rongchangbei shale gas block in the Sichuan Basin, and Changdong block
in the Ordos Basin with Conoco-Phillips, Eni, and Exxon Mobil, respectively.

South Sulige Natural Gas Project

South Sulige Block is located in the Ordos Basin, covering an area of
2,392 square kilometers. Total is our partner in the project and CNPC is
the operator. In 2013, the South Sulige Project enjoyed a much reduced
average drilling cycle and satisfactory per-well output during production
tests, thanks to cluster well arrangement and factory-like drilling and
completion technologies.

Fushun-Yongchuan Shale Gas Project

Fushun-Yongchuan Block is located in the Sichuan Basin, covering an area
of 3,503 square kilometers. Shell group is our partner and the operator
of the project. In 2013, 12 wells were drilled at this block, four of which
underwent production tests, yielding approximately 42 million cubic
meters of shale gas.

Malang Tight Oil Project

In July 2013, CNPC and Hess signed a contract on tight oil development at
Malang Block, an area of 833 square kilometers in the Santanghu Basin. This
is CNPCs first joint tight oil project, in which Hess serves as the operator.

Executive Summary of Major Projects

Changbei Natural Gas Project
Changbei Block is located in the Ordos Basin, covering an area of 1,691 square
kilometers. Shell Group is our partner and the operator of the project.
In 2013, the block produced 3.62 billion cubic meters of natural
gas, with annual commercial gas output exceeding 3.4 billion cubic
meters for the fourth consecutive year. With matching technologies
being improved, 39 bilateral horizontal wells have been put into
production, and 24 of them yielded a daily output of more than 1 million
cubic meters at the initial stage. The second phase of the Changbei
Project has been launched, and the drilling of appraisal wells is
proceeding smoothly.

Zhaodong Oil Production Project

Zhaodong Block is located in the tidal and shallow water zone of the
Bohai Bay Basin, covering an area of 77 square kilometers. Australias Roc
Oil (Bohai) is our partner and operator of the project. In 2013, the block
produced 953,000 tons of crude oil and 53.76 million cubic meters of
natural gas.
Staff inspection at the South Sulige Gas Project

24

Annual Business Overview 2013 Annual Report

Natural Gas and Pipelines

2013 saw continued high-speed momentum in our natural gas business.
Gas production from Changqing, Tarim and other major producing regions
experienced steady growth. Construction of trunk pipeline networks
connecting gas sources with major consumer markets was sped up, and
a centralized controlled nationwide gas supply grid took shape. All of this
contributed to the rapid growth of both gas production and sales, and
significantly enhanced our market deliverability.
By the end of 2013, we operated 72,878 kilometers of pipelines in China,
including 17,640 kilometers for crude oil, 45,704 kilometers for natural gas,
and 9,534 kilometers for refined products, around 70%, 80%, and 47% of
Chinas total respectively.

Operation and Control

In 2013, relying on centralized management, an optimized supply chain,
coordinated resource configuration, and balanced allocation between
domestic and foreign supplies, our nationwide pipeline networks operated
in a safe, reliable and controlled manner.
Collective measures were taken to satisfy the ever-increasing domestic
gas market demand, especially in key regions and during peak seasons,
including tapping the production potential of major gas fields, giving
full play to the peak shaving capacity of our gas pipeline networks, LNG
facilities, and underground gas storage. The Second West-East Gas Pipeline
has delivered more than 70 billion cubic meters of natural gas since it
became operational, making it one of the major pipelines for domestic gas
supply. The volume of crude oil and refined products delivered through
pipelines continued to increase. With improved capacity in multiphase
transportation, the Lanzhou-Chengdu-Chongqing Products Pipeline has
delivered more than 55 million tons of various kinds of refined products to
southwestern China since becoming operational in 2002.

Underground Gas Storages

In 2013, our underground gas storages in Jintan, Liuzhuang, Dagang
and Huabei performed effectively in terms of seasonal peak shaving and
emergent supply. Hutubi gas storage became operational to meet peak gas
demand in northern Xinjiang and stabilize gas supply to the West-East gas
pipeline network. In addition, our storage built at Xiangguosi and Suqiao
began receiving gas to shave the peak of gas supply to the Southwest and
North China markets.

Storage and Transportation Facilities

70%

Crude Pipeline Mileage in the Nations Total

80%

Natural Gas Pipeline Mileage in the Nations Total

of the Third West-East Gas Pipeline, the Zhongwei-Guiyang Gas Pipeline,

the Lanzhou-Chengdu Crude Pipeline, the Rizhao-Dongming Crude
Pipeline, the southern section of the Lanzhou-Zhengzhou-Changsha
Products Pipeline, and Yining-Horgos SNG Pipeline. Progress was made in
the construction of the Shandong natural gas pipeline network and the
Jinzhou-Zhengzhou Products Pipeline.

The Third West-East Gas Pipeline

The Third West-East Gas Pipeline, including one trunk and eight branches, runs
from Horgos in Xinjiang to Fuzhou in Fujian, with a total length of 7,378 kilometers.
The 5,220km-long trunk line has a designed pipe diameter of 1,016-1,219 mm,
transport pressure of 10-12 MPa and an annual delivery capacity of 30 billion cubic
meters. Its construction is divided into three sections.
Construction of the 817km-long Ji'an-Fuzhou section (eastern trunk)
commenced in May 2013 and is expected to be completed in 2014. In
December 2013, the 875km-long Horgos-Lianmuqin section, as part of the
western trunk, became operational and began to supply gas to Urumqi and
other markets along its route.

Zhongwei-Guiyang Gas Pipeline

The pipeline, consisting of one trunk and three branches, runs through Gansu,
Shaanxi, Sichuan and Chongqing. With a total length of 1,613 kilometers and a
pipe diameter of 1,016 mm, it is capable of delivering 15 billion cubic meters of
natural gas at a designed pressure of 10 MPa.
The project was launched in March 2011 and became operational in
November 2013. As a connector between the West-East pipeline network
and the Southwest China gas pipeline network, the pipeline enables
flexible dispatch and allocation of gas supplies from the Central Asia Gas
Pipeline, the Myanmar-China Gas Pipeline, and the West-East gas pipelines,
and helps to mitigate the tight gas supply in Southwest China.

In 2013, a number of trunk lines and branches were completed and

became operational as planned, including the Horgos-Lianmuqin section

25

2013 Annual Report Annual Business Overview

Lanzhou-Chengdu Crude Pipeline

The pipeline starts at Lanzhou Terminal of the Western Crude Pipeline,
passing through Gansu and Shaanxi provinces, before ending at Pengzhou,
Sichuan Province. The 878km-long and 610mm-thick pipeline is designed
to transport 10 million tons of crude oil annually at a designed pressure of
8-13.4 MPa. Construction of the pipeline commenced in March 2011, and
it started supplying crude oil to refineries in Sichuan and Chongqing in
November 2013.

Lanzhou-Zhengzhou-Changsha Refined Products Pipeline

The pipeline starts at Lanzhou in Gansu Province and ends at Changsha in
Hunan Province, passing through Shaanxi, Henan and Hubei provinces. Its
2,080km-long trunk is designed to deliver up to 15 million tons annually
at a designed pressure of 8-14 MPa. The project was launched in August
2007. Its north and south sections, with the Yangtze River as the dividing
line, became operational in 2009 and November 2013 respectively, greatly
easing the pressure on refined product transportation from Western China
to the Central China market.

Natural Gas Utilization and Marketing

CNPC has built a nationwide natural gas pipeline network centered on the
West-East and the Shaanxi-Beijing gas pipelines covering 29 provinces,
municipalities, and autonomous regions as well as Hong Kong SAR in
China. In 2013, we sold 110.6 billion cubic meters of natural gas, up 13.6%
year-on-year, by fully utilizing our advantages in resources and pipeline
networks, optimizing our marketing structure, and prudently developing
the downstream markets of new pipelines.
Our urban gas and CNG business enjoyed rapid growth in scale, focusing
on economic benefits. We signed 12 cooperation framework agreements
with local governments on building distribution branches to expand the
urban gas market. Our urban gas users of various kinds reached 4.1 million

Tangshan LNG Terminals

26

in 2013. New progress was made in the development and construction of

our CNG sales terminal network, with 12 primary and 39 secondary filling
stations commissioned in 2013.

Liquefied Natural Gas (LNG)

In 2013, we promoted LNG applications, set up a LNG marketing network,
and built LNG facilities to support the "substitution of natural gas for oil"
program. A 5mcm/d LNG plant was almost ready in Hubei Province and is
expected to be an LNG supply base in Central China. Working with local
governments and enterprises, we made progress in promoting LNG-fueled
vehicles and vessels, as well as LNG filling stations.
Our LNG projects in Jiangsu and Dalian did a good job in peak shaving
since they became operational in 2011. In 2013, the Jiangsu terminal
unloaded 3.03 million tons of LNG, and delivered 4.19 billion cubic meters
of gas through the West-East gas pipeline network and LNG tanker
trucks. The Dalian terminal unloaded 1.86 million tons of LNG, and
delivered 2.57 billion cubic meters of gas through the Northeast China
and North China gas pipeline networks.
Phase I of the Tangshan LNG project was put into operation in
December 2013, and began to supply gas to North China through the
Yongqing-Tangshan-Qinhuangdao Pipeline and LNG tanker trucks.
The Phase I project, capable of delivering 8.7 billion cubic meters of
natural gas annually, includes three LNG storage tanks, each with a
volume of 160,000 cubic meters, a dedicated unloading dock for LNG
carriers with capacities of 80,000-270,000 cubic meters, and auxiliary
facilities for the terminals.

Annual Business Overview 2013 Annual Report

Refining and Chemicals

In 2013, in response to market change and in line with the growth
efficiency principle, we further improved the operation of facilities and
business profitability by reasonably arranging the load of refining units and
optimizing resource allocation and the product portfolio.
A total of 19 major technical and economic indicators had improved
compared to 2012, with light oil yield and ethylene and propylene
yields leading in China. Domestically, we processed 146.02 million
tons of crude, produced 97.9 million tons of refined products, up 1.6%
year-on-year, and produced 3.98 million tons of ethylene. Our refining
technologies were further upgraded to supply cleaner and more
efficient oil products to the market.
In addition, we optimized chemical production programs, improved the
connection between production and marketing, and sold 7.8% more
chemical products year-on-year.

Construction and Operation of Large

Refining Bases
Our major large petrochemical facilities in China operated smoothly
in 2013. Dushanzi Petrochemical improved its technical and economic
indicators, including industry-leading fuel and electricity consumption of
ethylene units of 518.7 kg standard oil/ton. Tarim Fertilizer Plant increased
its output of major chemical products and maintained a more than 99%
premium rate of urea through delicacy management.
Construction of major refining and chemicals projects proceeded steadily.
Sichuan Petrochemical's refining and ethylene units as part of its integrated
refining/petrochemical project, and Urumqi Petrochemicals' 6Mt/a
atmospheric-vacuum distillation unit became operational. A number of
oil product quality upgrading projects went on stream, including Guangxi
Petrochemical's 1Mt/a gasoline hydro-desulphurization and 800kt/a kerosene

Crude runs (Domestic)

147.16

Refined products output (Domestic)

146.02

144.84

96.38

97.90

93.00

2011

2012

2013
(mmt)

2011

2012

2013
(mmt)

14

Oil products upgrading projects put into operation

hydrofining units, Dalian Petrochemical's 2.25Mt/a FCC hydrogenation

and 1Mt/a light gasoline etherification units, Fushun Petrochemical's
1.2Mt/a gasoline hydrogenation unit, Hohhot Petrochemical's 1.2Mt/a
gasoline hydrodesulfurization installation, and Daqing Petrochemical's
1.3Mt/a gasoline desulfurization unit. Construction of Guangdong
Petrochemicals 20Mt/a heavy oil processing project was well underway.

Urumqi Petrochemicals Refining Upgrading and

Reconstruction Project
The project includes the construction of a 6Mt/a atmospheric-vacuum
distillation unit, a 1.5Mt/a wax oil hydrogenation unit, a 1.2Mt/a delayed
coking unit, a 2Mt/a diesel hydrogenation unit, and a 40kt/a sulfur recovery
unit. The 1.2Mt/a delayed coking unit and the 2Mt/a diesel hydrogenation
unit were put into operation in 2011. The 6Mt/a atmospheric-vacuum
distillation unit became operational in October 2013.

Refining and chemicals operating data (Domestic)

2011

2012

2013

144.84

147.16

146.02

91.3

89.5

86.9

93.00

96.38

97.90

Gasoline

28.89

31.00

32.97

Kerosene

3.68

4.78

6.06

60.43

60.61

58.87

Lubricating oil output (mmt)

1.57

1.84

1.89

Ethylene output (mmt)

3.47

3.69

3.98

Synthetic resin output (mmt)

5.78

6.18

6.64

Synthetic fiber output (mmt)

0.09

0.09

0.07

Synthetic rubber output (mmt)

0.61

0.63

0.67

Urea output (mmt)

4.48

4.41

3.77

Synthetic ammonia output (mmt)

3.03

2.97

2.58

Crude runs (mmt)

Utilization rate of refining units (%)
Refine products output (mmt)

Diesel

27

2013 Annual Report Annual Business Overview

Upgrading of Refined Products and New

Product Development
Since 2013, widespread and long-lasting smog has frequently shrouded
central and eastern China, bringing about serious air pollution and
triggering discussion on environmental issues. As one of Chinas major
producers and suppliers of oil products, CNPC has taken the initiative to
develop and apply new technologies to constantly upgrade the quality of
its gasoline and diesel products. We have completed oil products quality
upgrading at our 14 refining enterprises, and will supply a large amount
of National IV vehicle gasoline to the public in 2014. In addition, Dalian
Petrochemical, Jinzhou Petrochemical, Huabei Petrochemical, and Guangxi
Petrochemical are already capable of producing National V gasoline (with
sulfur content of no more than 10ppm). In 2013, we produced 1.4 million
tons of National V standard compliant gasoline.

In 2013, we launched 55 new petrochemical products with a total output

of 670,000 tons. A shock-absorbing SBR for high-speed trains developed by
Lanzhou Petrochemical demonstrated proven and excellent performance
in users' large-scale application. Chlorinated polyethylene base resins
offered by Daqing Petrochemical are widely applied in cables and
automobile components, and highly recognized in markets in Northeast
and North China.

Guangxi Petrochemical's 10Mt/a Refinery Maintained Excellent Operation

Guangxi Petrochemical's 10Mt/a refining project is the first one that
CNPC has built and operated in southern China. JEC, JPM and JCM
models were adopted in project design, engineering construction and
commissioning to combine external resources and techniques with
CNPC's experience in large refinery construction. This has dramatically
improved engineering quality and efficiency, with engineering safety,
quality, and the schedule well under control. Becoming operational
in 2010, the refinery adopts a matrix-based production model, which
enables labor and equipment resources to be configured more
flexibly, and operations to be efficient in the long term. Meanwhile,
the company has introduced advanced techniques and equipment to
reduce emissions, treat and recycle wastewater, and enhance energy
efficiency, in order to minimize the environmental impact.
Guangxi Petrochemical's excellent management and operation was
highly recognized by the International Project Management Association
(IPMA) and won the Gold Award of Project Excellence in Mega-Sized
Projects at the 27th IPMA World Congress in October 2013. According
to the IPMA, the company has achieved excellence in nine indexes of
its 10Mt/a refinery project, including project objectives, leadership and
execution, people, resources, and the environment.

28

Rainwater recycling pool

Annual Business Overview 2013 Annual Report

Marketing and Sales

Our customer-focused marketing and distribution initiatives continued
in 2013 to further expand the retail network and improve the customer
experience, resulting in a strong supply and enhanced profitability.

Refined Products

20,272

Service stations in China

We sold 118.33 million tons of refined products in 2013, up 1.5% year-onyear. In particular, retail sales were 87.3 million tons. The proportion of high
added-value products continued to grow. There was an increase in highgrade gasoline sales and jet fuels sales of 30% and 16.4% year-on-year,
respectively. The marketing capabilities of our service stations continued to
improve, with a steady increase in average daily sales per station.

Marketing Network

Non-oil Service

The company concentrated on boosting the operating efficiency of its

service station network and saw a significant increase in the proportion
of its service stations with daily sales of more than 10,000 tons. In 2013,
550 new service stations were put into operation to add 4.2 million tons
to the existing retailing capacity. Oil depots in Wuhai and Pengzhou
became operational, adding 1.24 million cubic meters to the existing
storage capacity. As at the end of 2013, we had 20,272 service stations
in 31 provinces, municipalities and autonomous regions as well as
Hong Kong SAR in china, serving more than 20 million customers on a
daily basis. As at the end of 2013, the number of our Kunlun fuel cards
totaled 49.47 million, with fuel card business accounting for 33.5% of
the total sales.

A sophisticated management system was developed for non-oil business

and a set of standard service procedures were carried out across uSmile
convenience stores, offering a wide range of products and services
targeting service stations, vehicles and retail customers. Marketing and
promotional initiatives were launched to ensure a fast growth in sales. In
2013, non-oil service reported 29.8% and 33.6% growth in income and
profit respectively. An integrated marketing model covering fuels, fuel
cards and non-oil service is taking shape.

Lube Oil and Miscellaneous Refined Products

In 2013, we sold 1.86 million tons of lube oil by bolstering its sales network
and channels, strengthening customer management and optimizing
the product portfolio. In particular, 1.13 million tons of premium lube
and 0.84 million tons of packaged lube were sold.
Kunlun turbine oil for rust-preventive purposes and nuclear power plant
applications was used in Xiajiang Hydropower Station, Fuqing Nuclear
Power Plant and Fangjiashan Nuclear Power Plant. The company also
actively explored the international bunker oil market, supplying marine
lube to Maersk and CV SHIPPING, a large tanker fleet manufacturer/operator.
The quick lube replacement business continued to grow robustly with a larger
customer base, a higher level of brand recognition and a 14% year-on-year
increase in sales.
The company reported a 2% year-on-year increase in the sales of fuel oil,
asphalt and other miscellaneous refined products. In particular, we sold
6.05 million tons of Kunlun asphalt, maintaining a leading position in the
domestic market.

29

2013 Annual Report Annual Business Overview

Overseas Oil and Gas Operations

The companys overseas oil and gas operations were generally under
control in 2013. A number of major projects and capacity expansion works
proceeded smoothly. New breakthroughs were made in Central AsiaRussia, East Africa and Latin America, with the capability to sustain business
growth continuing to increase.

47.21mmt

CNPCs Share in Overseas Crude Production

15.05 bcm

Exploration and Development

Our enhanced exploration efforts in new zones, new formation series,
and new types of reservoirs resulted in major discoveries in joint
overseas blocks.
Discoveries from risk exploration included thick oil reservoirs in buried
hills in the Bongor Basin of Chad, from which high-yield flows were
obtained; Fana-Koulele reservoir in the Agadem block of Niger; and gas
reservoirs in the central and western parts of the Right Bank of the Amu
Darya in Turkmenistan. Progressive exploration made progress in the
PetroKazakhstan project, Block T of the Andes project, Jabung block in
Indonesia, and Block 4 & 6 in Sudan.
Offshore gas exploration proceeded smoothly and led to the discovery of
large-scale and high-quality reserves. At offshore Block 4 in Mozambique,
which we jointly developed with Eni and other partners, natural gas flows
were yielded from multiple exploration wells during the formation test.
Natural gas reservoirs were identified in pre-Permian clastic rocks at
Block 4 in Qatar, which we jointly developed with GDF SUEZ.

30

CNPCs Share in Overseas Natural Gas Production

Crude production
(Overseas)

Natural gas production

(Overseas)
21.70

105.86
89.38

89.78

17.06

18.20
15.05

47.21
41.73

2011

12.57

13.66

41.55

2012
CNPC's share

2013
Total
(mmt)

2011

2012
CNPC's share

2013
Total
(bcm)

Annual Business Overview 2013 Annual Report

Production
In 2013, we maintained steady growth in oil and gas output by optimizing the
production rate and rolling out waterflooding and horizontal drilling to achieve
increased production efficiency. As a result, we produced 123.16 million tons
of oil equivalent, of which CNPCs share was 59.2 million tons. Total production
included 105.86 million tons of crude oil and 21.7 billion cubic meters of
natural gas, with CNPCs share being 47.21 million tons and 15.05 billion cubic
meters, respectively.
We stabilized the output of mature oilfields using proven development
technologies in Central Asia, Latin America, Indonesia, and the Middle
East. In Kazakhstan, Aktobe's progress in developing the Kenkijak
Subsalt Oilfield using bilateral horizontal wells provided a new means
for the efficient development of this kind of oilfield; and the Mangystau
project produced 6 million tons of crude throughout the year by
deploying finely controlled waterflooding and horizontal drilling. In
Turkmenistan, the Amu Darya Project saw smooth operation, with a
full-year gas output of 5.98 billion cubic meters. The capacity expansion
project of its No.1 Gas Processing Plant became operational and the
No.2 Gas Processing Plant was under construction.
In Latin America, our MPE3 project in Venezuela maintained a daily
production rate of more than 130,000 barrels by speeding up the
drilling and commissioning of new wells. Our Andes Project in Ecuador
continuously stabilized output at ultra-high-water-cut oilfields by
stimulating mature wells and speeding up commissioning of new wells.
The Block 6/7 project in Peru registered the highest oil production in the
past decade by promoting the fine management of oilfields, enhancing
stimulation measures and rejuvenating long idle wells.
In the Middle East, our Oman project deployed waterflooding in horizontal
wells based on the characteristics of remaining oil distribution and
formation pressure. The project registered a 100% success rate in horizontal

well drilling and boosted its daily oil output to 45,000 tons, more than nine
times as much as that upon its takeover.
In Iraq, the Al-Ahdab Oilfield maintained an output of 135,000 barrels per
day and cumulatively produced more than 10 million tons of oil since its
inauguration in June 2011. With a diverse oil and gas transport network
consisting of pipelines, LPG loading stations, and oil loading stations,
it helps to increase the local energy supply capacity. We worked with
Total and other partners at the Halfaya project to optimize production
management and deploy multilateral horizontal drilling. Oil production
remained at more than 100,000 barrels per day, and Phase-II construction
commenced. Our Rumaila project, in partnership with BP, achieved an
output of 1.36 million barrels per day.

Pipeline Construction and Operation

In 2013, we operated 13,257 kilometers of overseas oil/gas pipelines,
including 6,671 kilometers of crude pipelines and 6,586 kilometers of gas
pipelines, which transported 28.57 million tons of crude and 31.01 billion
cubic meters of natural gas throughout the year. The Kazakhstan-China
Crude Pipeline, Russia-China Crude Pipeline and Central Asia-China Gas
Pipeline saw safe and steady operation.
The Phase-II Kazakhstan-China Gas Pipeline starts from Beyneu of Mangystau
Province in Kazakhstan via Bozoy in Aktobe, and will be connected to the
Central Asia-China Gas Pipeline at Shymkent of South Kazakhstan Province.
The 1,454km-long pipeline is designed to transport 10 billion cubic meters of
natural gas a year. The Phase-II project consists of two sections. The first section,
1,143 kilometers long from Bozoy of Aktobe Province to Shymkent, has been
put into operation in September 2013. The second section, 311 kilometers long
from Beyneu to Bozoy, is expected to be completed in 2015.

No.2 Gas Processing Plant of Amu Darya project in Turkmenistan

31

2013 Annual Report Annual Business Overview

Construction of the Myanmar-China Oil and Gas Pipelines was well

underway. Linking Kyaukpyu in Rakhine State with Ruili in Yunnan Province,
the gas pipeline runs through Rakhine State, Magway, Mandalay and Shan
State, and extends to Guigang in Guangxi. The trunk line of the MyanmarChina Gas Pipeline totals 2,520 km, with 793 km in Myanmar and 1,727 km in
China. The pipeline has a designed annual delivery capacity of 12 billion cubic
meters. During pipeline construction we always adhere to high standards
of HSE and quality management, achieving a first pass yield of 98.37% for
welding and 100% for pipeline depth, and eliminating major HSE incidents
with zero fatality per 1 million working hours.
Thanks to joint efforts of all participants from China, Myanmar, India and
Thailand, the Myanmar-China Gas Pipeline has gone into full operation
in October 2013. The pipeline will join the West-East Gas Pipelines via
the Zhongwei-Guiyang Gas Pipeline. Meanwhile, under the MyanmarChina Natural Gas Pipeline Joint Venture Agreement, CNPC will build
four gas distribution stations in Kyaukpyu, Yenangyaung, Mandalay and
Taungtha to deliver 2 billion cubic meters of natural gas to the local
communities on a yearly basis. In particular, the pipeline will supply
natural gas to a power plant in Kyaukpyu, thus enabling a substantially
longer time of power supply.

Refining and Chemicals

In 2013, our overseas refineries processed 42.53 million tons of crude oil.
An upgrade and expansion project ran smoothly at the Shymkent Refinery
in Kazakhstan. The Khartoum Refinery in Sudan and SORALCHIN Refinery
in Algeria were overhauled and fulfilled the annual objective for crude
runs. Chads N'Djamena Refinery and Nigers Zinder JV Refinery processed

more crude than planned through improving management procedures

and optimizing production programs. Our joint venture refineries in Osaka,
Japan and Singapore maintained smooth operation.
New progress was made in the companys refining business in America.
In June 2013, we inked documents for financing a JV company to revamp
the Moin refinery, with RECOPE, China Development Bank and Costa Rica
National Bank.

Project Cooperation and Development

As part of our ongoing efforts to play an active role in the global
energy supply, the company signed a number of JV and cooperation
agreements in 2013, forging closer partnerships with the host countries,
IOCs and NOCs.
In Central Asia, we signed with KazMunaiGas a comprehensive planning
agreement on strategic cooperation and a confirmation agreement for
CNPC to hold a 8.33% share in the Kashagan project. A new natural gas
deal was closed with Turkmengaz State Concern to secure an additional
25bcm/a gas supply. A series of cooperation agreements were signed
with Uzbekneftegaz, including an MOU for feasibility study on oil and
gas exploration and development in two blocks in Uzbekistan and
an agreement on principles of establishing a JV company for oil and
gas exploration and development of three gas fields and potential oil
and gas fields in the Karakul block. A cooperation agreement signed
with the Ministry of Energy and Industry of Tajikistan, Total and Tethys
Petroleum was executed and delivered, with CNPC holding a 33.335%
stake in the Block Bokhtar project in Tajikistan. Under the agreement, a
joint venture will be established and CNPC and Total will take the lead
in project operation.
Major breakthroughs were made in bolstering the upstream cooperation
with our Russian counterparts. An MOU was signed with Rosneft on
expanding upstream cooperation in eastern Siberia and establishing a JV
company to develop oil and gas fields in the Far East. Meanwhile, CNPC
joined the Novatek's Yamal LNG Project with a 20% stake. In June 2013,
a purchases and sales contract was signed with Rosneft to increase oil
deliveries to China under the condition of advance payment. Under the
agreement, Rosneft will increase annual crude transportation to China via
Russia-China Crude Pipeline from the current 15 million tons to 30 million
tons by 2018, with a contract term of 25 years, 5 years prolongable. In
addition, oil delivery via Kazakhstan-China Crude Pipeline will be raised by
7 million tons per year from 2014, with a contract term of 5 years, 5 years
prolongable. In September 2013, a framework agreement on pipeline
gas supply from Russia to China via the Eastern Route was signed with
Gazprom, stipulating legally binding terms such as supply volume and
supply conditions.

Myanmar-China oil and gas pipelines crossing Myanmars Myitnge River

32

Annual Business Overview 2013 Annual Report

In Latin America, we acquired the entire shares of Petrobras Energia

Peru S.A. and thus possessed three blocks of oil and gas assets in Peru.
Meanwhile, a framework agreement on integrated cooperation in
the Pacific Refinery and upstream development was signed with the
Coordinating Ministry for Strategic Sectors of Ecuador, the Ministry
of Finance of Ecuador, Petroecuador and the local Amazon Company.
Under the agreement, CNPC will take a share in the construction of
the Pacific Refinery project and participate in the exploration and
development of Ecuador's upstream resources.
In the Middle East, we acquired a 25% stake in Iraq's West Qurna-1 oilfield
from ExxonMobil. CNPC also entered UAEs market by acquiring a 40% stake
in the Abu Dhabi offshore and onshore blocks from ADNOC.
With respect to the exploration and development of offshore natural
gas resources, we acquired 28.57% interest in Eni East Africa from Eni to
gain a 20% stake in Block 4 in Mozambique. A consortium comprising
CNPC, Petrobras, Shell, Total and CNOOC won the 35-year contract
to explore and develop Brazils offshore Libra Oilfield, with CNPC
taking a 10% stake in the project. The company also acquired from
ConocoPhillips 20% interest in the Poseidon offshore discovery in the
Browse Basin, and 29% interest in the Goldwyer Shale onshore Canning
Basin, both in Western Australia.

International Trade
CNPC is engaged in trading of crude oil, refined products, natural gas
and petrochemicals through imports and exports, consigned processing,
oil refining, storage, transportation, wholesaling, and retailing, as well as
transactions in oil futures. Backed by our overseas operation centers and
distribution networks, our international trade continued to grow with
expanding business scale. In 2013, we reported 350 million tons in trade
volume and USD 264.8 billion in trade value, reaching the markets in over
80 countries and regions, including the worlds major oil and gas producers
and consumers.
Based on in-depth market research, we managed to expand crude oil trade
and bolster resources allocation with diversified mode of trade and improved
customer service. Meanwhile, crude oil purchase schemes were optimized to
support the needs of domestic refineries for products upgrading.
Our market share and influence in the refined products market were
increased. We fastened traditional markets such as Indonesia and Vietnam,
and took a larger market share in South Asia and the Middle East. We
maintained the largest share in jet fuel market in Hong Kong. Meanwhile,
we actively explored Taiwans airport oil market and became the largest
vessel oil supplier in the region. We sold more refined products in the
Middle East and entered into new African markets such as Tanzania, Kenya
and Egypt. In 2013, the company reported a more than 10% increase yearon-year in gasoline and fuel oils traded through Platts Singapore.
Despite a downtrend in the chemicals market, we made good gains in
hedged transactions and processing contracts. Our refining byproducts,
fertilizers and liquid petrochemicals all reported a market share growth,
and made a debut in Ecuador and other South American countries. We
managed to purchase LNG from various sources and channels, ensuring
smooth operation of the Tangshan LNG project, and made a good start in
LNG re-exports.
We continued to push ahead with the building of overseas oil and gas
operation centers. Our Asian center has established significant regional
reputation. The European center performed well in cross-market operations.
The American center was involved in pipeline gas trading in Canada and
Midwestern US.

33

2013 Annual Report Annual Business Overview

Oilfield Services, Engineering & Construction, and

Equipment Manufacturing
In 2013, we further improved our technological competence in
supporting the growth of our oil and gas businesses, by speeding up
the transformation and upgrading of the oilfield services, engineering &
construction, and equipment manufacturing sectors, and optimizing our
business structure. Globally, we provide technical services in geophysical
prospecting, well drilling, well logging and mud logging, as well as
construction and engineering services for oil/gas field surface works, large
refining and chemical installations, pipelines and storage facilities. Our
petroleum equipment and materials were exported to 79 countries and
regions through a marketing network covering all major oil producing
states around the world.

Oilfield Services
In 2013, we saw increased workload and operational efficiency in exploration,
drilling, and logging, as well as an increased drilling speed. This was realized
through the optimized management and wider use of proven and applicable
technologies such as horizontal drilling and underbalanced drilling.

Geophysical Prospecting
In 2013, CNPC deployed 200 seismic crew-times (97 2D and 103 3D),
10 VSP crew-times, and 34 non-seismic (gravity and magnetic survey,
electric survey, and geochemical exploration) crew-times. We acquired
data on 114,000 kilometers of 2D lines and 64,000 square kilometers of
3D profiles, 18.2% and 11.8% more than in 2012.

At the Shenmu-Awate project in the Tarim Basin, BGP collected excellent

3D seismic data by meticulously dividing the work areas of rigs and
seismographs with helicopter support. 3D seismic acquisition project at
well block Ma-131 in the Junggar Basin saw efficient data acquisition of
up to 12,316 shots per day, thanks to the use of new technologies such as
our independently developed 60,000-channel seismograph G3i, sliding
scanning of vibroseises, and digital seismic crews. The West-Yingxiongling
3D project in the Qaidam Basin obtained precise seismic data using
wide-azimuth high-density prospecting and acquisition technologies
with optimized operating parameters. Chuanqing Drilling Engineering
Companys seismic-guided drilling technology played an important role
in the exploration of highly complicated structures in eastern Sichuan and
the Xiangguosi gas storage project.
Progress was made in developing the international geophysical prospecting
market. We won contracts for deepwater seismic exploration in Ireland,
and the 3D seismic project for CPC Taiwan in Chad. At the S69, S70 and S71
exploration projects in Saudi Arabia, BGP significantly improved operation
quality by using wide-azimuth high-density prospecting technologies, as
well as observatory system optimization and other matching techniques. In
particular, the S71 project was praised by the customer for its 8,812 shots on a
daily basis. At Total's 3D seismic project in Uganda, we used wireless-node-based
acquisition units and the pile mark-free approach to assure operational
quality and minimize its environmental impact, gaining recognition from
the local environmental protection authority.

Geophysical prospecting operations

2011

2012

2013

169

168

165

Domestic

98

102

95

Overseas

71

66

70

Seismic crews in operation

2D seismic data acquired

3D seismic data acquired

74,090
57,688

46,949
39,782

55,348
41,391

40,274
22,059

35,618

14,619

17,900

17,542

93,306

96,739 114,364

Domestic

35,618

41,391

40,274

Overseas

57,688

55,348

74,090

36,678

57,682

64,491

2D seismic data acquired (kilometers)

3D seismic data acquired (square kilometers)

2011

2012
Domestic

2013
Overseas
(kilometers)

34

2011

2012
Domestic

2013

Domestic

14,619

17,900

17,542

Overseas

Overseas

22,059

39,782

46,949

(square kilometers)

Annual Business Overview 2013 Annual Report

In 2013, we completed 22 deepwater prospecting projects, acquiring data

on 56,623 kilometers of 2D lines and 14,101 square kilometers of 3D profiles,
up 85.8% and 11.5% year-on-year, respectively. Our deepwater operation
fleet efficiently finished prospecting projects for Statoil and ConocoPhillips
through excellent owner communication and subcontractor management.
At the multi-user 2D deepwater project in Madagascar, data was collected
at a rate of 119 kilometers per day using deepwater streamer vessels.
We also promoted the R&D of core software and equipment. The functions
of our independently developed GeoEast integrated processing and
interpretation software continued to improve, with a much improved big
data processing capacity. With further enhanced operational capacity, our
G3i seismograph could work efficiently in various complex geological and
climatic conditions.

Well Drilling
In 2013, our 1,018 drilling rigs spudded 13,459 wells and completed
13,378 wells, with a total footage of 27.5 million meters, 1.1% more than
in 2012. The drilling speed remarkably increased, with the average drilling
cycle declining by 4.8% year-on-year at an average along-hole depth of
1,982 meters. We drilled 832 wells deeper than 4,000 meters, an increase
of 29.39% over 2012, with the penetration rate increasing by 6.97% and
drilling cycle decreasing by 6.19% year-on-year. The penetration rate of
horizontal wells increased by 4.05%, even though the average along-hole
depth increased by 223 meters.
The capacity and application scale of horizontal drilling were further
improved. We drilled and completed 2,030 horizontal wells in 2013, an increase
of 19.3% year-on-year. This includes 1,620 domestic wells and 410 overseas,
both witnessing a substantial increase over 2012.

Drilling operations
2011

2012

2013

1,009

1,019

1,018

Domestic

833

827

823

Overseas

176

192

195

Wells drilled

13,706

13,153

13,378

Domestic

12,509

11,894

12,035

Overseas

1,197

1,259

1,343

26.98

27.20

27.50

Domestic

24.39

24.30

24.32

Overseas

2.59

2.90

3.18

Drilling rigs in operation

Footage drilled (million meters)

BGPs operation in Chad

In block Su-35 in the Ordos Basin, Great Wall Drilling Engineering Company
(GWDC) implemented whole-process tracing and management covering
well spacing, drilling, fracturing, and gas extraction, and realized batched
drilling, inter-well acceleration and concentrated fracturing. In comparison
with other horizontal wells in the block, the drilling cycle is 24.4% shorter
and the penetration rate is 10.5% faster. Horizontal wells were more widely
deployed in unconventional oil and gas development. Chuanqing Drilling
Engineering Company completed shale gas horizontal well Gu-205-H1 in
the Sichuan Basin, registering the longest horizontal interval of 1,408m,
the longest footage in a single run of 1,167 meters and the fastest average
penetration rate of 10m/h along the horizontal interval among domestic
shale gas wells, with a reservoir encounter ratio of 100%.
Underbalanced drilling played a significant role in raising drilling
speed and per-well output in its wider application. In 2013, we drilled
and completed 606 underbalanced wells, an increase of 20.7% yearon-year. Well Zhonggu5-H2 in the Tarim basin is located in complex
formations featuring narrow pressure windows and multi-pressure
systems. In drilling this well, Bohai Drilling Engineering Company used
precise PCD (pressure controlled drilling) technology to realize long
horizontal interval penetrating multiple fractured strata, with a total
PCD footage of 1,153 meters. In addition, no mud leakage or drilling
complications were reported throughout the whole process. Daqing
Drilling Engineering Company completed 21 wells using microfoam
near-balanced drilling in peripheral oilfields of Daqing at an average
penetration rate of 37.34m/h, 25.3% higher than in conventional wells.

35

2013 Annual Report Annual Business Overview

Our roll-out of new drilling processes and technologies yielded remarkable

results. BH-OBM oil-based drilling fluid developed by Bohai Drilling
Engineering Company worked excellently and realized proper reservoir
protection in the development of the Tarim, Jidong, Dagang oilfields, as
well as deep well and ultra-deep horizontal well drilling in Venezuela.
Expandable casing completion developed by our Drilling Research Institute
was applied in window sidetracking at well TH12115CH of Sinopec's Tahe
Oilfield, registering domestic records in both the depth and borehole
deviation involving expandable casing operations.
We continued to expand the overseas service market, and won new
drilling contracts in Kazakhstan, Turkmenistan, Chad, Kenya, Iraq and Russia.
We signed a memorandum of understanding on promoting geothermal
development and power generation in Kenya with the Kenyan Ministry of
Energy and Petroleum. The two sides will establish a JV to build geothermal
wellhead generators in the country. Daqing Drilling Engineering Company
EPC-contracted 38 wells as part of the Rumaila project in Iraq, and was
recognized by the owner for its 100% satisfaction in terms of borehole and
cementing quality.

Well Logging and Mud Logging

In 2013, CNPC deployed 725 well logging crews and completed 106,000 instances
of well logging and perforation and 13,578 instances of mud logging, up 6.8%
and 16.3% year-on-year, respectively.

Drilling Engineering Company for ultra-high-temperature, ultra-highpressure, and ultra-deep-penetration wells succeeded in their application
at exploration wells in Tarim Oilfield, providing development solutions for
high-temperature, high-pressure, and creep salt formations in the Tarim
and Sichuan basins. Bohai Drilling Engineering Company applied wirelinefree storage-type logging in Tarim Oilfield to tackle the difficulties in
acquiring logging data from complex wells that are either underbalanced
or highly deviated.
CIFLOG, our independently developed network-based integrated logging
data processing and interpretation software, can process and interpret
conventional, imaging and special logging data. It has achieved good
results in 3,100 well-times both at home and abroad. LEAD3.0 processing
and interpretation software was improved by implementing additional
functions such as multi-well project management, multi-well plotting, layer
division and multi-well values.
CNPCs share of the overseas well logging and mud logging markets
expanded, covering 20 countries including Sudan, Kazakhstan and
Indonesia. We won new logging contracts in Algeria and Indonesia. Great
Wall Drilling Engineering Company precisely evaluated three producing
zones in Cuba by using quantitative 3D fluorescent logging technology. Its
work was recognized by Cupet, the projects owner.

Perforation of high-temperature and high-pressure reservoirs, pipeconveyed NMR transfer well logging for ultra-long horizontal intervals,
and testing of high-temperature high-pressure wells worked well in
application. New perforation technologies developed by Chuanqing

Well logging operations

2011

2012

2013

Logging crews

678

721

725

Domestic

546

579

587

Overseas

132

142

138

88,727

99,353

106,092

Domestic

83,317

93,585

100,129

Overseas

5,410

5,768

5,963

Well logging operations (well-time)

Logging operation at Changqing Oilfield

36

Annual Business Overview 2013 Annual Report

Downhole Operations
In 2013, CNPC had 1,839 downhole operation crews providing services
including fracturing and acidizing, production testing, well intervention,
overhaul and sidetrack drilling. We completed 143,000 downhole
operations throughout the year, including 15,400 fracturing operations, an
increase of 9.1% year-on-year, and 7,558 layers of formation testing.
Snubbing operations were further rolled out. In 2013, our 157 crews
applied snubbing in 4,034 wells in China, an increase of 30.3% year-on-year.
Technologies for these operations were improved. Pressure control tools
such as air-powered tubing bridge plugs and high-efficiency liquid plugs
developed by Great Wall Drilling Company tackled the challenge of scaling
in tubings and increased operating efficiency. At the Xing-13 snubbing
operation demonstration block in Daqing Oilfield, snubbing operations
were conducted in a total of 76 wells, and the formation pressure was
properly maintained. In fact, the pressure dropped by just 0.52 MPa on
average after the operations. Snubbing was also proven to be effective in
terms of energy conservation and environmental friendliness, and enabled
us to reduce wastewater discharges by about 2.64 million cubic meters and
reduce transport by 176,000 tanker-times throughout the year.
In 2013, multi-stage fracturing was applied in 1,020 horizontal wells,
an increase of 31.6% year-on-year. A total of 63% of our horizontal
wells in China are multi-stage fractured, each of which is fractured
by an average of 8.05 stages. A factory-like operation model enabled
Chuanqing Drilling Engineering Company to take two days to fracture
seven wells in the Ordos Basin. The operation cycle was shortened by
nearly 70% compared to conventional models. A multi-stage fracturing
tool with selectively-switching sliding sleeves with no stage limits,
which was developed by Bohai Drilling Engineering Company, passed

Downhole operations
2011

2012

2013

2,117

2,023

2,052

Domestic

1,913

1,818

1,831

Overseas

204

205

221

142,753

149,262

143,100

Domestic

140,283

146,826

141,019

Overseas

2,470

2,436

2,081

6,950

7,981

7,558

Domestic

5,835

6,555

6,251

Overseas

1,115

1,426

1,307

Downhole operation crews

Downhole operations (well-time)

Formation test (layers)

a field test of five-stage fracturing in horizontal well Su-76-16-10 in

the Ordos Basin. Multi-stage fracturing with composite bridge plugs
independently developed by Chuanqing Drilling Engineering Company
worked well in its first play in horizontal shale gas well Wei-205 in the
Sichuan Basin.

Fracturing of horizontal shale gas at well Ning-201-H1

37

2013 Annual Report Annual Business Overview

Engineering and Construction

In 2013, we enhanced the organization and coordination of major engineering
projects, as well as monitoring of operation processes. New techniques
and materials were adopted to improve engineering quality and efficiency.
Throughout the year, we constructed 41 key engineering projects, including
three newly commenced and 19 delivered or made operational.
Attaching importance to the development of the high-end market, we
continuously improved our operation of large projects. The contribution of
EPC, design and PMC income continued to grow. CPECC, China Petroleum
Pipeline Bureau, CPE, and China Huanqiu Contracting & Engineering
Corp. were listed as ENR Top 250 International Contractors, marking our
increasing overall strength and brand influence.

Oil and Gas Field Surface Engineering

We maintained our position as the domestic leader in building onshore
oil and gas fields. We have surface engineering technology packages
for conventional fields, as well as for fields featuring high water cut, low
permeability, ultra heavy oil and high condensate content, high pressure,
high yield, and high sulfur content. In addition, we have the capacity to
build surface works to accommodate facilities with 20Mt/a oil production
capacity and 10bcm/a gas production capacity.
In 2013, our major capacity building projects proceeded smoothly. The
capacity expansion project of Hetianhe gas field in the Tarim Basin and the
Phase I project of Fengcheng-2 combined heavy oil processing station in
Xinjiang Oilfield began production. The capacity building project at Anyue
gas field in Sichuan Province and the 4Mt/a project at Tazhong Oilfield in
the Tarim Basin proceeded well as planned. Sulige Gas Field achieved a
capacity to output 24 billion cubic meters of natural gas per year.
Chuanqing Drilling Engineering Company completed a 10bcm/a gas
project at Galkynysh gas field in Turkmenistan. The on-schedule completion

Gas processing plant at Galkynysh gas field in Turkmenistan

38

of this project was due to its construction being organized in a scientific

and reasonable way, as well as gas purification and processing techniques
of CNPCs independent intellectual property rights, such as MDEA-based
desulfuration and decarbonization, and rectification-column-based
processing of gas condensate. The company worked safely, experiencing
no accidents or environmental pollution for more than 100 million
working hours. In September 2013, CNPC and Turkmengaz State Concern
signed a new EPC contract to build a 30bcm/a gas production capacity
at Galkynysh gas field, which is due to be completed by the end of 2018.
In addition, the Phase-II surface engineering project at Halfaya Oilfield in
Iraq and the gathering and transport system project at Metejan gas field
in Turkmenistan undertaken by CPECC, as well as a gas field development
project in Tanzania undertaken by CPE, saw smooth progress.

Construction of Refining and Chemical Facilities

2013 saw progress as planned at major projects. Urumqi Petrochemical's
6Mt/a atmospheric-vacuum distillation unit went on stream. A number of
gasoline quality upgrading projects became operational, including Guangxi
Petrochemical's 1Mt/a hydro-desulphurization and 800kt/a kerosene
hydrofining units, Hohhot Petrochemical's 1.2Mt/a hydro-desulphurization unit,
and Dushanzi Petrochemical's 800kt/a FCC hydrogenation unit. In addition, we
accelerated the construction of the heavy oil processing plant at Guangdong
Petrochemical and the fertilizer plant at Ningxia Petrochemical.
China Huanqiu Contracting & Engineering Corp. won an EPC contract for
Iraqs KAR Refinery, and a construction contract for integrated refining and
chemicals facilities in Malaysia. The company also started construction of
Air Liquide's coal gasification project in China's Fujian Province.

Annual Business Overview 2013 Annual Report

Pipeline and Storage Tank Construction

As the world leader in construction capacity and engineering technology
for onshore long-distance oil and gas pipelines, we can build 6,700-9,700
kilometers of pipeline with a diameter larger than 711mm every year. In
addition, we have the technological capacity to design and build 150 kcm
crude tanks and 10 kcm spherical tanks. We are capable of building 26 million
cubic meters of crude tanks and 16 million cubic meters of refined product
tanks every year.
In 2013, we built more than 7,412 kilometers of long-distance pipelines,
and completed three crude/gas storage units and two LNG projects. The
Horgos-Lianmuqin segment as part of the western section of the Third
West-East Gas Pipeline was put into operation. Construction of the eastern
section of the pipeline was launched. Lanzhou-Chengdu Crude Pipeline,
Rizhao-Dongming Crude Pipeline, and Zhongwei-Guiyang Gas Pipeline
became operational. Construction commenced of a trunk pipeline for the
trial production of Changning shale gas block. In addition, the JinzhouZhengzhou Refined Product Pipeline was under construction.

completed 52 wells; and provided downhole operations for 60 well-times,

formation testing in 11 layers, and acid fracturing for 96 layer-times.
The penetration rate in these offshore wells was 6.2% higher than in 2012,
thanks to wide use of horizontal drilling and extended-reach drilling. CPOE
62 rig was recognized by the owner of well Chengbei-6D-5 in Shengli
Oilfield for its work-over that tripled the wells daily output. Large-scale
fracturing in well Chenghai-34 in Dagang Oilfield delivered good results,
involving 395 cubic meters of fluid and 40 cubic meters of sand.
With the support from Qingdao offshore engineering construction base
and Tangshan production support base, CPOE improved its ability to build
large-scale offshore steel structures and lay subsea pipelines. In fact, it built
a large-scale jacket facility for CNOOC's Jinzhou-9-3 oilfield with a 99.7%
qualification yield.

Internationally, the trunk of the Myanmar-China Gas Pipeline and the BozoyShymkent section of Phase II of the Kazakhstan-China Gas Pipeline were put
into operation. Construction began at the crude export pipeline as part of
Phase II of Iraqs Halfaya Project, Phase II of Chads Ronier-Kome Crude Pipeline,
and Tanzanias Gas Pipeline. China Petroleum Pipeline Bureau won contracts
for the gathering and transport system at LUKOIL's West Qurna-2 Oilfield in Iraq
and Nakhon Sawan Gas Pipeline Project in Thailand.
A number of major projects were completed and put into operation,
including the Lanzhou Commercial Storage Base EPC-contracted by China
Petroleum Pipeline Bureau, and the Hutubi underground gas storage in
Xinjiang Oilfield, Suqiao underground gas storage in Huabei Oilfield and
a 5Mcm/d LNG plant in Hubei Province EPC-contracted by CPE. Phase I
of the Tangshan LNG Project EPC-contracted by China Huanqiu became
operational. Core technologies for LNG regasification and low-temperature
pre-stressed concrete have been successfully applied, and the project
recorded 21.86 million working hours of safe operation.

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 tests, downhole operations, design and
construction of marine engineering, and vessel services. By the end of 2013,
CNPC had 41 sets of large-scaled offshore equipment, including 10 mobile
drilling platforms, one modular drilling/workover rig, five production test
platforms, and a variety of 25 vessels. In 2013, 23 of our vessels provided
services for 5,918 working days.
In 2013, CNPC's Offshore Engineering Ltd. (CPOE) completed a total drilling
footage of 166,000 meters in the Bohai Sea, Yellow Sea, East China Sea,
South China Sea, and the Persian Gulf. The company spudded 76 wells and
CPOE-10 jack up rig operating in the East China Sea

39

2013 Annual Report Annual Business Overview

Petroleum Equipment Manufacturing

We improved the scale and technology of our petroleum equipment manufacturing sector in
2013, actively adjusted the industrial structure, and enhanced technological R&D. This has led to
the enhanced competence of our equipment manufacturing enterprises to offer more reliable and
higher-quality products. Our overseas marketing network and market layout of petroleum materials
and equipment were further optimized.
We made progress in the R&D of drilling equipment for special geological conditions. An 8,000m
AC VFD-driven rig was in service and made drilling operations more efficient at Kuqa Mountain
Front block in the Tarim Basin. An automatic vertical drilling tool yielded favorable results in
industrial tests. This safe tool with a high WOB increased the penetration rate by more than 50%.
Baoji Oilfield Machinery Company Limited delivered 11 fast-moving desert rigs to UAE National
Drilling Company (NDC) as scheduled, and signed a new contract to design, manufacture and
deliver an additional five 5,000m and four 7,000m fast-moving desert rigs to NDC.
CNPC developed and made large-diameter and high-steel-grade line pipes to cater to its
booming pipeline business as well as market needs. A two-step-welding facility for largediameter SSAW pipes was completed at CNPC's Baoji Petroleum Steel Pipe Company Limited,
capable of producing steel pipes of X100 grade, 1,422 mm in diameter and 22 mm in wall
thickness. High-steel-grade elbows and tees of 1,422 mm in diameter were made on a trial
basis, with the performance meeting design standards. X80 steel pipes were put into largescale production and application. The newly developed X90 longitudinal submerged arc
welded pipes were made on a trial basis in small quantities.
We offer a portfolio of diverse coiled tubing products. CT80 and CT90 coiled tubing and H070 coiled
velocity string produced by Baoji Petroleum Steel Pipe Company Limited have already been deployed in
multiple oilfields both at home and abroad. Coiled tubing of CT90 steel grade, 73 mm in diameter, and
4.8 mm in wall thickness and coiled tubing of CT80 steel grade, 88.9 mm in diameter, and 4.8 mm in wall
thickness were developed, with high performance meeting design requirements. High anti-collapsing
casing of P80/P110 steel grade, 139.7 mm in diameter, and 9.17 mm in wall thickness produced by
using SEW techniques passed performance tests.
Progress was made in the R&D of equipment fueled by natural gas and LNG. Our 32/40 natural gas
engine boasts 4,800 KW design power, the highest in China, and offers world-leading performance.
Skid-mounted LNG refueling stations were launched, and will contribute to the growth of our
urban gas business.
In 2013, our petroleum materials and equipment were exported to 79 countries and regions,
through a marketing network providing the complete functions of storage, consignment sales,
repair and service, product leasehold, assembly, and integration to major oil and gas producing
countries and regions around the world.

40

2013 Annual Report

Fast-moving desert rig produced by BOMCO

41

2013 Annual Report Financial Statements

Financial Statements
Consolidated Balance Sheet

million RMB yuan

2011

2012

2013

278,416.84

293,696.71

322,375.35

Current assets
Cash and cash equivalent

3,064.12

2,323.12

8,883.41

101,809.68

132,746.01

153,260.31

Prepayments

51,975.04

48,201.93

78,405.51

Other accounts receivables

55,533.84

57,788.42

48,537.46

314,589.98

360,150.69

360,220.84

Tradable financial assets

Bills and accounts receivable

Inventories
Other current assets
Total current assets

81,823.47

86,813.51

70,071.29

887,212.97

981,720.39

1,041,754.17

Fixed assets
Available-for-sale financial assets
Held-to-maturity investments

45,588.19

71,297.57

87,845.18

138,700.62

123,563.27

128,811.40

71,785.95

79,370.53

139,602.62

Fixed assets-net value

619,741.11

725,436.36

766,655.83

Construction in progress

319,252.25

369,470.56

395,385.97

Oil and gas assets

699,907.96

790,132.31

869,697.34

Intangible assets

60,451.38

69,707.18

76,924.93

185,235.81

198,722.20

250,682.42

Total fixed assets

2,140,663.27

2,427,699.98

2,715,605.69

Total Assets

3,027,876.24

3,409,420.37

3,757,359.86

92,165.76

110,124.15

103,613.04

327,909.63

394,373.95

415,016.81

73,298.16

76,128.13

86,043.12

Long-term equity investments

Other fixed assets (other long-term assets)

Current liabilities
Short-term loans
Bills and accounts payable
Prepayments

23,164.33

19,041.00

20,045.47

132,842.21

92,768.24

85,804.27

92,315.83

90,255.67

93,151.82

241,099.05

214,653.86

327,927.92

982,794.97

997,345.00

1,131,602.45

Long-term loans

29,671.92

22,633.17

13,730.29

Estimated liabilities

73,384.11

88,965.18

99,533.29

Deferred income tax liabilities

25,319.25

27,253.49

20,203.42

216,024.16

409,112.90

436,744.65

Employee pay payable

Taxes payable
Other payables
Other current liabilities
Total current liabilities
Non-current liabilities

Other non-current liabilities

Total non-current liabilities
Total liabilities

42

344,399.44

547,964.74

570,211.65

1,327,194.41

1,545,309.74

1,701,814.10

Financial Statements 2013 Annual Report

Consolidated Balance Sheet (continued)

million RMB yuan

2011
Owners equity

2012

2013

Paid-in capital

379,863.46

397,540.32

431,514.04

Capital reserves

261,852.85

265,360.66

294,806.78

Special reserves

32,442.96

31,178.59

29,559.30

Surplus reserves

841,139.88

942,093.06

1,035,602.97

1,480.42

2,392.73

5,452.65

14,241.18

15,498.38

20,478.40

General risk preparation

Retained profits
Converted difference in Foreign Currency Statements
Total owners' equity attributable to parent company

-17,096.43

-17,826.16

-29,883.14

1,513,924.32

1,636,237.58

1,787,531.00

Minority interests

186,757.51

227,873.05

268,014.76

Total owners' equity

1,700,681.83

1,864,110.63

2,055,545.76

Total liabilities and owners' equity

3,027,876.24

3,409,420.37

3,757,359.86

Consolidated Profit Statement

million RMB yuan

2011

2012

2013

2,381,278.23

2,683,480.30

2,759,303.41

Income from core businesses

2,376,592.51

2,678,563.64

2,753,729.56

Income from other businesses

4,685.72

4,916.66

5,573.85

1,716,446.17

2,026,837.02

2,101,254.46

1,712,817.27

2,022,621.55

2,096,268.76

3,628.90

4,215.47

4,985.70

268,676.76

257,977.86

249,723.07

61,139.91

64,277.62

72,350.51

120,923.24

116,260.26

122,550.66

Operating income

Less: Operating cost

Cost of core businesses

Cost of other businesses

Business tax and supertax

Sales expenses

Management expenses

Financial expenses

14,251.20

16,592.13

23,484.44

Loss on depreciation of assets

13,352.40

8,195.50

18,866.33

Others

26,460.65

25,735.97

27,184.82

-67.22

17.46

-44.74

21,735.58

17,214.24

17,446.33

181,696.26

184,835.64

161,290.71

14,434.13

15,780.33

45,422.92

Plus: Income from change in fair value (Loss is presented with "-")

Income from investments (Loss is presented with "-")

Operating profit (Loss is presented with "-")

Plus: Non-operating income

14,406.35

16,715.87

18,686.14

181,724.04

183,900.10

188,027.49

51,196.20

44,725.51

47,219.42

Net profit

130,527.84

139,174.59

140,808.07

Net profit attributable to owners' equity of the parent company

105,490.19

114,802.85

113,775.07

25,037.65

24,371.74

27,033.00

Less: Non-operating expense

Total profit (Loss is presented with "-")
Less: Income tax expense

Loss and gain from minority

43

2013 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 and most of its subsidiaries adopt RMB yuan as currency
used in bookkeeping. The combined financial statement of the Company is
listed in RMB yuan.

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.

44

(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 owners 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 owners 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 owners 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 statements 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, heldto-maturity investments, loans, receivables, and available-for-sale
financial assets.

Financial Statements 2013 Annual Report

(2) Recognition and measurement of financial assets

(3) Impairment 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.

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-forsale financial assets, the accumulated losses on decrease of fair value that
are directly recorded in owners 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 shareholders equity.

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
cannot 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 prices 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 owners equity and
corresponding to the disposition is carried into gains from investment.

8. Inventories
(1) Categories of inventory: raw materials, work in progress and semifinished goods, finished goods, packing materials, low-value consumption
goods, goods sold, materials for consigned processing, engineering
construction (outstanding payment) etc.
(2) Inventories are carried at the actual cost when acquired, using perpetual
inventory method; actual cost of delivered or sold inventories are carried at
weighted average.
(3) Low-value consumption goods and packing materials are amortized
using one-off amortization method when they are put into use.

45

2013 Annual Report Financial Statements

(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 writedown 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.

(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 owners equity.
(3) Provision for depreciation of long-term equity investment

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.

46

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. Once the provision for the depreciation of the long-term
equity investment is retained, it should not be reversed during subsequent
accounting periods.
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;

Financial Statements 2013 Annual Report

d. Other circumstances demonstrating a substantial failure of the invested

business to generate economic benefits for the company.

B. Main Taxes

10. Government subsidies

1. Income tax

(1) Types of government subsidies

The applicable tax rate for business income taxes of the Company is 25%.

Government subsidies comprise mainly of treasury funding, interest

subsidies, tax rebates and free allocation of non-monetary assets etc.

2. Value added tax

(2) Acknowledgment of government subsidies

Value added tax is set at 17% for petroleum and petrochemical products
and 13% for natural gas and LPG.

The company has acknowledged government subsidies that it is eligible

for and granted.

3. Operating tax

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.
For those that are confirmed to be returned by governmental subsidy,
involve with related deferred income or write down the book balance of
deferred income, and the exceeding portion is taken into the gains/losses
of the current period; those that do not involve with related deferred
income are directly recognized upon receiving as the gains/losses of the
current period.

Operating tax is set at 3% for transportation (The reform program to

replace the business tax with a value-added tax was expanded nationwide
on Aug 1 in pilot sectors including the transport industry and modern
service sectors. The added value tax rate in the transport industry is 11%)
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.

11. Income tax

6. Personal 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.

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.

47

2013 Annual Report Major Events

Major Events
January
January 4 DushanziUrumqi Crude Pipeline became operational. The pipeline has a
total length of 229.6 kilometers and an annual delivery capacity of 10 million tons.
January 8 CNPC, Shenergy (Group) Company Limited and Yangkou Port Company
Limited signed a framework agreement on the Rudong-Haimen-Chongming Gas
Pipeline. Under the agreement, a three-party JV will be established to invest in, build and
operate the pipeline. The pipeline will be 89.5 kilometers long, with a designed annual
delivery capacity of 2.4 billion cubic meters.
January 4

February
February 20 PetroChina entered into agreements with ConocoPhillips, whereby
PetroChina will acquire 20% interest in the Poseidon offshore discovery in the Browse
Basin, and 29% interest in the Goldwyer Shale onshore Canning Basin.

March
March 13 CNPC signed an agreement with Eni to purchase a 28.57% share of Eni East
Africa, whereby indirectly holds a 20% interest in Mozambiques Block 4. The two sides
also signed a joint study agreement on unconventional hydrocarbon development at
the Rongchangbei block in China's Sichuan Basin.
March 13

March 13 Construction of the Lanzhou-Chengdu Crude Pipeline was completed. The

878km-long pipeline became operational in November 2013 with a designed annual
delivery capacity of 10 million tons.
March 27 CNPC and Taiwan CPC signed a joint exploration agreement on the Agadem
Block in Niger and a long-term supply deal for low-sulfur crude from Oman and West
Africa. The two sides also signed a confirmation note on the equity transfer of the
Agadem Block on August 29, 2013.

April
April 6 CNPC and KazMunayGas entered into an agreement on the principles regarding
expansion of the Kazakhstan-China Crude Pipeline.
April 6 A memorandum for cooperation was signed with PEMEX.
April 6

48

April 25 A cooperation agreement on underground gas storage was signed with

GDF Suez.

Major Events 2013 Annual Report

May
May 20 CNPC signed a framework agreement on strengthening oil and gas
cooperation with the Ministry of Energy and Industry of Tajikistan. Under the
agreement, the two sides will step up joint efforts in oil and gas exploration and
development in Tajikistan.

June

June 3

June 3 CNPC inked documents with RECOPE for financing a JV company to revamp the
Moin refinery.
June 6 A framework agreement on integrated cooperation in the Pacific Refinery and
upstream development was signed with Ecuadors Coordinating Ministry for Strategic
Sectors, Ministry of Finance, PetroEcuador and the local Amazon Company. Under the
agreement, CNPC will take a share in the construction of the Pacific Refinery project and
participate in the exploration and development of Ecuador's upstream resources.
June 18 A cooperation agreement regarding the development of the Block Bokhtar
in Tajikistan was signed with the Tajikistan Ministry of Energy and Industry, TOTAL and
Tethys Petroleum. Under the agreement, a joint venture will be set up, and CNPC and
Total will take the lead in project operation.
June 21 Long-term contract on increasing crude oil deliveries from Russia to China was
signed with Rosneft.

July 23

June 21 A framework agreement was signed with Novatek to purchase a 20% stake in
the Yamal LNG Project. A stock purchase agreement was signed between the two sides
on September 5, 2013.
June 26 A strategic agreement on investment and cooperation in CNPCs oil and
gas pipeline projects was signed with National Council for Social Security Fund (SSF),
Changjiang Pension Insurance Co., Ltd, China Clean Development Mechanism Fund,
Baosteel and institutional investors from the insurance and banking sectors.

July
July 10 Phase I of the YiningHorgos Gas Pipeline, the first large diameter SNG pipeline in
China, became operational. The pipeline runs 64 kilometers from Yining to Horgos in Xinjiang
Uygur Autonomous Region, capable of delivering 30 billion cubic meters of SNG per annum.

July 29

July 23 A cooperation agreement on the Malang block in the Santanghu Basin was
signed with Hess Corporation.
July 29 A joint study agreement on the Changdong block in the Ordos Basin was signed
with ExxonMobil.

49

2013 Annual Report Major Events

August
August 19 CNPC and Kenyan Ministry of Energy and Petroleum signed an MOU on
promoting geothermal development and power generation in Kenya.
August 20 An MOU was signed with Celanese to jointly promote the application of
synthetic fuel ethanol.

September

August 19

September 3 CNPC and Turkmengaz inked an EPC contract on 30bcm/a gas production
capacity building in Galkynysh Gas Field, and an additional 25bcm/a gas sales &
purchase agreement.
September 5 A framework agreement on natural gas supply from Russia to China via
the eastern route was signed with Gazprom.
September 7 A comprehensive planning agreement on strategic cooperation and a
confirmation agreement for CNPC to hold shares in the Kashagan project were signed
with KazMunayGas.
September 9 CNPC and the Uzbek Government signed an MOU for feasibility study on
oil and gas exploration and development in two blocks in Uzbekistan and an agreement
on the principles of establishing a JV company for oil and gas exploration and
development in the Karakul block. Under the agreement, CNPC and Uzbekneftegaz will
establish a JV to develop the three gas fields and other potential oil and gas resources in
the Karakul block.

September 3

September 22 A framework agreement on jointly developing the Junin 10 Block was

signed with the Ministry of Oil and Mining of Venezuela.

October
October 17 An MOU was signed with Rosneft on expanding upstream cooperation in
eastern Siberia.
October 20 Trunk of the Myanmar-China Gas Pipeline became operational. The pipeline
has a total length of 2,520 kilometers, including 793 kilometers in Myanmar and 1,727 kilometers
in China, with a designed annual delivery capacity of 12 billion cubic meters.
October 21 A consortium comprised of CNPC, Petrobras, Shell, Total and CNOOC won
the contract to develop Brazils offshore Libra oilfield. CNPC holds 10% in the consortium,
while Petrobras 40% and as operator.
September 5

50

Major Events 2013 Annual Report

October 22 A document on major terms of commissioning schedule and oil supply for
Tianjin Refinery was signed with Rosneft. CNPC holds a 51% stake and Rosneft holds a
49% stake in the Tianjin Refinery project.
October 25 Zhongwei-Guiyang Gas Pipeline was completed. The 1,613km-long pipeline,
with a designed annual capacity of 15 billion cubic meters, was put into commercial
operation on November 19, 2013.

October 25

October 30 The Shale Oil Research Center jointly established by CNPC and Shell was
inaugurated. Research focuses of the center are the exploration and development of marine
facies shale oil blocks in the US and the continental facies shale oil blocks in China.

November
November 1 The Yangluo-Changsha section of the Lanzhou-Zhengzhou-Changsha
Refined Products Pipeline became operational, marking the operation of the whole trunk
line. The 2,080km-long trunk line, capable of delivering 15 million tons per annum, will
greatly facilitate oil products transmission from Western China to Central China.
November 13 CNPC E&D Holdings Cooperation U.A. and CNODC International Holding
Ltd., both being indirect subsidiaries of PetroChina, entered into an agreement with
Petrobras International Braspetro B.V. and Petrobras De Valores Internacional De Espana
S.L., regarding the acquisition of the entire shares of Petrobras Energia Peru S.A.

November 13

December
December 9 Sichuan Changning Natural Gas Development Co., Ltd. was incorporated as
part of the joint effort to develop the shale gas resources in the Changning block. CNPC
holds a 55% share in this company, with Sichuan Energy Industry Investment Group
Co., Ltd. 30%, Yibin State-owned Asset Operation Corporation 10% and Beijing Guolian
Energy Industry Investment Fund 5%.
December 9 A strategic cooperation framework agreement was signed with Schlumberger.
December 10 PetroChina and Datang International Power Generation Co., Ltd (Datang
Power) signed a purchase and sale agreement regarding Datang Power's SNG project in
Keshiketeng Qi, Inner Mongolia. Under the agreement, the project will supply 4 million
cubic meters of SNG to Beijing on a daily basis starting from December, 2013.

December 9

51

2013 Annual Report Glossary

Glossary
Proven reserves

Tertiary recovery

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%.

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.

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.

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.

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.

52

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.

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.

About this Report

Horizontal well
A class of nonvertical wells where the wellbore axis is near horizontal
(within approximately 10 degrees of the horizontal), or fluctuating above
and below 90 degrees deviation. A horizontal well may produce at rates
several times greater than a vertical well, enhance recovery efficiency and
prolong the production cycle, due to the increased wellbore surface area
within the producing interval. Meanwhile, the environmental costs or land
use problems that may pertain in some situations, such as the aggregate
surface "footprint" of an oil or gas recovery operation, can be reduced by
the use of horizontal wells.

In this report, the expressions "CNPC", "the corporation",

and "the company" are used for convenience where
references are made to China National Petroleum
Corporation in general. Likewise, the words "we", "us" and
"our" are also used to refer to China National Petroleum
Corporation in general or to those who work for it.
This report is presented in Chinese, English, Russian,
Spanish, and French. In case there is any divergence of
interpretation, the Chinese text shall prevail.
Recycled/recyclable paper are used for this annual report.

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: Chen Jie, He Shuzhi, He Wei, Jia Weiyuan,
Wang Duan, Wu Huan, Zeng Bing, Zhai Jinqing
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