petrochina

Thank you for reading this report and for your continued support of and concern for PetroChina.

As the global economy struggled with a recovery in 2016, the oil and gas market's way to rebalance amids considerable volatilities and changes. Energy transition and new global energy strategies have become the focus of the global oil and gas industry. At the 35th IHS Energy CERA Week, I delivered a keynote speech on the transition and development of energy enterprises under the "new normal" of China's economy, and discussed with our cooperation partners how to meet the challenges brought about low oil prices and the future direction of the market, investment, costs and technology. I also described the actions PetroChina had taken in response to the environmental agenda of the 2015 UN Climate Change Conference held in Paris, and we worked with friends from the global oil industry to jointly promote low-carbon development. At the same time, we remain committed to the sustainable development of the company and society, proactively dealing with any kind of risks and challenges so as to keep improving our business performance.

We actively responded to low oil prices and achieved steady development.

To tide us over the difficult period as international oil price dropped below USD 30 a barrel, we promoted the steady and systematic development of core businesses by consistently adhering to our strategy for resources, markets, internationalization and innovation. We deepened reform in key areas and crucial links, focused on innovation and benefits through science and technologies. We developed and implemented 36 measures in 12 categories to broaden our sources of income, reduce expenditure, control costs and enhance profitability. In 2016, our operating results were ahead of expectations. While the crude oil settlement price dropped by 21.4% and the natural gas realized price dropped by 25% year-on-year, the Company recorded RMB 1,616.9 billion in turnover, RMB 45.19 billion in total profit, and RMB 317.1 billion in taxes, and RMB 84.13 billion in free cash flow.

We focused on safety and environmental protection, and promoted green development.

We worked hard to ensure safety, environmental protection and stability, strictly implemented the safety responsibility system, and spared no efforts to control major hazards with a focus on preventing and controlling risks at their sources. As a result, we avoided major and worse safety and environmental accidents. Committed to green development, we enhanced the development of clean technologies and promoted the clean use of fossil energy. We optimized our business structure, increased production of green and low-carbon energy, accelerated the cost-effective development of unconventional resources, and advanced natural gas development, resulting in the rapid growth of our natural gas business. In 2016, the contribution of domestic natural gas production to the Company's total oil equivalent output reached 39.6%, while our natural gas supply accounted for about 70% of the national total. Amid concerted global efforts to address climate change, we participated in the specific actions of the Oil and Gas Climate Initiative (OGCI).

We strengthened legal compliance to build an enterprise firmly based on integrity.

We comprehensively promoted corporate governance, underlining the concept of legal compliance, continuously improving the corporate governance system, and ensuring that the integrity of our operations complied with the industry best practices. Extensive efforts were made to provide compliance training to all staff, further advance the system building and management system integration, and strengthen legal compliance for major projects. We reinforced and improved economic accountability auditing, established the overseas audit center, and expanded our audit coverage. We treat all business partners with integrity, respect and responsibility, fully respect our customers, suppliers, contractors and industry partners.

We are committed and supportive of public welfare undertakings and work hard to be an excellent corporate citizen.

We pursued sustainable development between business and society and shared our developmental achievements with society. We built a targeted support system customized to local needs, and continued aid programs for the poor in underdeveloped regions, in order to improve local sustainability and contribute to global efforts in poverty alleviation. Our efforts in the implementation of initiative public welfare programs such as "Xuhang Educational Program" and"Hand in Hand with PetroChina for Public Welfare", and the funding of livelihood infrastructure projects to support communities, received full recognition in the local communities and society at large.

For the moment and foreseeable future, PetroChina is facing both opportunities and challenges in its development. On the one hand, its environment for development will increase in complexity as the global economy is experiencing twists and turns in its recovery fraught with more instability and uncertainties. Moreover, the changing policies in some host countries will pose more risks to our overseas operations. Although China's economy is developing steadily, there is some cause for concern. With profound changes in the landscape of the domestic oil and gas market, competition will be intensifying, while industry regulations and certain fiscal policies will become tighter. The fundamentals of international oil price rises remain relatively fragile, resulting in volatility in the price trend. On the other hand, we are blessed with opportunities and favorable conditions for development. The global energy industry is accelerating its transition to low-carbon and clean energy, the oil and gas dominated energy consumption mix is consolidating further, and the oil and gas market is striking a new balance between supply and demand, which will leave room for the international oil price to rise in the medium and long term. China's economy will maintain a medium to high rate of growth, resulting in a continuing solid growth in demand for total oil and gas. As natural gas is gradually becoming a main source of energy, the Company still enjoys enormous space for development. Over the years, we have developed our scale strengths and risk resistance capacities. PetroChina now ranks among the top industry counterparts in scale and strength, and takes the dominant position in local oil and gas production and supply, and thus still enjoys a prominent and advantageous foundation for further development.

Despite the difficult conditions and intensifying pressures, our opportunities outweigh our challenges and hope outweighs adversity. In 2017, we will establish and implement new development concepts, make targeted measures to carry out internal reform and adjust our structure, work hard to strengthen innovation-driven development and enhance quality and efficiency, keep optimizing our business chain and value chain, and continuously make our development more balanced, coordinated and sustainable. We will make every effort to maintain steady growth, optimize structure, strengthen weak areas, enhance efficiency, and guard against risks. We will earnestly enhance value-creation in our crude oil business chain, and work hard to implement projects of strategic value throughout the natural gas business chain, in order to achieve sustainable development.


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