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					Review of the Year 2008 Annual Report

Review of the Year
Crude oil prices in 2008
Brent WTI

July 3

$146.08/bbl $145.29/bbl

We faced a number of major challenges in 2008, from the snowstorms in southern China and the May 12 earthquake to the worsening global economic situation and the volatile petroleum market. Although these all greatly impacted our business at home and abroad, with careful planning and an active response, our core businesses continued to grow, delivering steady output and smooth operations, increasing the output of major products and keeping our company on a steady and sound footing.

Financial Performance
In 2008, CNPC recorded sales revenues of RMB 1,273 billion, and taxation payments of RMB 239.50 billion, up 27.2% and 22.5% respectively year-on-year. Our total profits fell 34.9% to RMB 134.80 billion due to an increased special oil gain levy and controls on the refined oil price by the government. We registered total assets of RMB 1,804.45 billion by the end of 2008, an increase of 8.1%. $44.26/bbl $33.87/bbl

December 19

Financial highlights 2006
Total assets Sales revenues Total profits Net profits 1,409.00 868.48 186.64 129.85

billion RMB yuan

2007
1,669.69 1,000.68 206.97 149.64

2008
1,804.45 1,273.00 134.80 91.65

07

Review of the Year 2008 Annual Report

Exploration and Production
We continued our strategy of increasing resources based on major oil and gas basins and key exploration regions in China, focusing on comprehensive study, overall deployment, the application of new technology, and preliminary and risk exploration, as well as accelerated fine exploration in mature fields. Significant discoveries and breakthroughs were made in the Sichuan, Ordos, Bohai Bay, Junggar, and Tarim basins. Our annual proven oil in place remained over 500 million tons for the fifth consecutive year, and annual proven gas in place at over 300 billion cubic meters for the fourth consecutive year, with newly added proven oil in place of 643 million tons and newly added proven gas in place of 416.80 billion cubic meters in 2008. Our reserve replacement ratio reached 116.5%.

Refining and Marketing
We swiftly adjusted the production and operational strategy of our refining business to cope with market changes. We fully utilized the advantages offered by the integration of our refining and chemical businesses to optimize our resource allocation, plant operation and product portfolio. Our refining and chemical production capacity was greatly enhanced by the construction of major new facilities. For example, our sour oil processing capacity was greatly improved after Dalian Petrochemical's new 10Mt/a unit became operational. All our key technical and economic indexes have improved. Six of these, including the processing loss rate, ethylene yield and total energy consumption for ammonia synthesis, were the best in China. In 2008, we processed 125 million metric tons of crude oil, up 2.1%; and produced 79.22 million metric tons of oil products, 2.68 million metric tons of ethylene, up 2.5% and 3.6% respectively year-on-year. We sold 82.93 million metric tons of refined products. Refining and marketing highlights 2006
Crude runs (mmt) Refined products output (mmt) Ethylene output (mmt) Refined products sales (mmt)
115.87 73.39 2.07 75.22

Exploration and production highlights 2006
Newly proven oil in place (mmt) Newly proven gas in place (bcm) Remaining recoverable oil reserves (mmt) Remaining recoverable gas reserves (bcm) Crude production (mmt) Natural gas production (bcm) 615.11 365.40 1,827.12 2,095.5 106.64 44.21

2007
831.59 445.39 1,949.24 2,188.9 107.72 54.25

2008
643.22 416.82 1,935.50 2,443.8 108.25 61.75

2007
122.72 77.26 2.58 82.80

2008
125.30 79.22 2.68 82.93

Despite the faster depletion of our mature fields and inferior reserves newly discovered, our crude oil production grew at a stable rate and our natural gas output increased rapidly. This was a result of the redevelopment and further exploitation of mature fields, and the efficient overall development of newly discovered fields. Domestically, we produced 108.25 million metric tons of oil and 61.70 billion cubic meters of natural gas, up 0.5% and 13.8% respectively year-on-year. Our oil and gas production totaled 157.45 million metric tons of oil equivalent, 4.3% more than in 2007. Crude production from Daqing remained stable, exceeding the target figure of 40 million metric tons. Meanwhile, Changqing maintained its rapid development, outputting oil and gas of more than 25 million metric tons of oil equivalent, up 20.8%. The field's annual production is expected to reach 50 million metric tons of oil equivalent in the next few years.

08

Review of the Year

2008 Annual Report

Natural Gas and Pipeline
Taking advantage of China's burgeoning demand for natural gas and the optimization of its energy structure, as well as the double-digit growth of our gas production for six consecutive years, we further developed our urban gas and gas utilization projects. Gas sales continued to rise at a rapid rate. In 2008, we sold 52.53 billion cubic meters of natural gas, 15.9% more than the previous year. Our networked pipelines were fully utilized, achieving a balance between production, transportation, distribution and storage. In addition to ensuring that gas flowed to major cities, public utilities and key users throughout the year, we also guaranteed that supplies were available to snowstorm-hit areas of southern China at the beginning of the year, and to ensure the successful holding of the Beijing Olympics. Strategically significant and backbone pipelines were constructed at a faster rate. Further improvements were made to our storage and transportation facilities, as well as our regulating and control capacity. A nationwide network of gas pipelines connecting the four major gas zones of Southwest, Changqing, Tarim and Qinghai to major markets was basically established. A number of important oil and gas pipelines were completed or became operational in China. Construction of the Second West-East Gas Pipeline is well underway, while construction engineering of the Parallel Sebei-Ningxia-Lanzhou Pipeline and the Lanzhou-Zhengzhou-Changsha Products Pipeline is proceeding smoothly.

Overseas Businesses
Both the production and reserves of our overseas oil and gas operations experienced rapid growth. Risk exploration in major overseas blocks added 65.50 million metric tons to our recoverable oil reserves. We produced 62.20 million metric tons of crude oil, an increase of 3.5%, of which our share was 30.50 million metric tons, an increase of 1.9%. Our natural gas output was 6.73 billion cubic meters, up by 25.6%, of which our share was 4.66 billion cubic meters, up by 32.7%. Construction of a natural gas project on the banks of the Amu-Darya River commenced in Turkmenistan, and construction of the Central Asia-China Gas Pipeline proceeded smoothly. Important progress was made in the development of new overseas projects, with 15 contracts signed with countries including Venezuela, Niger, Qatar, Cuba, Costa Rica and Iraq. Our international oil and gas investment, oilfield services and international trade continued to grow. We recorded an international trading volume of 127 million tons, and a trading value of USD 78.20 billion. Our international engineering and technical services delivered an annual sales turnover of USD 4.59 billion, 24.8% more than in 2007. We signed a USD 3.29 billion contract with the United Arab Emirates on the Abu Dhabi Crude Pipeline, our largest overseas EPC project. In addition, we exported materials and equipment worth RMB 13.80 billion to 69 countries and regions in 2008. Overseas business highlights 2006
Newly proven oil in place (mmt) Newly proven gas in place (bcm) Remaining recoverable oil reserves (mmt) Remaining recoverable gas reserves (bcm) Equity oil (mmt) Equity gas (bcm) Crude runs (mmt) Refined products output (mmt)
286.55 3.85 883.78 119.7 28.07 3.80 8.20 5.30

Technical Services, Engineering & Construction and Equipment Manufacturing
We incorporated and reorganized some businesses and subsidiaries specialized in technical services, engineering and construction, and equipment manufacturing. By combining advantages in technology and management and optimizing the configuration of production elements and resources, our oil and gas operations and technical services were integrated in a more coordinated way. This led to increased geophysical prospecting, well drilling, well logging, mud logging, and downhole operations with continuously improved service quality and efficiency. Construction of major projects including the Central Asia-China Gas Pipeline, the Second West-East Gas Pipeline, and major refining and chemical production facilities proceeded according to schedule. To meet changing market demand, our equipment manufacturing sector accelerated the adjustment and upgrading of its product portfolios, strengthened technical innovation and new product development. Major petroleum equipment manufacturing bases have taken shape in Baoji, Daqing, Huabei, Dagang and Panjin.

2007
210.58 6.81 1,113.11 131.2 29.92 3.51 9.16 5.95

2008
266.74 42.00 1,060.00 230.50 30.50 4.66 9.18 5.91

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