China National Petroleum Corporation

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.

Energize Harmonize Realize

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Contents

Message from the Chairman

Report of the President

Top Management and Organization

2013 Industry Review

Safety, Environment, Quality and Energy Conservation

Human Resources

Technology

Annual Business Overview

Financial Statements

Major Events

Glossary

02

2013 Annual Report

03

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.

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 socio-

economic development.

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.

Message from the Chairman

Message from the Chairman

Zhou Jiping, Chairman

04

2013 Annual Report

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

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.

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

Report of the President

05

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 sustainabilityThe 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

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.

Report of the President

Liao Yongyuan, President

06

2013 Annual Report

2011 2012 2013

Financial Index

Operating income (billion RMB yuan) 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

Oil and Gas Production

Oil production (mmt)

Domestic

Overseas (CNPC's share)

149.27

107.54

41.73

151.88

110.33

41.55

159.81

112.60

47.21

Gas production (bcm)

Domestic

Overseas (CNPC's share)

88.19

75.62

12.57

93.52

79.86

13.66

103.89

88.84

15.05

Refining, Chemicals and Sales

Crude runs (mmt)

Domestic

Overseas

179.62

144.84

34.78

191.45

147.16

44.29

188.55

146.02

42.53

Domestic refined products output (mmt) 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

Pipeline

Domestic pipeline mileage(km)

Crude oil

Natural gas

Oil products

60,257

14,807

36,116

9,334

66,801

16,369

40,995

9,437

72,878

17,640

45,704

9,534

Overseas pipeline mileage(km)

Crude oil

Natural gas

10,494

6,672

3,822

10,494

6,672

3,822

13,257

6,671

6,586

Operation Highlights

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2013 Annual Report

Liao YongyuanPresident

Yu Baocai Vice President

Shen Diancheng Vice President,

Chief Safety Officer

Liu Yuezhen Chief Financial

Officer

Wang Lixin Chief of Discipline &

Inspection Group

Liu HongbinVice President

Wang Dongjin Vice President

Top Management and Organization

Top Management and Organization

Zhou Jiping Chairman

China National Petroleum Corporation

Retiree Affairs D

epartment

Corporate C

ulture Departm

ent

Logistics Departm

ent

Corporate M

anagement

Departm

ent

Auditing D

epartment

Supervision Departm

ent

International Departm

ent

Procurement D

epartment

IT Departm

ent

R&D

Departm

ent

Quality and Standard

Managem

ent Departm

ent

HSE and Energy C

onservationD

epartment

Legal Departm

ent

M &

A D

epartment

Production & O

peration M

anagement D

epartment

Hum

an Resources Departm

ent

Tax Departm

ent

Treasury Departm

ent

Finance Departm

ent

Planning Departm

ent

Policy Research Offi

ce

General O

ffice

CN

PC M

anufacturingC

ompany

CN

PC Engineering &

Construction C

ompany

CN

PC O

ilfield Service C

ompany

Holding C

ompanies

Research Institutions

Refining and Chem

icalC

ompanies

Others

Overseas C

ompanies

Manufacturing C

ompanies

Engineering & C

onstructionC

ompanies

Oilfield Service C

ompanies

Oil and G

as Fields

08

2013 Annual Report

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

Union and Japan. The Brent spot price fluctuated between USD100-

120/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

WTIBrent

USD / bbl Oil Prices in 2013

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

80

90

100

110

120

130

2013 Industry Review

09

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.

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,

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.

2013 Industry Review

Safety, Environment, Quality and Energy Conservation

94%1.18

24.4 92%

mmt of standard coal equivalent

million cubic meters

Employee occupational health check

Workplace occupational hazard detection

Energy saved

Water saved

11

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 SafetyIn 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/discipline-

specific 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.

Environmental ProtectionWith 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

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 HealthIn view of the long industrial chain and widespread geographic distribution

of our operations, we adopt and implement an integrated, prevention-

oriented 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 person-

times, 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.

Safety, Environment, Quality and Energy Conservation

12

2013 Annual Report

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).

Energy EfficiencyWe 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 resource-

efficient 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 energy-

efficiency 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 ControlWith 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

Safety, Environment, Quality and Energy Conservation

13

2013 Annual Report

Environment protection during the drilling operation in Sichuan Basin

100

433

322

Senior technical experts

Senior skilled experts Management experts

Human Resources

19Academicians of the CAS and CAE

15

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.

Overseas HR Management and LocalizationWe 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

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.

Human Resources

4,481Second-class National Technical Invention Award

Second-class National Scientific and Technological Advancement Award

3,639Patents granted

Construction of CNPC's technological innovation system

Development and application of the GeoEast ultra-large integrated seismic data processing and interpretation system

Patents applied

Diverting acid fracturing for carbonate reservoirs and its industrial application

Technology

17

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 SystemIn 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 AdvancementsExploration 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.

Better understanding of the reservoir-forming theory of large, ancient-

carbonate 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.

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 co-

polypropylene 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.

Technology

18

2013 Annual Report

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 nitrogen-

based 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

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 multi-

zone 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 CooperationIn 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 CNPC-

Shell 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

19

2013 Annual Report

In China, acidizing and fracturing is a prerequisite to discover

and effectively extract oil and gas from carbonate reservoirs,

which feature inferior physical properties of matrix and

discontinuously developed oil/gas bearing fracture-caves.

However, conventional acid fracturing cannot generate enough

interconnected fracture-caves, resulting in small swept volume

by acid fluid, and a limited yield increase.

After years of research, we have developed the diverting acid

fracturing technology for carbonate reservoirs, which combines

fluid diversion and fracture reorientation. By temporarily blocking

exited fractures with our independently developed fracture

diverting materials, more fractures are induced in new places

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

maximize the oil and gas flow channels. We invented two self-

viscosifying acidizing fluid diverting systems to allow in-depth fluid

diversion and intelligent fluid diversion, resulting in enlarged swept

volumes and acid etching networks 3.1-7.2 times bigger than

those by the conventional acid fluid system. We also developed

design optimization software and matching equipment and tools

for diverting acid fracturing to ensure safe operations at high

temperatures and under high pressure.

Diverting acid fracturing has been applied 921 well-times at

major carbonate fields in China as well as at some overseas

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

application has proven fruitful, as evidenced by a cumulative

oil production increment of 2.842 million tons and a gas output

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

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

Invention Award.

Diverting Acid Fracturing for Carbonate Reservoirs and Its Industrial Application

Carbonate reservoir description

Technology

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

21

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.

ExplorationIn 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.

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

Exploration wells 1,794 1,898 1,746

Preliminary prospecting wells 1,020 1,190 1,006

Appraisal wells 774 708 740

492.30

2011 2012 2013

670.13

2011 2012 2013

715.12 711.00487.90

450.40

Major DiscoveriesWe obtained 24 important exploration achievements in the Sichuan, Ordos,

Tarim, Junggar, Songliao, and Bohai Bay basins throughout the year.

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.

75%

54%

Natural Gas Production of the Nations Total

Crude Production of the Nations Total

Annual Business Overview

Reserves and operating data (Domestic)

Newly proven gas in place (Domestic)

Newly proven oil in place (Domestic)

(mmt) (bcm)

22

2013 Annual Report

Development and ProductionIn 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 OilIn 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

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 multi-

cluster 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 low-

permeability 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.

88.84

2011 2012 2013

112.60

2011 2012 2013

107.54110.33

75.62

79.86

Annual Business Overview

Natural gas production (Domestic)

Crude production (Domestic)

(mmt) (bcm)

23

2013 Annual Report

Natural GasIn 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

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

fields, yielding 12.61 billion cubic meters throughout the year.

Sulige Gas Field

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

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).

Hetianhe Gas Field

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.

Exploration and Development of Unconventional Oil and Gas 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.

CBMWe 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.

Shale GasIn 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.

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

Annual Business Overview

24

2013 Annual Report

Joint Exploration and Development in ChinaAs 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 ProjectsCNPC 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.

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.

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.

Staff inspection at the South Sulige Gas Project

Annual Business Overview

25

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 ControlIn 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 StoragesIn 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 FacilitiesIn 2013, a number of trunk lines and branches were completed and

became operational as planned, including the Horgos-Lianmuqin section

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 PipelineThe 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 PipelineThe 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.

80%

70%

Natural Gas Pipeline Mileage in the Nations Total

Crude Pipeline Mileage in the Nations Total

Annual Business Overview

26

2013 Annual Report

Lanzhou-Chengdu Crude PipelineThe 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 PipelineThe 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 MarketingCNPC 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

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.

Tangshan LNG Terminals

Annual Business Overview

27

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 BasesOur 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

2011 2012 2013

Crude runs (mmt) 144.84 147.16 146.02

Utilization rate of refining units (%) 91.3 89.5 86.9

Refine products output (mmt) 93.00 96.38 97.90

Gasoline 28.89 31.00 32.97

Kerosene 3.68 4.78 6.06

Diesel 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

146.02

2011 2012 2013

97.90

2011 2012 2013

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 ProjectThe 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.

144.84

147.16

93.00

96.38

14Oil products upgrading projects put into operation

Annual Business Overview

Refining and chemicals operating data (Domestic)

Crude runs (Domestic)

(mmt)

Refined products output (Domestic)

(mmt)

28

2013 Annual Report

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 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