12:35     PETROCHINA<00857> - Announcement (3)                                

    petrochemical businesses.                                                 
                                                                              
    The Board believes that despite the current difficult operating           
    conditions faced by Dayuan and Qingyang, for the two financial years      
    ended 31 December 2003, the aggregate losses both before and after        
    taxation and extraordinary items attributable to the Refinery and         
    Petrochemical Businesses were RMB171.18 million (approximately            
    HK$159.98 million) and RMB407.75 million (approximately HK$381.07         
    million). For the financial year ended 31 December 2004, the              
    aggregate losses both before and after taxation and extraordinary         
    items attributable to the Refinery and Petrochemical Businesses were      
    RMB148.86 million (approximately HK$139.12 million), Dayuan and           
    Qingyang respectively accounts for an average of 63.00% and 5.94% of      
    the local provincial market for refined oil and petrochemical             
    products and an average of 75.00% and 8.50% of the local provincial       
    retail market. The Refinery and Petrochemical Businesses mainly           
    consist of refinery and petrochemical production facilities, petrol       
    stations and liquefied natural gas depots and a stable clientele.         
                                                                              
    The Board believes that the operating losses sustained by Dayuan and      
    Qingyang in the past two financial years were primarily due to a          
    number of factors, including: (i) relatively large provisions for         
    impairment of assets; (ii) relatively high operating costs which were     
    attributable to a shortage of crude oil supply, and therefore low         
    utilization rates of the relevant refinery and petrochemical              
    production facilities; (iii) relatively high financing costs owing to     
    a shortage of funds and a relatively high level of debts; (iv)            
    relatively large number of labour involved resulting an increase in       
    the cost of production; and (v) technologies deployed in the              
    production of refinery and petrochemical products falling behind          
    those currently deployed in the market, and hence resulted in a low       
    productivity in high value-added products and the losses.                 
                                                                              
    The Board believes that the profitability of the Refinery and             
    Petrochemical Businesses can be significantly improved and better         
    prospects for profits may be created through the following measures:      
    (i) strengthening the resources allocation thereby ensuring a stable      
    supply of crude oil ; (ii) refinancing the existing debts; (iii)          
    reducing operating costs by reorganisation of the management              
    structure and reducing labour cost; (iv) continuing restructuring of      
    the operation; and (v) improving technology in the production of high     
    value added products. It is expected that the increase in the Group's     
    proportion of refinery and petrochemical businesses can provide room      
    for an increase in gross margin and lead to an increase in the            
    Company's total sales income. The Asset Acquisition will further          
    improve the Company's refinery and petrochemical businesses portfolio     
    and increase its market share in the north-western region of China        
    and enhance its overall resistance to risks.                              
                                                                              
    RELATIONSHIP BETWEEN THE PARTIES AND CONNECTED TRANSACTION                
    CNPC is the controlling shareholder of the Company holding 90% of         
    the issued share capital of the Company. CNPC is engaged in crude oil     
    and natural gas exploration and production business activities            
    outside the PRC and limited petrochemical production and retail of        
    refined oil products. As defined under the Listing Rules, CNPC is a       
    connected person of the Company. Accordingly, the Asset Acquisition       
    (including the Land Use Rights Leasing Arrangement) constitutes a         
    connected transaction of the Company. Given the percentage ratios         
    involved in the Asset Acquisition (including the Land Use Rights          
    Leasing Arrangement) are more than 0.1% but less than 2.5% for the        
    Group, the Company is only subject to reporting and announcement          
    requirement and is exempted from the independent shareholders'            
    approval requirement under Rule 14A.32 of the Listing Rules.              
                                                                              
    The Board (including the independent non-executive directors)             
    considers that the terms and conditions of the Acquisition Agreement      
    are on normal commercial terms and are fair and reasonable and in the     
    interests of the shareholders of Company as a whole.                      
                                                                              
    INFORMATION REGARDING THE GROUP                                           
    Business of the Group                                                     
    The Group is principally engaged in petroleum and natural                 
    gas-related activities, including:                                        
                                                                              
    (a)                                                                       
    the exploration, development, production and sale of crude oil and        
    natural gas;                                                              
                                                                              
    (b)                                                                       
    the refining, transportation, storage and marketing of crude oil and      
    petroleum products;                                                       
                                                                              
    (c)                                                                       
    the production and sale of basic petrochemical products, derivative       
    chemical products and other petrochemical products; and                   
                                                                              
    (d)                                                                       
    the transmission of natural gas and crude oil, and the sale of            
    natural gas.                                                              
                                                                              
    The Directors of the Company                                              
    As at the date of this announcement, the Board comprises Mr. Chen         
    Geng as the Chairman; Mr. Jiang Jiemin and Mr. Ren Chuanjun as Vice       
    Chairmen; Mr. Su Shulin, Mr. Duan Wende and Mr. Wang Fucheng as