Sinopec Promises Bright Prospect

Oil price increment VS refining loss

As an integrated energy and chemical company, China Petroleum
& Chemical corporation (Sinopec Corp. or Sinopec SH: 600028) has
held the first place in market value ever since its listing in
the domestic stock market in 2000. The market value of the
company has already reached RMB400 billion. Its competitive edge
in refining, chemical production and oil product sales has great
advantages. As the price of oil products is much lower than the
rational level, however, the refining business has suffered huge
losses since 2004. In a scenario of the drastic oil price rise
in the international market and the control on the oil product
price exercised by the Chinese Government, the oil product price
is still relatively low in China compared with the international
market. Sinopec is the largest refining company in China and
imports great quantities of crude oil each year for processing.
The refining business has therefore suffered sustained losses.
   In spite of a considerable upward readjustment made to the
oil product price at the end of May 2006, it is still lower than
the rational level. According to the calculation made by experts,
based on the present price level the oil product price in China
is around RMB1 000 per ton lower than the price in the
international market.
   China allocated RMB10 billion in 2005 to compensate for the
loss suffered by Sinopec and its subsidiaries in the refining
business. The total loss of over RMB50 billion, however, could
in no way be fully bridged.
   According to market experts, the domestic demand of oil
products has not been contained by the present oil price. With
further readjustments to the oil product price, the loss
suffered by Sinopec in the refining business will be gradually
reduced.

Equity transfer and reformation

Equity transfer in Sinopec has already taken a significant step
forward: buying back its listed subsidiaries.
   In April 2006, Sinopec Spent RMB14.4 billion in cash to buy
back Qilu Petrochemical Company Ltd. (SH: 600002), Yangzi
Petrochemical Company Ltd. (SZ: 000866), Zhongyuan Petroleum
Co., Ltd. (SZ: 000956) and Shengli Oilfield Dynamic Group Co.,
Ltd. (SZ: 000406). (CCR2006 No.8)
   By now Sinopec has also conducted reformation to Hubei
Xinghua Co., Ltd. (SH: 600886) and Wuhan Phoenix Co., Ltd. (SZ:
000520). In Hong Kong stock market, Sinopec has merged Beijing
Yanhua Petrochemical Company Ltd. and Zhenhai Refining &
Chemical Co., Ltd. in Cash. Today Sinopec also owns 5 listed
companies including Yizheng Chemical Fiber Co., Ltd. (SH:
600871), Shanghai Petrochemical Company Ltd. (SH: 600688),
Wuhan Petroleum Co., Ltd. (SZ: 000688), Shijiazhuang Refining
& Chemical Co., Ltd. (SZ: 000783) and Taishan Petroleum Co., Ltd.
(SZ: 000554)
   The reformation strategy of Sinopec has undergone three
stages of "one-by-one reformation", "group reformation" and
"long-term reformation".

New sectors and new opportunities

According to its results for Q1 2006, Sinopec has discovered
Puguang Gas Field (PGS) in Xuanhan county of Northeast Sichuan,
a super large self-contained marine gas field with the largest
scale and the highest abundance in China. Based on the assessment
made by the Ministry of Land and Resources, the proven
recoverable reserves in PGS are 251.075 billion m3 and the
technical recoverable reserves are 188.304 billion m3 at the end
of 2005.
    Sinopec has already prepared the first-phase development
scheme. It is planned to achieve a commercial gas amount of over
4.0 billion m3 in 2008 and 8.0 billion m3 in 2010. The company
will also construct a natural gas pipeline from Northeast
Sichuan to Jinan of Shandong province via Henan province.
According to experts, the pipeline network passing the central
region to be constructed by Sinopec is also a part of the national
natural gas system.
   Sinopec is further drilling in PGS to expand the gas-bearing
area and the reserve scale. It is expected that after the overall
verification of PGS and peripheral closed reservoirs in 2008 the
proven geological gas reserves will have a further increase.
   Sinopec has defined a strategic exploration scheme of taking
marine gas fields in the south as the focus. The exploration in
the Sichuan Basin and peripheral areas will be speeded up to seek
greater development and breakthrough.
    The discovery of PGS enlarges the area of exploration and
development for Sinopec and laying a foundation for the further
development of greater oil/gas reserves. Sinopec is conducting
more intensive exploration in marine tracts such as Tahe in
Xinjiang.
   In addition to breakthroughs made in gas fields in China, the
purchase of overseas oil resources has also achieved progress.
   China Petrochemical Corporation (Sinopec Group), parent
company of Sinopec, has already acquired some overseas oil
resources. Its overseas oil output can reach 3.2 million tons
a year today and will increase to 10.0 million tons a year in
future.
   Sinopec has successfully purchased from TNK-BP 96.8% assets
in its subordinate Udmurtneft Petroleum Corporation.
   According to the "2006 Interim Results" published by Sinopec
Corp. on August 28th, 2006, under International Financial
Reporting Standards (IFRS), in the first half of 2006, the
company's turnover with other operating revenues and income was
US$ 61.45 billion, an increase of 33.8%.