1.1 Strengthening the Resource Basis

In recent years, Sinopec has been continuously increasing the investment into the energy sector to accelerate development at home and abroad. By doing so, we have gained access to not only more oil and natural gas resources, but unconventional and renewable resources as well, thus increasing the gross amount of resources and optimizing the energy mix.

◎ Constantly Expanding Investment

Energy development requires consistent and substantial capital input. The past few years have witnessed constantly increasing investment made by Sinopec in the exploration and production of hydrocarbon resources. Our investment in 2011 reached RMB 71.8 billion from RMB 39.4 billion in 2006, with the aggregate investment from 2006 to 2011 exceeding RMB 366.7 billion.

◎Making Efforts to Expand Reserves and Production

In 2011, Sinopec continued to implement the resource strategy of "stabilizing output in eastern fields, expanding production in western areas, accelerating development in southern blocks, pushing forward offshore exploration and development, making breakthrough in unconventional resource development, depending on technologies and building up upstream strength". Great efforts were made to increase the hydrocarbon reserves and output in Shengli, Erdos, Sichuan, Tarim and unconventional resources. Relying on innovation in theories, technology and management, we achieved high quality development with good economic benefits.

In 2011, we made 5 breakthroughs, 8 important progresses, 4 significant discoveries and 10 major results. Measured geological reserves added by 39.23 million tons and that of natural gas added by 22.1 billion cubic meters, both registering substantial growth and strengthening the resource basis for Sinopec. Hydrocarbon production in 2011 amounted to 407.91 million barrels.

In 2011, Sinopec produced 42.73 million tons of crude oil and 14.6 billion cubic meters of natural gas in China while the oil production from the western region increased to 8.466 million tons.

◎Accelerating the Import of Overseas Resources

Faced with the unstable situation in the Middle East and North Africa, Sinopec has pressed ahead with the diversification of its crude import, strengthened international cooperation, explored more sources and mitigated supply risks. We have adopted multiple trade patterns, optimized logistics and transportation and expanded the gross volume of international trade, therefore guaranteeing the stable supply of oil and gas to the domestic market.

In 2011, the gross volume of Sinopec's crude trade reached 234 million tons, up by 25.8% on yearly basis. Meanwhile, Sinopec accelerated the import of overseas natural gas and signed the 6.3 million-ton/year LNG long-term procurement agreements with relevant suppliers.

◎ Diversifying the Energy Mix

Sinopec has placed emphasis on the development and utilization of new types of energy, including the development of unconventional hydrocarbon resources (CBM, shale gas and shale oil etc.) and bio-mass energy (bio-diesel and bio-jet fuel) and the clean utilization of coal.

In 2011, Sinopec achieved significant progress in the exploration of unconventional resources. CBM discoveries were made in Yanchuannan, Zhijin and Heshun blocks while shale gas was found in Jiannan (the west of Hubei and the east of Chongqing) and Yuanba (northeast Sichuan). The first horizontal well for shale oil was drilled in the deeply depressed zone in Biyang Depression in Henan Oilfield.

With the successful commercial scale-up of the in-house developed bio-jet fuel technology in 2011, Sinopec became the first company in China which is in possession of the proprietary bio-jet fuel production technology and capable of large scale production.

By 2020, Sinopec is expected to have more than 30 billion tons of coal resources with 40 million to 45 million tons of equity coal production, 4 million tons of oil equivalent of biomass energy production and 4 million tons of oil equivalent of unconventional oil and gas production.

1.2 Shaping an Integrated Value Chain

Before being used in people's daily life or as the feedstock for further production, oil and gas needs to be processed in refineries and petrochemical plants. While constantly strengthening the resource basis, Sinopec also focuses on research, production, distribution and marketing. With its unique integrated upstream and downstream businesses along the oil and gas value chain, Sinopec is able to provide energy and premium services for the clients.

Sinopec is the largest refiner in China and the second largest in the world. With the three refining and petrochemical bases in the Bohai Bay region, Yangtze River delta and Pearl River delta, Sinopec has constantly fueled the robust economic growth in China. In 2011, Sinopec's refining capacity of crude oil reached 230 million tons per year with 217 million tons of crude throughput, up by 3.0% year on year.

Sinopec has the most extensive service station network, the largest storage capacity and the longest pipelines for oil products, fueling all types of vehicles including cars, trucks, motorcycles, ships and agricultural vehicles. By the end of 2011, the number of Sinopec-branded service stations reached 30,121, the storage capacity of oil product depots 14.75 million cubic meters, the total length of oil product pipelines 8,681 kilometers and the total handling capacity of crude oil jetties (with the capacity of each above 250,000 tons) 256 million tons per year. In 2011, domestic oil products sales volume was 162 million tons, up by 8.8% year on year. Retail volume exceeded 100 million tons for the first time, up by 14.4% year on year.

Sinopec is the largest producer and supplier of chemical products in China. In 2011, Sinopec's ethylene output reached 9.894 million tons, up by 9.2% year on year. Sales volume of chemical products increased by 16.8% on yearly basis to 50.8 million tons.

1.3 Pursuing Cutting-Edge Technologies

The innovation of science and technology, together with management innovation and the higher quality of its workforce are of strategic significance to the development of Sinopec. With the synergy of its integrated businesses, Sinopec has pressed ahead with the research and development of application, fundamental and forward-looking technologies and provided our clients with diversified products with high performance.

◎R&D Strategy

Sinopec implements the R&D strategy of "Self-innovation, Key technology breakthroughs, Pioneering new technologies, Differentiation, Green and Low-carbon and Supporting the world-leading performance". Intensified efforts have been made to develop internationally advanced technologies for new energy, new materials, energy conservation and environmental protection, and by doing so, the Company not only consolidates its leading position in the emerging industries with strategic importance, but also achieves leapfrog growth. At the same time, Sinopec has persistently enhanced the technology capacity for its core businesses including E&P, refining and chemical production, and strengthened fundamental and forward-looking research to improve the indigenous innovation ability and ensure sustainable development.

◎R&D System

The innovation of the management mechanism is critical to technology innovation. Through internal integration and the reform of the R&D system, Sinopec has preliminarily set up the R&D management mechanism of "One entity, Three platforms, Unified planning and Integrated development". Meanwhile, with the close collaboration with our industry peers and clients, we have sharpened the R&D capabilities, achieved better research results and realized common development with our partners and clients.

◎ R&D Achievements

Sinopec has developed a crop of internationally competitive core technologies and proprietary technologies for our businesses along the oil and gas value chain. Technology research and development has played an important role in the discovery, development and utilization of energy resources, oil product quality upgrading, optimization of chemical products mix, energy conservation, emission cut and the fight against climate change.

In 2011, Sinopec has successfully commercialized a number of world-class proprietary technologies, including CO2 capture and reutilization, MTO, PX adsorption and separation, and the liquid-phase recycling hydrorefining for diesel production. Progress was also made in the research and development of forward-looking technologies for bio-mass fuel and carbon capture and retulization, etc.

In 2011, Sinopec filed 3732 patent applications, 42.8% higher year on year, with 1,290 patents granted, up by 53% year on year. The Company won 13 National Technology Invention Awards and National Science & Technology Progress Awards, including the First Prize of the National Science & Technology Progress Award for "The Research, Development and Commercialized Application of the Production Technology for High-end Products from Naphthene Base Viscous Oil". Sinopec also won the Gold Prize of the 13th China Patent Awards for "The Preparation and Application of Fully Vulcanized Powdered Rubber with Controllable Particle Diameter" and 6 China Patent Awards of Excellence.

Conclusion

Guranteeing the national energy security is our glorious mission. With the persistent efforts of our employees and relying on technology progress, sophisticated management and cooperation, Sinopec has been pressing ahead with the diversification of energy mix and sources as well as further improving its service network to enhance the capability of energy supply.

Oil and gas resources are limited, whereas human potentials are unlimited. We will make utmost efforts to discover more resources and ensure the sufficient, stable, reliable and safe supply of energy for the economic and social development.


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