Beijing, People?s Republic of China (PRC) ? 3 April, 2006 ? China Petroleum & Chemical Corporation (?Sinopec Corp.? or ?the Company?) (HKEX: 386; NYSE: SNP; LSE: SNP; CH: 600028) today announced its financial results for the twelve months ended 31 December, 2005.

Under PRC Accounting Rules and Regulations, the Company?s income from principal operations was RMB 799.12 billion (US$ 97.69 billion), an increase of 35.3%.  Net profit was RMB 39.56 billion (US$ 4.84 billion) in 2005, up by 22.6% compared with 2004.

Under International Financial Reporting Standards (IFRS), the Company?s turnover, other operating revenues and other income was RMB 832.53 billion (US$ 101.78 billion), an increase of 34.3%. Operating profit was RMB 66.81 billion (US$ 8.17 billion), an increase of 5.9%. Profit attributable to shareholders was RMB 40.92 billion (US$ 5.00 billion), representing an increase of 13.6% over 2004. 

In consideration of the Company?s earnings in 2005 and its long-term sustainable growth, the Board of Directors proposed a dividend of RMB 0.13 per share for the full year of 2005.  After deducting the interim dividend of RMB 0.04 that has been paid, the final dividend for year 2005 will be RMB 0.09 per share, which is equivalent to RMB 9.00 (US$1.10) per American Depositary Share (ADS).

?In 2005, the Company was confronted with soaring prices for international crude oil, regulated prices for domestic oil products and relatively large fluctuations in prices in the chemicals market,? commented Chen Tonghai, Sinopec Corp.?s Chairman.  ?Under those difficult circumstances, we performed well and achieved solid operational results by leveraging our overall strengths, optimizing resource allocation and improving management while pursuing the Company?s strategic guidelines of ?reform, restructuring, innovation and development with discipline?.  The Exploration & Production segment witnessed increases in both reserves and production, which helped deliver remarkable earnings growth.  The Refining, Marketing & Distribution segments managed to mitigate the impact of macroeconomic controls imposed by the government on the price of oil products, and effectively ensured market supply of oil products by sourcing through multiple channels.  The Chemicals segment operated at a safe, stable and full capacity, sustained through the year and maintained relatively sound profitability. 

Note: In this press release, US$1= RMB 8.18 for  data of fiscal year 2005

We believe that, over 2005, we reinforced our foundation for ongoing organic growth and made a significant contribution to society while achieving relatively good performance for the benefit of our shareholders.?

Operating Highlights

Financial Highlights in Accordance with PRC Accounting Rules and Regulations

		for the year ended 31 December RMB million
		2005	2004	2003
Income from principal operations		799,115	590,632	417,191
Net profit		39,558	32,275	19,011
Earnings per share (RMB)
	Fully diluted	0.456	0.372	0.219
	Weighted average	0.456	0.372	0.219
Net cash flow from operating activities per share (RMB)		0.980	0.809	0.743
Return on net assets (%)
	Fully diluted	18.346	17.320	11.667
	Weighted average	19.682	18.403	12.048
Return (adjusted for non-operating profits/losses) on net assets (%)
	Fully diluted	16.232	19.316	13.690
	Weighted average	17.414	20.524	14.137

Financial Highlights (IFRS)

	for the year ended 31 December RMB million
	2005	2004	2003	2002	2001
Turnover, other operating revenues and other income	832,532	619,783	449,001	350,078	326,424
Operating profit	66,814	63,069	38,883	29,301	27,311
Profit from ordinary activities before taxation	63,228	59,606	35,041	24,916	23,930
Profit attributable to shareholders	40,920	36,019	22,424	16,296	15,503
Basic earnings per share (RMB)	0.472	0.415	0.259	0.188	0.182
Earnings per share  (Based on the total number of shares in issue at year end) (RMB)	0.472	0.415	0.259	0.188	0.179
Return on capital employed (%)	11.99	12.84	9.01	6.90	6.26
Return on net assets (%)	18.30	18.66	13.07	9.77	9.72
Net cash flow from operating activities per share (RMB)	0.882	0.797	0.716	0.655	0.663

Operating Profit by Segment

Second Session of the Board of Directors (2003 ? 2005)

Under the guidance of the Board of Directors, the Company progressively improved its corporate governance and aggressively initiated reforms in its management and operational structure.  Capitalizing on the achievements of the previous Board, and the strategic guidelines of ?reform, restructuring, innovation and development with discipline? that they set forth, the Board of Directors carefully evaluated market developments, as well as the Company?s strategy and stage of development, in order to make prudent decisions to protect and enhance the business of the Company. The consistent implementation of the Company?s strategy of ?expanding resources, exploring markets, cutting costs and prudently investing? since 2002 has resulted in significant growth in the Company?s scale of operations.  Revenue grew to RMB 823.1 billion from RMB 340 billion.  Profit increased remarkably, with profits attributable to shareholders rising from RMB 16.1 billion to RMB 40.9 billion.  Asset structure and quality improved notably as we focused on our core competencies, and return on capital employed (ROCE) rose from 7% to 12%.  As of the end of 2005, the enterprise value of the Company had risen significantly and the dividend distribution over the three years is expected to total RMB 29.5 billion, a strong and improving return to our shareholders.

Improving Corporate Governance: The Board has gradually improved its corporate governance systems and policies.  Today, they are characterized by effective checks and balances, informed decision making and balanced operations. The Company reinforced the efficiency of the Board of Directors by increasing the role of the Strategic Planning Committee, Audit Committee and Remuneration & Evaluation Committee, as well as all of the Company?s independent directors.  In particular, in order to meet regulatory requirements and the need for improving management, the Company fully implemented on 1 January, 2005 the internal control system that had been on trial since 2003.  Moreover, at the end of 2005, the Company conducted a full examination of the efficacy of the internal control system and enhanced it further, thus laying a solid foundation for scientific management and improving its ability to manage operational risks.

Reform Progress:  With an aim to improve efficiency, the Company has aggressively pursued reforms, streamlining its organization, reducing its workforce, and flattening its management structure. Over the past three years, the Company has reduced headcount by more than 54,000  (140,000 since the IPO) and eliminated 1,263 mid-level management positions.   At the same time, with due consideration to the state of the capital markets and the Company?s own development needs, Sinopec Corp. privatized Beijing Yanshan Petrochemical Company Ltd. and Zhenhai Refining and Chemical Co., Ltd.  In an effort to improve management efficiency and reduce cost, the Company is in the process of privatizing four A-share listed subsidiaries benefiting all stakeholders concerned.  Furthermore, the Company has undergone massive consolidation in its businesses and branding.  Based on the success achieved through centralized management in the Company?s lubricant business, Sinopec Corp. set up a chemical sales company, which transformed the former longstanding discrete sales pattern and eliminated internal rivalry.  Finally, in response to fierce competition, the Company has developed strategic alliances with major clients, service providers and suppliers with an aim to explore new markets and secure supply.

Asset Restructuring: In a strategic move, Sinopec Corp. decided to focus on its core businesses and made asset restructuring the primary focus of its development. In its investments, the Company adhered to the principle of ?privileging its core businesses and approving investments based on cash flow and return expectations?.  As a result, the Company upgraded and revitalized existing assets with incremental investments and rationalized the Company?s strategic layout and regional integration to strengthen core competencies.  Two large joint ventures, Shanghai Secco and BASF-YPC successfully commenced operations and the Company acquired assets such as gas stations, ethylene and aromatics plants from China Petrochemical Corporation while selling some of its non-core businesses such as downhole operations.  Inefficient assets were either shutdown, disposed of or suspended production. Total capital expenditure over the past three years was RMB 168.5 billion while the total value of disposed assets reached RMB 12.7 billion.  Overall, quality and profitability of assets rose significantly. 

Technology Advancement: Sinopec Corp. enhanced the value of its assets by combining technology advancement with production and reserve additions, asset restructuring, quality upgrades and cost saving.  These activities helped provide strong technical support for the development of the Company?s core businesses.  During the Second Session, Sinopec Corp. has applied for 2,450 patents, of which 1,871 patents have been granted. By the end of 2005, the Company held 5,466 valid patents, ranking at the top of Chinese enterprises.  In the upstream business, the Company discovered the largest and most abundant domestic marine gas field in the Sichuan Basin thanks to a major breakthrough in marine facies exploration theory and technology.  The gas reserves in place are estimated at 250 billion cubic meters, providing a solid resource base for the future development of Sinopec Corp.?s natural gas business.  In the refining business, the Company upgraded oil product quality to GB2 standard (equivalent to Euro ?) nationwide, and JB standard (equivalent to Euro ?) in Beijing at a low cost through the development of proprietary technology.  In the chemicals business, the Company gradually deployed advanced technology, part of which was adapted from overseas. In particular, the Company pioneered the industrial application of non-crystal alloy catalyst with a stable magnetic bed reactor, which helped Sinopec Corp. win the sole National Technology Invention Prize in 2005, therefore laying a solid foundation for the development of new chemical reaction engineering technology.  Moreover, the application of enterprise resource planning (ERP) tools and other information technologies has strongly underpinned the Company?s reform, development, operations and management activities.

 

Human Resources: Sinopec Corp. places great emphasis on nurturing and developing human resources.  Over the past three years, an effective program for screening and developing high-potential managers has enabled the Company to replace a number of senior managers with younger executives without compromising performance.  Sinopec Corp. substantially invested in training programs for senior management, specialized professionals and staff with expertise in international business.  The Company has trained more than 5,000 employees and managers in total.  Additional training has been provided senior technical staff across all businesses. The Company has created a rich pool of talent for long term development with the establishment of a comprehensive human resource development and management system focusing on managerial expertise, professional knowledge and skill enhancements.  Additionally, the Company has reformed its remuneration system.  To be competitive in the labor market, the Company established a long-term incentive system and formulated an internal remuneration framework conducive to attracting, stimulating and retaining the talent it needs across its diversified operations. 

 

Social Responsibility: As a major energy and chemical company, Sinopec Corp. has consciously fulfilled its social responsibilities with initiatives aimed at resource conservation and environmental protection.  Over the years, the Company has vigorously promoted Health, Safety and Environment (HSE) initiatives and implemented sustainable growth strategies.  The Company has improved the living environment for its work force in the field and improved labor protection standards. The Company has reinforced safety awareness and management, which helped achieve safe, stable, and sustainable operations even when operating at full capacity.  In addition, the Company has been providing clean fuels of premium quality to the public.  Notwithstanding significant growth in its total production and sales volume, COD emission per RMB 10,000 production has been cut in half, consumption of fresh water decreased by 8.2%, the recycling rate of water for industrial use rose by 3.55 percentage points, and the unit energy consumption gradually decreased.  Sinopec Corp. also actively supported and participated in public welfare programs in various ways, contributing to community charities, sponsoring education-related programs, and supporting poverty reduction programs.  Contributions totaled RMB 645 million over the past 3 years.

 

Core Competency: The Company?s total assets increased 38% during the Second Session.  The scale of core businesses expanded, upstream asset mix was rationalized, and reserve replacement was achieved.  Crude oil and natural gas production rose by 3.3% and 24.1% respectively. Refining capacity increased by 19.1% and refining throughput rose by 33.3%.  The quality of oil products was upgraded.   The sales volume of oil products rose by 49.2%, of which, retail volume increased by 82.9% while terminal sales volume reached 80.2%. Ethylene production rose by 95.8%, with production of high value-added chemicals surging accordingly.

 

Review of Market Environment

 

Crude oil

In 2005, international crude oil prices were volatile and remained high. The Platts? Brent spot price averaged US$ 54.53 per barrel, which was 42.5% higher than in 2004. Domestic crude oil prices essentially followed the trend in the international market.  The average realized crude oil price produced by the Company was RMB 2,664.7/tonne (US$45.88/barrel) in 2005, an increase of 36.2% compared with the same period of year 2004. 

Refined oil products

In 2005, domestic demand for refined oil products increased moderately.  The Company estimates that domestic consumption of refined oil products (inclusive of gasoline, diesel and kerosene) in 2005 reached 164.44 million tonnes, an increase of 4.7% compared with the same period in 2004.  International refined oil prices experienced a significant increase and followed the trend in the international crude oil market. However, due to tight control over the domestic prices of refined oil products, a significant disparity existed between domestic and international prices of refined oil products.

Chemicals

In 2005, domestic demand for chemicals maintained a strong growth.  According to Company statistics, consumption of the three major synthetic materials, synthetic resins, synthetic fibers and synthetic rubbers, increased by 10.2% compared with the same period in 2004.  Domestic ethylene consumption equivalent increased by 8.6%.  Domestic chemicals prices witnessed a similar trend as that in the international market. However, due to a continual rise in prices for chemical raw materials in the second half of 2005, the gross profit margin of chemicals declined noticeably.

Production and Operation

Exploration and Production

In 2005, the Company achieved solid results in oil & gas exploration and production by intensifying its exploration activities, and optimizing and adjusting its exploration and production programs.

The Company?s exploration strategy focused particularly on finding additional oil reserves in both existing blocks and new blocks by completing a planar seismic belt of 15,380 km, a three-dimensional seismic belt of 7,164 square km, and drilling 545 test wells with a total drilling footage of 1,467 km. On the strength of its innovative  theory and technological advances, the Company discovered the Puguang Gas Field, which is the largest domestic marine facies sedimentary block ever discovered in China. Important discoveries were also made in exploration activities in mature blocks in East China as well as in the Junger and Tahe blocks, achieving reserve replacement and laying a solid foundation for future resources.  

In oil & gas production, the Company intensified its progressive exploration and oil reserve evaluation, putting proved reserves to efficient use while increasing oil & gas production by actively utilizing low grade reserves and improving the quality and efficiency of new capacity in the new blocks.  The Company also put a premium on the application of new processes and new technologies to the development of mature blocks, and continued improvement in the rate of production in mature blocks.  In 2005, 2,348 development wells were drilled with total drilling footage of 5,109 kilometers, and new capacity totaling 5.79 million tonnes/year of crude oil and 2.1 billion cubic meters of natural gas per year. <}93{>In 2005, the Company?s production of crude oil and natural gas reached 278.82 million barrels and 221.9 billion cubic feet, respectively, representing an increase of 1.7% and 7.2% respectively compared with 2004. During such a period of high oil prices, the Company released reserves and the cash operating cost climbed from US$ 6.72/ barrel in 2004 to US$ 8.12/ barrel.  Operating profit increased 83% to RMB 46.87 billion (US$ 5.73 billion).

 

Summary of Operations of Exploration and Production

				Changes from
				2004 to
	2005	2004	2003	2005 (%)
Crude oil production (mmbbls)	278.82	274.15	270.96	1.70
Natural gas production (bcf)	2,219	207.0	187.7	7.20
Newly added proved reserves of crude oil (mmbbls)	306	284	208	7.75
Newly added proved reserves of natural gas (bcf)	1,406	352.0	(254.3)	(60.05)
Year end proved reserves of crude oil (mmbbls)	3,294	3,267	3,257	0.83
Year end proved reserves of natural gas (bcf)	29,517	3,033.0	2,887.6	(2.68)
Year end proved reserves of crude oil and natural gas (mmboe)	3,786	3,773	3,738	0.34

Note: crude oil volume is converted at 1 tonne to 7.1 barrels, and gas volume is converted at 1 cubic meter to 35, 31 cubic feet.

 

Refining

In 2005, the Company operated at full capacity to satisfy market demand while endeavoring to reduce procurement and transportation costs by optimizing and improving crude oil pipe transportation efficiency, diversifying import sources and product varieties, and consolidating transportation.  Efforts in optimizing regional production, adjusting product mix and increasing the processing ratio of high sulphur and heavy crude oil have paid off in increased sales volume of high value-added products and have enabled the Company to alleviate some of the pressure resulting from tight control over refined oil product prices by the government.  In 2005, crude oil processing reached 139.94 million tonnes, an increase of 5.3% over 2004.  The Company intensified the technical revamping of refining facilities and upgraded gasoline and diesel quality as scheduled.  The Company also improved the main technical and economic measures in the refining segment by relying on strengthened management and advances in technology. As a result, both light product yield and refining yield increased.

In 2005, the Company strived to mitigate the effect of tight price controls over refined oil products, proactively cut costs, and enhanced the quality of oil products ned oil products. The cash operating cost decreased from US$ 1.98/ barrel in 2004 to US$ 1.91/ barrel. In addition, the Company received a one-time payment of RMB9.40 billion (USD$ 1.15 billion) as compensation from the Ministry of Finance for the impact of the cost controls imposed by the Government, which to some extent relieved the pressure resulting from increased crude oil costs, and contributed to the improvement in operating results. The operating loss for the year was RMB was 3.51 billion (US$ 428 million), gross profit was USD 1.32/ barrel.

 

Summary of Production of the Refining Segment

Note: crude oil processing volume is converted at 1 tonne = 7.35 barrels.

The operational data for 2003 included operational results of Xi?an Petrochemical and Tahe Petrochemical.

Marketing and Distribution

In 2005, the Company overcame the adverse effects of tight governmental control over domestic prices for refined oil products, met market demand and ensured supplies to major industries, and major sectors and regions by diversifying its procurement sources.  It also reduced storage and transport costs by fully leveraging modern logistics systems and optimizing resource allocation, and expanded retail and direct sales by fostering service-oriented awareness, improving service quality and marketing channels.  The sales of refined oil products for 2005 topped 100 million tonnes for the first time, representing a year-on-year increase of 10.54%, of which retail volume increased by 19.29%.  <}86{>The efficiency of petrol stations continued to improve with the annual throughput per petrol station exceeding 2,321 tonnes, an increase of 15.88% compared with last year.<0}{0>    Retail and direct sales volume of refined oil products accounted for 80.24% of the total domestic sales volume.  Phase one of the IC card system for petrol stations was put into full operation, providing customers with ?One Card, All Sinopec Stations?. In 2005, the segment?s cash selling cost of petroleum products (defined as the operating expenses less purchasing costs, taxes other than income tax, depreciation and amortization, and divided by the sales volume) was RMB162.55/  tonne (US$ 19.87/ tonne), representing a decrease by 2.7% compared with 2004.

This decrease was primarily due to higher sales volume, a dilution of expenses and other cost-cutting measures.

Summary of Operations of Marketing and Distribution Segment

	2005	2004	2003	Changes from 2004 To 2005 (%)
Total domestic sales of refined oil products (million tonnes)	104.56	94.59	75.92	10.54
of which?Retail volume (million tonnes)	63.52	53.25	38.85	19.29
Direct sales volume (million tonnes)	20.38	19.65	15.33	3.72
Wholesale volume (million tonnes)	20.66	21.69	21.74	(4.75)
Average annual throughput per petrol station (tonne / station)	2,321	2,003	1,686	15.88
Total number of petrol stations under SINOPEC CORP. brand	29,647	30,063	30,242	(1.38)
of which: Number of COCO petrol stations	27,367	26,581	24,506	2.96
Number of franchised petrol stations	2,280	3,482	5,736	(34.52)
Retail volume/total domestic sales volume (%)	60.7	56.3	51.2	4.4percentage  points

Chemicals

In 2005, the Company strengthened the management of its chemicals operation to ensure stable production of its core products. The two joint-venture ethylene facilities, Shanghai Secco and BASF-YPC went into operations as scheduled and production scale increased significantly. The annual production of ethylene reached 5.32 million tonnes, an increase of 30.6%. The Company rationalized its product mix and increased the production of highly value-added products. As a result, the Company increased the production of synthetic resin and differential fiber. During the year, the Company established a sales arm to enhance focus and efficiency. In addition, the decision making process was centralized in order to execute sales strategies and business development more effectively, rationalize logistic flows and resource allocation, and improve sales operations and branding strategies. The operating profit for this business sector continued to be satisfactory with RMB 14.30 billion (US$ 1.75 billion). Cash operation cost of ethylene was US$ 153.5/ tonne. 

Unit: 1,000 tonnes

	2005	2004	2003	Changes From 2004 To 2005 (%)
Ethylene	5,319	4,074	3,982	30.56
Synthetic resins	7,605	6,221	5,805	22.25
of which: performance compound resins	3,498	3,034	2,707	15.29
Synthetic rubbers	626	561	553	11.59
Monomers and polymers for Synthetic fibres	6,725	6,021	5,633	11.69
Synthetic fibres	1,570	1,654	1,659	(5.08)
of which: differential fibres	811	753	623	7.70
Urea	1,780	2,630	2,028	(32.32)

Note: the operational data for 2003 and 2004 included the operational results of Maoming Ethylene, and, also that of various chemical assets acquired from Sinopec Corp. Group in 2004.

The operational data for 2005 included the operational results of the two joint venture ethylene facilities, Shanghai Secco and BASF-YPC

Research and Development

In 2005, the Company focused on technological innovation and the development of key technology, achieved a string of important scientific and technological results and obtained 706 domestic and international patents. The technologies for amorphous state alloy catalyst and magnetically stabilized bed reactors were used in an industrial application for the first time in the world, generating significant economic benefits due to its lower catalyst consumption. After adopting the new technology, catalyst consumption reduced 70% thanks to its greater airspeed ratio, which is 5 to 10 times that of a traditional reactor bed.  The technology was given the sole National Technology Invention prize in 2005.  About ten other technologies were successfully developed, including a geo-steering drilling technology, a new catalyst cracking process which can increase production of propylene while reducing olefin content in gasoline, and an annual 200,000-tonne EY/STY, were successfully developed and put into industrial application.  Breakthroughs were made in research in over 20 technologies, including technologies in the field of oil reserve geo-physics.  A series of technologies, including a catalyst cracking technology that produces the maximum possible amount of isoalkane, and aromatics extraction technology, were applied extensively and generated excellent economic benefits.

Cost Savings

In 2005, the Company took various measures to reduce cost, such as reducing transportation costs by optimizing resource allocation and leveraging the existing logistics system, reducing crude acquisition cost by further increasing the processing volume of high sulphur and heavy crude oil and reducing consumption of energy and materials in the production process by optimizing facilities operation.  In 2005, the Company effectively saved RMB 2.76 billion (US$ 338 million) in costs, exceeding the original target of RMB 2.50 billion (US$ 306 million) by RMB 262 million (US$ 32 million).  Of the total cost saved, the exploration and production segment, the refining segment, the marketing and distribution segment and the chemicals segment achieved cost saving of RMB 638 million (US$ 78 million), RMB 706 million (US$ 86 million), RMB 712 million (US$ 87 million), and RMB 706 million (US$ 86 million) respectively.

Capital Expenditure

The total capital expenditure in 2005 was RMB 58.73 billion (US$ 7.18 billion). Within this, the expenditure for the Exploration and Production Segment was RMB 23.10 billion (US$ 2.82 billion). Large amounts of oil & gas reserves were discovered from some major exploration areas, including Jiyang Depression, Tahe and Northeast Sichuan.  Newly added crude oil production capacity and gas production capacity increased by 5.79 million tonnes per year and 2.10 billion cubic meters per year respectively. The newly added proved crude oil reserves reached 305.62 million barrels with increases in both oil & gas reserves and production.   Expenditures in the Refining Segment totaled RMB 14.13 billion (US$ 1.73 billion). Within this investment, newly added crude oil primary processing capacity, hydro-refining capacity and coking capacity increased by 6.70 million tonnes per year, 3.73 million tonnes per year and 2.80 million tonnes per year respectively; revamping of facilities for upgrading refined oil product quality was completed on schedule and the Ningbo-Shanghai-Nanjing pipeline for imported crude oil was completed and put into operation. Expenditure for the Marketing and Distribution Segment was RMB 10.95 billion (US$ 1.34 billion). Within this investment, the Southwest refined oil pipeline was fully completed and put into operation.  The refined oil products sales network was further improved through acquisition, construction and renovation of gas stations and storage facilities. Thanks to a net increase of 786 petrol filling stations nationwide (a mix of new construction, acquisitions and renovations), the Company further solidified its leading position in this strategic market. Expenditure for The Company?s leading position in the strategic market was further solidified, with a net increase of 786 self-operated petrol stations. Expenditure for the Chemicals Segment was RMB 9.39 billion (US$ 1.15 billion).  Within this, investments in the Maoming Ethylene expansion project, and the PTA revamping project at Shanghai Petrochemical and Yangzi Petrochemical progressed smoothly.  The coal-gasification-for-oil feedstock revamping project for fertilizer production was on schedule. Capital expenditures for corporate and others were RMB 1.16 billion (US$ 142 million).  This included investments in the construction of the information technology system, which progressed well.

In addition, the two large joint ventures, Shanghai Secco and BASF-YPC, with a total capital expenditure of RMB 2.60 billion (US$ 318 million), were successfully put into operation.

 

Business Prospects

Market Outlook

China?s economy is expected to maintain its pace of stable and rapid growth in 2006.  This is expected to help stabilize domestic demand for oil and petrochemical products, and provide good market conditions for the Company. With a new pricing mechanism, the price of domestic refined oil will get closer to market prices. Meanwhile, the refining segment should continue to encounter unfavorable conditions. The international crude oil price is influenced by a number of factors and is expected to remain high, while the price for chemicals, which is largely driven by crude oil prices, will also stay at relatively high level. However, due to rapid growth in new capacity worldwide, gross profit margin may experience some decline.  Meanwhile, with the imminent full liberalization of the domestic refined oil market, competition in the domestic market is expected to be fiercer.

Production and Operation

Faced with a complicated market environment in 2006, the Company intends to adopt a flexible operating strategy and focus on the following areas:

Exploration and Production Segment: The Company will further develop economic reserves, complement the construction of production capacity in new blocks, accelerate the construction of natural gas production capacity, trial production and business development to ensure stable growth of oil & gas production and improve the recovery rate and commodity rate of oil & gas as well as total production and operational efficiency.  The Company plans to produce 39.8 million tonnes of crude oil and 7 billion cubic meters of natural gas in 2006.

Refining Segment: The Company intends to fully leverage existing facilities and optimize existing systems while increasing throughput of high sulphur and heavy oil to reduce procurement costs.  It will fully utilize the capacity of large wharfs, ports and pipeline transportation to reduce transportation costs and optimize processing at each refinery, adjusting processing volume to demand in each regional market and based on the overall environment for crude supply and demand, while endeavoring to adjust product mix and increase production of high value-added products.  The Company plans to process 146 million tonnes of crude oil in 2006.

Marketing and Distribution Segment: The Company will keep a close eye on market changes and fully exploit the advantages of its marketing network to improve service quality and increase the percentage of retail and direct sales.  Moreover, it will fully leverage refined oil product pipelines and optimize the allocation and distribution of refined oil products to reduce storage and transportation costs.  The Company plans to have 110 million tonnes of total sales volume of refined oil products, including 66.2 million tons in retail sales volume. .

Chemicals Segment: The Company will strengthen its management to ensure a safe, stable and high volume operation at chemical facilities and increase the production of high value-added products. Priority will be given to test run and prepare the facilities that are being revamped for commercial operation, including the Maoming Ethylene facility.  Sinopec Corp. will continue its market-oriented approach and fully leverage the strengths of its chemical sales subsidiary to improve competitiveness by optimizing operational processes, improving sales networks and solidifying the linkage between production and sales. In 2006, the Company plans to produce 5.92 million tonnes of ethylene, 8.15 million tonnes of synthetic resins, 0.6 million tonnes of synthetic rubbers, 1.54 million tonnes of synthetic fibers and 7.15 million tonnes of synthetic fiber monomers and polymers.

Research and Development: Keeping in-line with the needs of production and development, the Company will further refine exploration technologies to discover additional oil & gas reserves in the mature blocks in the East, strengthen its research in key technologies, and accelerate theoretical innovation as well as key technology innovation in marine phase oil & gas exploration in West China.  The Company will also intensify its efforts in technologies for enhancing the quality of gasoline and diesel and production technologies for increasing high value-added new chemical products, while accelerating implementation of technological achievements and providing technical support for improving the Company?s core competitiveness.

Cost Saving? In 2005, the Company will rely on scientific and technological advances to strengthen management practices, deepen reforms and enhance operating efficiency. Sinopec Corp. plans to achieve cost savings of RMB 2.50 billion (US$ 306 million).  This includes RMB 600 million (US$ 73 million) in the Exploration and Production Segment, RMB 600 million (US$ 73 million) in the Refining Segment, RMB700 million (US$ 86 million) in the Chemicals Segment, and RMB 600 million (US$ 73 million) in the Marketing and Distribution Segment

Capital Expenditure: The Company?s planned capital expenditure is RMB 70 billion (US$ 8.56 billion) for 2006 with projected expenditure of RMB 29.8 billion (US$ 3.64 billion) in the Exploration and Production Segment, RMB 14.6 billion (US$ 1.79 billion) in the Refining Segment, RMB 12.5 billion (US$ 1.53 billion) in the Chemicals Segment, RMB 11 billion (US$ 1.35 billion) in the Marketing and Distribution Segment and, RMB 2.1 billion (US$ 257 million) in the Corporate and Other segment.   The capital expenditures will be primarily invested in the following activities within each of the various segments:

Exploration and Production: the Company will strengthen the management of oil reserves increase oil & gas production capacity in West China and accelerate the development of the Puguang Gas Field in Northeast Sichuan.  The Company will also endeavor to enhance the overall deployment of its production capacity while improving the quality of capacity construction and adjusting the production structure.

Refining: the Company will continue to refine and accelerate the construction of crude oil pipelines and related receiving and unloading facilities, ensure the revamping efforts at refining facilities in Guangzhou, Yanshan and other areas proceed smoothly while upgrading oil product quality, and push forward the Qingdao oil refining project and Fujian integration project. 

Chemicals: the Company will focus on revamping Maoming Ethylene, the Shanghai Petrochemical ethylene glycol facilities, the Yangzi Petrochemical PX and PTA facilities.  Sinopec Corp. will also work to complete the revamping of fertilizer facilities at Baling, Hubei and Anqing subsidiaries and prepare for a successful trial operation of the revamped facilities. 

Marketing and Distribution: the Company will continue to optimize and adjust its sales network, accelerate the construction of refined oil product pipelines and increase pipeline transportation and operational efficiency while ensuring the continued construction and acquisition of petrol stations in central cities, new urban districts and along expressways.

Notice: Sinopec Corp. will announce its 2005 annual results at www.sinopec.com and in major newspapers on 3 April, 2006.  An archived webcast to discuss Sinopec Corp. Corp?s results will be posted on 4 April, 2006 on the Company?s website at www.sinopec.com

 

 

 

About Sinopec Corp.

Sinopec Corp. is a Chinese company that has been listed in Hong Kong, New York, London and Shanghai.  The Company is an integrated energy and chemical company with upstream, midstream and downstream operations.  The principal operations of Sinopec Corp. and its subsidiaries include: exploring, developing, producing and trading crude oil and natural gas; processing crude oil into refined oil products; producing, trading, transporting, distributing and marketing refined oil products; and producing and distributing chemical products.  Based on 2005 turnover, Sinopec Corp. is one of the largest listed companies in China.  The Company is one of the largest crude oil and petrochemical companies in China and Asia.  It is also one of the largest gasoline, diesel and jet fuel and other major chemical products producers and distributors in China and Asia. 

For additional information about Sinopec Corp., please visit the Company?s website at www.sinopec.com.

Disclaimer

This press release includes "forward-looking statements". All statements, other than statements of historical facts that address activities, events or developments that Sinopec Corp. expects or anticipates will or may occur in the future (including but not limited to projections, targets, reserve estimates and business plans) are forward-looking statements. Sinopec Corp.'s actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties, including but not limited to the level of demand for telecommunications services; competitive forces in more liberalized markets; the effects of tariff reduction initiatives; changes in the regulatory policies and other risks and factors beyond Sinopec Corp.'s control.  In addition, Sinopec Corp. makes the forward-looking statements referred to herein as of today and undertakes no obligation to update these statements.