SECURITIES AND EXCHANGE COMMISSION

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

For the month of June 2005

PETROCHINA COMPANY LIMITED

16 Andelu, Dongcheng District
Beijing, The People’s Republic of China, 100011
(Address of Principal Executive Offices)

     (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

     Form 20-F þ Form 40-F

     (Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

     Yes o No þ

     (If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-                    )

     PetroChina Company Limited (the “Registrant”) is furnishing under the cover of Form 6-K, the Registrant’s circular with respect to, among other things, its proposed acquisition of certain overseas assets from one of its affiliates.

     This circular contains estimates of reserves, developed reserves and undeveloped reserves of crude oil and natural gas, and other related data, based on reports by DeGolyer and MacNaughton and Gaffney, Cline & Associates, independent engineering consultants. While “proved” reserves have been estimated in accordance with the definitions contained in Rule 4-10(a) of Regulation S-X of the United States Securities and Exchange Commission, “proved plus probable” estimates are based on the March 1997 reserves definitions jointly promulgated by the Society of Petroleum Engineers/World Petroleum Congress/American Association of Petroleum Geologists and are therefore not presented in accordance with Statement of Financial Accounting Standards No. 69, “Disclosures About Oil and Gas Producing Activities”. The process of estimating quantities of crude oil and natural gas reserves is complex, requiring significant subjective decisions in the evaluation of available geological, engineering and economic data. Accordingly, reserve estimates and related data are inherently imprecise, and their reliability is dependent upon many factors, assumptions and variables involved in estimating reserves, many of which are beyond our control and which may prove to be incorrect over time. As a consequence, results of drilling, testing and production subsequent to the date of these estimates and related data may require substantial upward or downward revisions. Furthermore, these estimates do not necessarily reflect the expectations of real revenues from these reserves, nor their present or fair market value.

     In addition, this circular contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to:

     These forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual results may differ materially from information contained in these forward-looking statements as a result of a number of factors, including, without limitation:

     We do not intend to update or otherwise revise the forward-looking statements in this circular, whether as a result of new information, future events or otherwise. Because of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this circular might not occur in the way we expect, or at all.

     You should not place undue reliance on any of these forward-looking statements.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

If you are in any doubt as to any aspect of this circular, or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in PetroChina Company Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

(a joint stock limited company incorporated in the People’s Republic of China with limited
liability)

(Stock Code: 857)

CONNECTED TRANSACTIONS
AND CONTINUING CONNECTED TRANSACTIONS

Financial Adviser to PetroChina Company Limited

Citigroup Global Markets Asia Limited

Independent financial adviser to the Independent Board Committee

ABN AMRO Asia Corporate Finance Limited

A letter from the Independent Board Committee is set out on page 42 of this circular. A letter from ABN AMRO, the independent financial advisor, containing its advice to the Independent Board Committee is set out on pages 43 to 64 of this circular.

An extraordinary general meeting of PetroChina Company Limited is to be held at Kempinski Hotel, No. 50 Liangmaqiao Road, Chaoyang District, Beijing, the People’s Republic of China (Post Code 100016) at 9 : 00 a.m. on 16 August 2005. A copy of the notice convening such extraordinary general meeting, is set out on pages 87 to 89 of this circular. Whether or not you are able to attend the meeting, you are requested to complete and return the form of proxy, despatched together with this circular, in accordance with the instructions printed thereon as soon as possible to the registered office of PetroChina Company Limited at World Tower, 16 Andelu, Dongcheng District, Beijing, PRC in any event not less than 24 hours before the time appointed for holding of the meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting should you so desire.

30 June 2005

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     In this circular, the following expressions have the following meanings unless the context requires otherwise:

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     For the purpose of this Circular, unless otherwise indicated, the exchange rates at HK$1.00 = RMB1.05 has been used, where applicable, for the purpose of illustration only and does not constitute a representation that any amount has been, could have been or may be exchanged.

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(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 857)

CONNECTED TRANSACTIONS
AND CONTINUING CONNECTED TRANSACTIONS

1. INTRODUCTION

     On 9 June 2005, the Directors announced that the Company entered into the Acquisition Agreement, the Transfer Agreement and the Supplemental Comprehensive Agreement.

     A. Acquisition Agreement

     Pursuant to the Acquisition Agreement, the Company has agreed to acquire a 50% interest in Newco at the Total Consideration of RMB20,741,250,000 (equivalent to approximately HK$19,753,571,429). Currently CNODC and Central Asia own 95% and 5% interests respectively in the registered capital of Newco. Upon completion of the Acquisition Agreement, CNODC will acquire a 5% interest in Newco from Central Asia and the

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Company will pay the Total Consideration to Newco so that immediately following completion of the Acquisition Agreement, Newco will be owned as to 50% by the Company and 50% by CNODC.

B. Transfer Agreement

     Pursuant to the Transfer Agreement, the Company has agreed to transfer and Newco has agreed to purchase, simultaneously with or after completion of the Acquisition Agreement, the entire issued share capital of PetroChina International on the terms and subject to the conditions of the Transfer Agreement. The total consideration for the Transfer payable by Newco to the Company is RMB579,355,000 (equivalent to approximately HK$551,766,667).

     After completion of the Acquisition Agreement and the Transfer Agreement, CNODC intends to transfer its 50% interest in Newco to CNPC at nil consideration and the Company agrees to waive its right of first refusal in respect of such transfer.

C. Supplemental Comprehensive Agreement

     Certain transactions carried on by Newco and its subsidiaries will become continuing connected transactions for the Company following completion of the Transactions. Under such circumstances, the Company and CNPC entered into the Supplemental Comprehensive Agreement.

D. Connected transactions

     CNPC is the controlling shareholder of the Company, and is thus a connected person of the Company. CNODC and Newco, both of which are currently wholly owned subsidiaries of CNPC, are also associates of CNPC. Therefore, the entering into of the Acquisition Agreement and the Transfer Agreement constitute connected transactions for the Company under the Listing Rules. Moreover, the Prospective Continuing CT constitute continuing connected transactions for the Company under the Listing Rules. Thus, the entering into of the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the carrying on of the Prospective Continuing CT and the Proposed Caps are subject to approval by the Independent Shareholders at the EGM by way of poll.

E. Independent Shareholders’ approval and independent financial adviser

     The Independent Board Committee has been appointed by the Board to consider the terms of the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps.

     ABN AMRO has been retained as the independent financial adviser to advise the Independent Board Committee as to whether the terms of the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps are fair and reasonable so far as the Independent shareholders are concerned.

F. Financial adviser

     Citigroup Global Markets Asia Limited is the financial adviser to the Company in respect to the Acquisition, the Transfer and the Prospective Continuing CT.

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2. THE ACQUISITION

     A. Date of the Acquisition Agreement

     9 June 2005.

     B. The Acquisition

     Pursuant to the Acquisition Agreement, the Company has agreed to acquire a 50% interest in Newco at the Total Consideration. Currently, CNODC and Central Asia own 95% and 5% interests respectively in the registered capital of Newco. Upon completion of the Acquisition Agreement, CNODC will acquire a 5% interest in Newco from Central Asia and the Company will pay the Total Consideration to Newco so that immediately following completion of the Acquisition Agreement, Newco will be owned as to 50% by the Company and 50% by CNODC. The Total Consideration is to be paid to Newco rather than to CNODC because the Company is acquiring interest in Newco by way of capital contribution to Newco rather than purchasing existing interest from CNODC.

     C. Business of Newco

     Newco’s principal activities are the exploration, development and production of oil and gas.

     For more details of the Businesses, please refer to paragraph 6B of this Circular.

     D. Corporate structure

     Before the Acquisition, Newco is owned as to 95% by CNODC and 5% by Central Asia. As at the Latest Practicable Date, CNODC is interested in the Businesses either through Newco or otherwise. To the extent that any of such Businesses are not already owned by Newco or its subsidiaries, CNODC has agreed that it will use its best endeavours to transfer the entire Businesses to Newco or its subsidiaries at nil consideration for the purpose of satisfying one of the conditions to completion of the Acquisition Agreement as set out in paragraph 2G below. The parties have agreed to use their respective best endeavours to procure such transfers of the Businesses to Newco or its subsidiaries on or before 10 December 2005.

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     The following two diagrams set out the simplified group structures of Newco as at the (a) Latest Practicable Date; and (b) the date immediately after the transfer of the 5% interest in Newco from Central Asia to CNODC and the completion of the Acquisition Agreement.

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Notes:

     Upon completion of the Acquisition Agreement, Newco will become a subsidiary of the Company.

E. Consideration

     The Acquisition was negotiated and entered into on an arm’s length basis and on normal commercial terms. The Total Consideration of RMB20,741,250,000 (equivalent to approximately HK$19,753,571,429) consisting of US$2.5 billion, based on exchange rates between RMB and US$ as published by the People’s Bank of China on 31 December 2004 plus RMB50,000,000, is payable by the Company for the Acquisition. The Total Consideration is determined by reference to a valuation of the Businesses. The asset valuation is based on production from Newco’s existing reserves and was done in terms of US dollars and the reference date of the valuation was 31 December 2004. Therefore, in order to eliminate any impact on the valuation which may be created by exchange rate fluctuation, the parties to the Acquisition Agreement have agreed to use the RMB/US$ exchange rate as at 31 December 2004.

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     Out of the Total Consideration, RMB50,000,000 (equivalent to approximately HK$47,619,048) will be contributed to Newco as new registered capital and the remaining RMB20,691,250,000 (equivalent to approximately HK$19,705,952,381) will be treated as capital reserves of Newco.

     The Total Consideration has been determined by reference to a valuation of US$2.5 billion for the 100% interest in Newco’s equity. The Total Consideration was determined following extensive due diligence and was derived by the estimated net present values of the assets to be included in Newco. The estimated values were derived from the production, operating costs and capital expenditures provided by internationally recognized technical consultants following detailed discussions with CNODC. A summary of the relevant technical consultants report is contained in Appendix I of this Circular. The Total Consideration did not include any profit forecasts of the Company and was solely dependent on the technical data provided by the technical consultants.

     Adjustments to the assets valuation were made to reflect the corporate overhead and the individual tax regimes of the countries where the assets are located which were not captured by the asset operation costs and capital expenditure. The corporate overhead costs were determined using historical costs as a benchmark and relate to the specific corporate functions and costs incurred by the Newco’s head office, such as treasury services, accounting, senior management costs, etc., but which were not captured in the asset specific operating and capital expenditure costs provided by the technical consultants. The assumptions used to determine the corporate adjustments were historical figures of the Businesses and were agreed between the Company and CNODC. The Total Consideration represents the cash consideration paid by the Company after taxation, net debt and corporate adjustments. The aforesaid adjustment has already been made and it has been reflected in the Total Consideration. For the avoidance of doubt, no further adjustment will be made to the Total Consideration.

     The Total Consideration will be paid on the completion date of the Acquisition by the payment of cash in RMB. The Total Consideration will be funded by the Group’s internal resources.

     The Board is of the view that the Total Consideration payable by the Company for the Acquisition and the other terms of the Acquisition are fair and reasonable and that the Acquisition is in the best interests of the Company and its shareholders taken as a whole.

F. Effective Date of the Acquisition Agreement

     The Acquisition Agreement will become effective upon the obtaining of the necessary corporate internal authorisations and approvals in relation to the signing and the performance of the Acquisition Agreement by each party to the Acquisition Agreement, which includes but not limited to the obtaining of the approval by the Independent Shareholders in respect of the transactions contemplated by the Acquisition Agreement.

     After the Acquisition Agreement has become effective and before completion of the Acquisition Agreement, the Company shall have the right to appoint two observers to Newco. The two observers shall have the right to obtain information relating to the operation of Newco. CNODC and Newco shall provide documents relating to the operations of Newco to the observers. Following completion of the Acquisition Agreement, the Company shall be entitled to nominate 4 directors to the board of directors of Newco.

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     G. Conditions precedent

     Completion of the Acquisition Agreement is conditional on the satisfaction or waiver of, among other things, the following matters:

     The conditions in paragraphs 1 and 5 above may be jointly waived by the parties to the Acquisition Agreement. If the condition in paragraph 1 above is to be waived, it is intended that only the completion of filing procedures could be subject to waiver.

     The Company acknowledges that in some jurisdictions, certain procedural formalities, such as the filing of documents with the relevant government authorities, may have to be done before the transfer of the relevant part of the Businesses can be regarded as completed although all approvals and consents, whether from government or third parties, have already been obtained for the transfer of such Businesses. In this connection, CNODC and the Company agree that as long as both CNODC and the Company are of the view that there are no legal impediments to the completion of such procedural formalities, the parties to the Acquisition Agreement will proceed to the completion of the Acquisition Agreement as if those procedural formalities have been completed. In these circumstances, CNODC shall complete such procedural formalities as soon as possible. For the avoidance of doubt, the existence of outstanding procedural formalities as aforesaid shall not affect the amount of Total Consideration payable by the Company for the Acquisition.

     The parties to the Acquisition Agreement shall use all reasonable endeavours to procure the completion of the Acquisition Agreement not later than 30 December 2005.

     As at the Latest Practicable Date, none of the conditions set out in this paragraph 2G have been fulfilled or waived and no progress on obtaining the necessary approvals and consents has been made since 9 June 2005, the date of the announcement. As far as the Company is aware, CNODC is in the process of obtaining the necessary approvals referred to in paragraph 1 above and such approvals will be obtained before completion of the Acquisition Agreement.

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H. Provisions for Post Valuation Period

     The Total Consideration is determined based on the valuation of the Businesses and the date of such valuation was 31 December 2004. When determining the Total Consideration, the operation of the Businesses from 1 January 2005 has been taken into account. Therefore, the parties to the Acquisition Agreement have agreed, among other things, the following provisions to govern the matters occurred or to be occurred during the period between 1 January 2005 and completion of the Acquisition Agreement:

I. Completion

     On completion, which is expected to take place on or before 30 December 2005, CNODC will acquire a 5% interest in Newco from Central Asia and the Company will pay the Total Consideration in cash to Newco. For more details of the Total Consideration and its payment, please refer to paragraph 2E above.

     After completion of the Acquisition Agreement, Newco will also procure the convening of a shareholders’ meeting of Newco to approve:

     Following completion of the Acquisition Agreement, Newco shall have seven directors, of which four shall be nominated by the Company and three shall be nominated by CNODC.

J. Non Competition and Right of First Refusal

     After completion of the Acquisition Agreement, CNODC has undertaken that, except in the Specified Areas, it and its subsidiaries shall not compete with Newco Group in respect of the exploration, development, production, pipeline and refining businesses of crude oil and natural gas in areas outside the PRC.

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     After completion of the Acquisition Agreement and on the condition that the applicable laws and regulations and provisions of any agreement entered into by CNODC or its subsidiaries are not contravened, Newco shall, after the Company becomes its shareholder, have (a) the priority right to require CNODC or its subsidiaries to sell to Newco; or (b) a priority right to purchase from CNODC or its subsidiaries the following:

     The Specified Areas are the areas which are currently subject to sanction by the United States of America. However, if in the future, any of the Specified Areas cease to be sanctioned by the United States of America, the Company will have the priority right to acquire the assets in those areas.

     Upon the Acquisition Agreement taking effect and until the completion of the Acquisition Agreement, CNODC shall, on the condition that the terms of any agreement are not contravened, upon the obtaining of any new information relating to projects on the exploration, development, production, pipeline and refining businesses of crude oil and natural gas and as soon as it has any intention to enter into any transaction of substance, promptly disclose such information to the Company.

     Currently, the Company does not have any firm commitment to acquire any other specific businesses or assets of CNODC apart from the Businesses. The Company will consider, from time to time, whether any acquisition is to be made based on the following selection criteria, including but not limited to, the scale of the business and asset, the geographic location of the business and the internal rate of return of the acquisition and the growth potential of the business and asset.

K. Others

     Any tax or expense in relation to the transfer of Businesses by CNODC and/or its subsidiaries to Newco and/or its subsidiaries shall be paid by CNODC and Newco in accordance to the applicable laws and regulations.

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3. THE TRANSFER

A. Date of the Transfer Agreement

     9 June 2005.

B. The Transfer

     Pursuant to the Transfer Agreement, the Company has agreed to transfer and Newco has agreed to purchase, simultaneously with or after the completion of the Acquisition Agreement, the entire issued share capital of PetroChina International at a total consideration of RMB579,355,000 (equivalent to approximately HK$551,766,667).

C. Business of PetroChina International

     PetroChina International is mainly engaged in the exploration and production of oil and gas in Indonesia through the indirect ownership of participating interests in seven blocks in Indonesia.

     For details of the businesses of PetroChina International, please refer to paragraph 5B of this Circular.

D. Corporate structure

     Before the Transfer, PetroChina International is a direct wholly owned subsidiary of the Company. After the Transfer, PetroChina International will become a wholly owned subsidiary of Newco. Since Newco will be a subsidiary of the Company, following the completion of the Acquisition Agreement, PetroChina International will become an indirect non-wholly owned subsidiary of the Company upon completion of the Transfer.

     After completion of the Acquisition Agreement and the Transfer Agreement, CNODC intends to transfer its 50% interest in Newco to CNPC at nil consideration and the Company agrees to waive its right of first refusal, in respect of such transfer.

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     The following two diagrams set out the simplified group structure of Newco immediately after (a) the completion of both the Acquisition and the Transfer; and (b) completion of the Transactions and the transfer of the 50% interest in Newco by CNODC to CNPC.

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Notes:

E. Consideration

     The Transfer was negotiated and entered into on an arm’s length basis and on normal commercial terms. The total purchase price for the entire issued share capital of PetroChina International is RMB579,355,000 which is equivalent to US$70,000,000, based on exchange rates between RMB and US$ as published by the People’s Bank of China on 31 December 2004 (equivalent to approximately HK$551,766,667).

     The total purchase price of RMB579,355,000 (equivalent to approximately HK$551,766,667) has been determined by reference to a valuation for the 100% interest in PetroChina International’s equity. Such purchase price was determined following extensive due diligence and was derived by the estimated net present values of the assets to be included in Newco. The estimated values were derived from the production, operating costs and capital expenditures provided by internationally recognized technical consultants following detailed discussions with the Company. A summary of the relevant technical consultants report is contained in Appendix II of this Circular. Adjustments to the asset valuation for the Indonesia reserves were made to reflect the corporate overhead and the individual tax regime of Indonesia where the assets are located, which were not captured by the forecast asset operation costs and capital expenditure. The corporate overhead costs were determined using historical costs as a benchmark and relate to the specific corporate functions and costs incurred by the Company’s head office, such as treasury services, accounting, senior management costs, etc., but which were not captured in the asset specific operating and capital expenditure costs provided by the technical consultants. The assumptions used to determine the corporate adjustments were historical figures of PetroChina International Group and were agreed between the Company and CNODC.

     The total purchase price of RMB579,355,000 (equivalent to approximately HK$551,766,667) shall be satisfied on the completion date of the Transfer by the payment of cash in RMB. The Board is of the view that the price for the Transfer and the other terms of the Transfer Agreement are fair and reasonable and that the Transfer is in the best interest of the Company and the Shareholders taken as a whole.

F. Effective Date of the Transfer Agreement

     The Transfer Agreement will become effective upon the obtaining of the necessary corporate internal authorisations and approvals in relation to the signing and the performance of the Transfer Agreement by each party to the Transfer Agreement, which includes but not limited to the obtaining of the approval by the Independent Shareholders in respect to the transactions contemplated by the Transfer Agreement.

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     Completion of the Transfer Agreement is conditional on the satisfaction or waiver of, among other things, the following matters:

     The condition in paragraph 5 above may be jointly waived by the parties to the Transfer Agreement.

     The parties to the Transfer Agreement shall use all reasonable endeavours to procure the completion of the Transfer Agreement not later than 28 February 2006.

     The approvals required for the Transfer may include approvals from third parties and/or any applicable government authorities. The Company will apply for such approvals (if needed) in due course and all such approvals will be obtained before completion of the Transfer Agreement. As at the Latest Practicable Date, none of the conditions set out in this paragraph 3G have been fulfilled or waived and no progress on obtaining the necessary approvals and consents has been made since 9 June 2005, the date of the announcement.

     Any change in the assets and liabilities of PetroChina International Group during the Post Valuation Period shall not affect the consideration to be paid by Newco under the Transfer Agreement. All revenues, expenses and profits received or incurred during the Post Valuation Period shall belong to PetroChina International Group.

     Any expense paid and revenue received by the Company on behalf of PetroChina International Group during the Post Valuation Period, including but not limited to shareholders’ loan during the Post Valuation Period, loan, increase in capital, current account during the Post Valuation Period, sales and profit, etc. shall be determined on the date of completion of the Transfer. Within 30 days after the date of completion of the Transfer, such amount of expense and revenue shall be reviewed by recognised auditors, and upon confirmation by the Company, Newco and PetroChina International, such amount shall be settled in cash by the Company and PetroChina International. Such recognized auditors will be appointed after the completion of the Transfer Agreement if required.

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     On completion, which is expected to take place on or before 28 February 2006, the entire issued share capital of PetroChina International will be transferred to Newco and Newco will pay the total purchase price of RMB579,355,000 (equivalent to approximately HK$551,766,667) to the Company in cash.

     The Board believes that the Transactions represent a new and important opportunity for the Company to enhance its reserve and production profiles, promote business development and improve financial performance through the sustained growth of Newco’s overseas business.

     As a result of the Transactions, it is anticipated that the Company can achieve the following:

     The Transactions will achieve the strategic objective of increasing the Company’s reserves and production. The table below sets out selected reserves/production data of the Company, the Businesses and the Group after completion of the Acquisition Agreement on a consolidated basis:

Note 2 : The Company is entitled to 50% of the reserve and production of the Business.

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     The assets to be acquired in the Transactions are mainly assets at the growth or development stage. In particular, the assets in Kazakhstan and the exploration projects in Chad and Niger have the potential for long-term growth. With the support of Newco in terms of management and sufficient funding, these assets may have the potential in attaining substantial growth for the Company and strengthening the Company’s upstream exploration and production capability in its overseas businesses.

     The Company currently only has limited exploration and production assets outside the PRC, with the Indonesian assets accounting for the Company’s only international oil and gas assets outside the PRC. The Acquisition will facilitate the Company’s strategic objective of becoming a more internationalised oil company with significant oil and gas assets both onshore and offshore as well as in both the PRC and international markets.

     The Transactions provide the opportunity to significantly increase the Company’s level of international reserves and production. It will provide ownership of multiple assets in 10 new countries of operation, Kazakhstan, Peru and Venezuela represent almost 90% of the net asset value of the assets. Ownership of these assets can serve as a footprint for growth in the specific countries:

     The acquisition of a 50% interest in Newco will increase the consolidated international reserves for the Company from 88.5 million barrels of oil equivalent to 866 million barrels of oil equivalent in 2004, an increase of 879% and increase the consolidated international production for the Company from 11.9 thousand barrels of oil equivalent per day to 149.2 thousand barrels of oil equivalent per day in 2004, an increase of 1,151%.

     More significantly, Newco will provide a new platform for the Company on acquisitions of international oil and gas assets. By making use of Newco’s international operational experience, the Company can seek for acquisition targets in a more aggressive and effective manner which will facilitate the development of a significant international asset base.

     Prior to the Transactions, the Company and Newco were operating their overseas businesses independently. The Transactions will create a uniform overseas business development platform for the Company. Newco’s management has significant experience of managing exploration and production assets in the countries of operation that positions Newco well for future development. Newco should also be expected to provide synergies and to benefit from improved operating efficiencies by sharing and transferring management expertise, particularly in reducing the relative cost of managing different international businesses independently. Following the Transactions, Newco will become a subsidiary of the Company, which will give Newco stronger financial and other corporate resources to support and facilitate international business development.

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     The Transactions should enhance the Company’s financial performance and pave the way for realizing optimal shareholder value in the long term.

     The Company, one of the largest companies in the PRC in terms of sales, is engaged in a broad range of petroleum and natural gas-related activities, including:

     PetroChina International is mainly engaged in the exploration and production of oil and gas in Indonesia through the indirect ownership of participating interests in seven blocks in Indonesia.

     Currently, the Company, through PetroChina International, owns participating interests in seven blocks in Indonesia: the Bangko, Jabung, Selat Panjang and South Jambi “B” production sharing contracts in Sumatra and the Kepala Burung (Salawati Basin) and Salawati Kepala Burung (Salawati Island) production sharing contracts in Irian Jaya and Tuban in Java which is operated under the terms of a joint operation body.

     The fields in the Kepala Burung (Salawati Basin) and Salawati Kepala Burung (Salawati Island) production sharing contracts have been in production since 1973 and 1992 respectively.

     Details of the Indonesia production sharing contracts in the various blocks are described as follows:

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     Total net proved reverses in Indonesia stand at 19 million barrels of oil and condensate, 27 million barrels of liquefied petroleum gas (LPG) and 254 billion cubic feet of gas.

     Set out below are certain financial information extracted from the audited financial statements of PetroChina International as of 31 December 2004, and for the years ended 31 December, 2003 and 2004, prepared in accordance with International Financial Reporting Standards.

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     No gain or losses will be recognised in the consolidated income statement of the Company from the Transfer.

     Following completion of the Transfer Agreement, PetroChina International will be consolidated into the accounts of Newco and will become a subsidiary of Newco under the Listing Rules. Newco will also be consolidated into the accounts of the Company following completion of the Acquisition Agreement because the Company will have control over Newco. Upon completion of the Acquisition Agreement, the Company shall have the right to appoint 4 out of 7 members of the board of directors of Newco and the articles of association of Newco will provide that all significant matters of the board of directors of Newco shall be approved by the majority members of the board.

     Therefore, PetroChina International will also be consolidated into the accounts of the Company after the Transactions and will thus remain a subsidiary of the Company under the Listing Rules.

     CNPC is a state-owned enterprise whose business operations cover a broad spectrum of upstream and downstream activities, domestic marketing and international trade, technical services, and equipment manufacturing and supply. CNPC owns 90% of the Company and 100% of CNODC.

     CNPC is a major producer and supplier of refined oil products and petrochemicals. CNPC is also involved in the provision of operational services and technical support in such areas as geophysical prospecting, well drilling, logging, well testing, downhole operations, oilfield surface facilities construction, pipeline construction, refining and petrochemical projects, and manufacturing and supply of petroleum equipment.

Information on CNODC

     CNODC is a wholly owned subsidiary of CNPC. CNODC was set up by the Ministry of Oil Industry and its primary operations are in oil and gas production and development. Besides, it also owns two refineries, a petrochemical plant and a number of pipeline assets.

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Information on Central Asia

     Central Asia is a limited liability company established in the PRC and is an indirect wholly owned subsidiary of CNODC.

Information on Newco

     Newco is 95% owned by CNODC and 5% owned by Central Asia.

     Upon completion of the Acquisition Agreement, Newco’s operations will include oil and gas production assets in Algeria, Kazakhstan, Azerbaijan, Ecuador, Peru, Venezuela, China and Indonesia. Newco will also have pipeline assets in Kazakhstan, refining assets in Algeria and exploration assets in Chad, Ecuador, Niger, Algeria, Canada and Kazakhstan.

     Newco’s principal activities are international exploration and production of oil and gas assets. Detail description of the Businesses is provided in paragraph 6B of this Circular.

     The Businesses consist of assets in the following jurisdictions. Unless otherwise stated, in this paragraph 6B of this Circular, CNODC shall mean CNODC and its subsidiaries:

     CNODC owns a 70.4% interest in the Aktobe contract area, also known as Aktyubemunaigaz joint stock company (JSC) and also a 50% ownership in the North Buzachi field JSC, which combined have interests in three major fields and a pipeline in Kazakhstan:

     There are two major fields in the Aktobe Contract Area: Zhanazhol oil and gas condensate field and Kenkiyak oil field. The Kenkiyak Post and Pre-Salt fields are located approximately 25 km northeast of the Zhanazhol field and 215 km south of Aktyubinsk city and cover approximately 38 km². The fields have been in production since the 1970’s and cumulative production with approximately 100 million barrels. The Zhanazhol field is located approximately 240 km south of Aktyubinsk City on the Zhaerkameisi uplift, which lies on the eastern edge of the Caspian Sea basin. It covers an area of 232 km² and has been in production since 1983, having produced a total 364 million barrels so far. A gas plant is under construction and first sales of plant products are expected in 2006.

     In respect of the North Buzachi Field, it is situated on the Buzachi peninsula approximately 160 km north of Aktau in Kazakhstan. The field is situated in a province of high-density asphalt oil fields. Oil at the North Buzachi field occurs predominantly in Jurassic sandstones and also in sandstones of the Cretaceous age at depths of 337 to 469

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meters. Reservoir oil viscosity ranges from 171 to 271 centipoises, and stock-tank density is 0.92 to 0.94 grams per cubic centimetre. This unfavourable oil viscosity results in low primary recovery and requires enhanced recovery techniques such as horizontal wells and steam injection. Investments in such programs are now proceeding at the North Buzachi field, although they are at too early a stage to fully evaluate the results. Production from the North Buzachi field commenced in 1999 and the cumulative production through December 31, 2004, was 10.4 million barrels. The 2004 net proved reserves for North Buzachi are 55 million barrels. At this time, no proved reserves have been attributed to the enhanced recovery programs. CNODC also has ongoing exploration programmes in Kazakhstan.

     In respect of the Kenkiyak-Atyrau Pipeline, it was officially brought onstream on 28 March 2003. A joint venture, in which CNODC has a 49% interest, operates the pipeline, which has a capacity of 120,000 barrels per day. The Kenkiyak-Atyrau pipeline capacity could be increased to 180,000 barrels per day by 2005 and 240,000 barrels per day in 2006 if necessary, and it could be reversed to become the first leg in the Kazakhstan-China pipeline project.

     The Kazakhstan assets hold net proved reserves to CNODC of 431 million barrels of oil and 448 billion cubic feet of gas, a total of 506 million barrels of oil equivalent.

     The Caracoles field is located in the EVB Maturin sub basin and covers an area of 256 km². In 1997, CNODC, through its subsidiary, acquired a 100% interest in the field pursuant to an operating agreement. The field was discovered in 1946 and production began in 1951. The Caracoles field has proved reserves of 9.8 million barrels of oil net to CNODC. Production started with 1,600 barrels per day in 1951 and peaked at 12,000 barrels per day in 2001. The operating agreement is structured as a combination of baseline and incremental production service fees. Prior to CNODC obtaining its rights under the operating agreement, it is estimated that CNODC has spent US$105 million on the Caracoles Block up to the end of 2003, US$52 million of which has been spent on development drilling.

     The Intercampo Norte field is located in the Maracaibo Basin and covers an area of 39 km². The field was discovered in 1954 and production began in 1955. Intercampo has proved reserves of 23.7 million barrels of oil net to CNODC. Production started with an average rate of 3,000 barrels per day in 1955 and peaked to approximately 49,000 barrels per day in 1970. CNODC has a 100% interest in the field.

     The Orimulsion area is located in the eastern Venezuela basin approximately 150 km from Maturin city and is part of the Orinoco heavy oil belt. In 1988, Venezuela National Petroleum Company set up a company BITOR to undertake its development. The area has had 16 exploration and appraisal wells with 371 km of 2D seismic shot in 1979 and 1980. The Orimulsion Project is carried out by a joint venture in which CNODC has a 40% interest. It was made effective December 2001 and has a contract duration of 30 years. Proved reserves are 170 million barrels of oil net to CNODC.

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     Block1-AB is the largest block in which CNODC has an interest in Peru. It has proved reserves of 47.3 million barrels of oil net to CNODC. Located in the Maranon Basin, the block is 4,970 km². Block 1-AB is 45% owned by CNODC. The first discovery was in 1972 and production started in 1975. Production peaked with 106,500 barrels per day in 1979. Block 1-AB has been the main oil producing block in Peru since the 1970s.

     Block 8 is 27% owned by CNODC. Located in the Maranon Basin, the block has an area of 1,823 km². Production commenced in 1974 and peaked at 40,540 barrels per day in 1985. Proved reserves are 10.8 million barrels of oil net to CNODC.

     Block 6/7 is the smallest of the three blocks in which CNODC has a 50% interest, the remaining 50% interest is held by a wholly-owned subsidiary of CNPC Hong Kong. There are proved reserves of 4.3 million barrels of oil and 2.7 billion cubic feet of gas net to CNODC. Located in the Maranon Basin, the area of the block is 1,019 km².

     CNODC has a 100% interest in all its South Oil assets. The fields are located in the Fushan Depression in the northern area of the Hainan Province. The Company holds both onshore and offshore licenses but development to date has been confined to the onshore area.

     The Huachang Field is the main field in the area, holding more than 90% of the total hydrocarbon reserves in the basin. It is CNODC’s only domestic asset for which an economic assessment has been made and for which reserves have been calculated. The Huachang Field contains a gas condensate.

     The Huachang Field has produced from the E2L3 reservoir since 1999 and cumulative production up to 31 December 2004, was 11.3 billion cubic feet of gas and 1,800 barrels per day of condensate. 2004 net proven reserves of 5.2 million barrels of oil and 57 billion cubic feet of gas.

     Economic data was not available for the developing fields (i.e. Meitai, Chaoyang, Yongan, Jinfeng and Bohou fields) and recoverable volumes for these fields were classified as contingent resources.

     CNPC has an interest in Blocks 352a and 353, which contain a string of ten small accumulations, collectively known as the Sbaa Fields. They are located in the western Algerian desert approximately 40 km from the city of Adrar.

     The upstream development contract is a “Risk Service Contract” (RSC) between CNPC and the Algerian national company, Sonatrach, in which CNODC is responsible for 70% of the upstream development costs and entitled to an average of 49% of crude sales revenue over a 20-year contract period.

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     The upstream development is part of an integrated project, which also consists of a joint venture to construct and operate the Adrar Refinery, to be located in close proximity to the Sbaa field and a joint venture marketing company to market and distribute the refinery’s products. The upstream contract was signed in July 2003 and includes an appraisal commitment of 2D seismic acquisition and processing, and the drilling of appraisal wells. The seismic commitment has already been fulfilled earlier this year, while the appraisal wells are expected to be drilled before the end of 2004. The contract is for a 25-year duration from July 2003.

     A total of twenty-four exploration and appraisal wells have been drilled, fifteen of which found oil and nine of which penetrated a water leg.

     CNPC’s net reserves in Algeria have been classified as contingent oil resources and range from a low estimate of 3.8 million barrels to 110.0 million barrels. To date, there has been no production from the Algerian concession.

     Block 5 is CNODC’s only asset in Oman and is located in the northwest corner of the Sultanate of Oman. Each of CNODC and a wholly-owned subsidiary of CNPC Hong Kong owns a 25% interest in the project and the remaining 50% interest in the project is owned by an independent third party who is not connected with a director, chief executive or substantial shareholder of the Company. There are proved reserves of 1.53 million barrels net to CNODC.

     The Petroleum Agreement was signed in July 1981 and has a 30-year term from the discovery date and the term may be extended by 10 years.

     The fields were discovered in 1986, and commercial oil production began in 1990. In relation to 4 of the fields within Block 5, the Daleel field is the largest with 84 drilled wells, and 53 of them are in production. In respect of the other smaller fields, they contain one to four wells.

     The primary producing horizon for the fields is the lower Cretaceous-age Shuaiba carbonates. The horizon is subdivided into five additional zones, A through E, with A being the deepest. The main producing zone is the D reservoir. The main reservoirs are located at depths between 1,380 and 1,500 meters subsea. Porosity ranges from 8 to 25 percent, permeability from 1 to 250 millidarcys, and oil saturation from 50 to 70 percent. The gravity of the oil is 38 degrees API (^oAPI). In respect of the Oman project, no commercial gas market is present.

     In April 2004 a horizontal well, DL-61 was subsequently converted to water injection. No definitive waterflood response has been seen. There were 18 wells drilled and completed in 2004.

     Planned full-field waterflood program is expected in late 2005 and early 2006 in Block B. The 2005 development plan calls for 15 horizontal producing wells and 3 water-injection wells to be drilled.

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     CNODC has an interest in the exploration, development, and production sharing agreement (EDPSA) in the Azerbaijan Gobustan Concession and CNODC has an interest in the rehabilitation, exploration, development, and production sharing agreement (REDPSA) in the Azerbaijan K&K Block Concession.

     The Azerbaijan assets hold net proved reserves to CNODC of 1.9 million barrels of oil and 6.1 billion cubic feet of gas.

     CNODC has various interests in eight different gas fields in Canada although overall production volumes are small. Total proved reserves for the fields is 0.56 million barrels of oil and 2.65 billion cubic feet of gas. CNODC’s net working interests by field are as follow: North Twining 15.98%; Pooce Coope 5.375%–16.667%; Drum Heller 12.18%–16.38%; Lone Rock 20%–40%; Golden Lake 20–40%; Acheson 52.5%–100%; Pembina 100%; Hoole 100%. There is currently no production from the Golden Lake and Hoole

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fields. There is crude oil production only from the Lone Rock and Pembia fields, crude and gas production from Drum Heller, and crude, gas and condensate production from Acheson, North Twining, and Pooce Coope.

     Block 11 is CNODC’s only asset in Ecuador. The project is 100% owned by CNODC. Located in the Oriente Basin, the block is 1,920 km². The asset is very small in scale. Production started in 2004 with 230 barrels per day. Reserves are classified as contingent due to the lack of established development plans.

     After seismic acquisitions between 1970 and 1995, eight wildcats were drilled, from which three wells were considered successful — Cristal, Rubí and Diamante.

     Cristal Field: Production started in 2000 at 750 barrels per day. Well was stopped because of mechanical problems, cumulative production was 246,000 barrels. There is no current production.

     Rubí Field: Production started at 600 barrels per day, but the rate quickly fell to 20 barrels per day due to an increasing water cut. The well was stopped in 2002, cumulative production was 8,650 barrels.

     Diamante Field: Well #1 tested oil by swabbing. Rates were between 60 and 100 barrels per day with a 10% water cut. The well was not put into production.

     Block 11 is crossed by the main SOTE pipeline and if high production rates are achieved with future wells, there is a plan to build a pumping station at Aguas Blancas and to connect Cristal and Diamante to the oil line.

     CNODC also has additional activities in Kazakhstan (Bars project and Caspian project), Ecuador, Algeria block 102a/112 and block 350, Chad block H (12.5% working interest), Niger Bilma, Niger Tenere, through its ongoing exploration programme.

     Save as disclosed above, all interest in the Businesses which are held by parties (other than CNODC or Newco or their respective subsidiaries) are owned by independent third parties who are not connected with a director, chief executive or substantial shareholder of the Company.

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     Newco was not in existence prior to 2005. All the financial information of Newco as of 31 December 2004, and for the years ended 31 December, 2003 and 2004, was arrived at by combining the management accounts of individual operations that were owned by CNODC in 2004. Set out below are certain unaudited combined financial information as of 31 December 2004, and for the years ended 31 December, 2003 and 2004, prepared based on the individual management accounts (corresponding to the businesses mentioned in paragraph 6B of this Circular) that reflect adjustments (if any) necessary for compliance with the International Financial Reporting Standards. Details of the unaudited pro-forma financial information are contained in Appendix III of this Circular.

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     Before the completion of the Transactions, Newco and its subsidiaries (including the business carried on by CNODC and its subsidiaries before the establishment of Newco) have been carrying on certain transactions with CNPC and its associates. Certain of these transactions will continue after completion of the Transactions. These transactions primarily include:

     Following the completion of the Acquisition Agreement, Newco will become a subsidiary of the Company, and thus certain transactions involving Newco and the entities in which Newco has direct or indirect interest will constitute continuing connected transactions (i.e. the Prospective Continuing CT) for the Company under the Listing Rules.

     The nature of the Prospective Continuing CT is the same as the transactions covered in the Comprehensive Agreement. However, since the Prospective Continuing CT is mainly in relation to overseas business, the pricing principles set out in the Comprehensive Agreement, which are suitable for PRC domestic transactions, are not applicable to the Prospective Continuing CT.

     The Comprehensive Agreement details specific pricing principles for the products and services to be provided pursuant to the Comprehensive Agreement. The Comprehensive Agreement provides that, if, for any reason, the specific pricing principle for a particular product or service ceases to be applicable, whether due to a change in circumstances or otherwise, such product or service must then be provided in accordance with the following general pricing principles:

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     Since the pricing principles set out in the Comprehensive Agreement contain references to the PRC government prescribed price and the PRC market price, they are not applicable to the Prospective Continuing CT. Therefore, CNPC and the Company entered into the Supplemental Comprehensive Agreement (for a term of three years) to amend certain definitions in the Comprehensive Agreement and the term of the Comprehensive Agreement.

     Pursuant to the Supplemental Comprehensive Agreement, CNPC and the Company have agreed, among other things, to amend the term of the Comprehensive Agreement and the definitions of “State-prescribed Price” and “Market Price” as follows:

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     The Supplemental Comprehensive Agreement will become effective after the same has been approved by the Independent Shareholders and after the Company has become a shareholder of Newco.

     The Company had obtained from the Stock Exchange a waiver from strict compliance with the relevant requirements of the Listing Rules in respect of certain continuing connected transactions at the time of listing of the H Shares on the Stock Exchange in 2000. The waiver was renewed by the Stock Exchange on 26 November 2002 and will expire on 31 December 2005. The continuing connected transactions in respect of which waiver was renewed include the transactions under the Comprehensive Agreement.

     According to the letter of the Stock Exchange dated 26 November 2002, the caps in respect of the transactions under the Comprehensive Agreement corresponding to the Prospective Continuing CT are:

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     Since the terms of the Comprehensive Agreement will be amended by the Supplemental Comprehensive Agreement, the Stock Exchange has indicated that the existing waiver in respect of the above transactions will be revoked.

     As a result of the Acquisition and the Transfer, the Board anticipates that the Prospective Continuing CT will increase the transaction amount of the existing corresponding transactions under the Comprehensive Agreement. The following table sets out the amount of the Prospective Continuing CT for the three years ended 31 December 2004 and the anticipated transactions amount in respect of the Prospective Continuing CT for the year ending 31 December 2005.

     It is expected that in 2005, the existing caps in respect of the transactions under the Comprehensive Agreement that are corresponding to the Prospective Continuing CT will be exceeded because of the addition of the Prospective Continuing CT following the completion of the Transactions. Accordingly, the Board proposes the following new caps (i.e., the Proposed

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Caps) for the following transactions under the Comprehensive Agreement (as supplemented by the Supplemental Comprehensive Agreement). The table below sets out the historical figures for the relevant continuing connected transactions for the three years ended 31 December 2004 and the Proposed Caps. The Proposed Caps will only be applicable up to the end of 2005. The Company will seek Independent Shareholders’ approval for all the continuing connected transactions (including the following continuing connected transactions) before the end of 2005.

The reasons for the Proposed Caps are set out below:

     As a result of the Prospective Continuing CT relating to provision of products and services, it is estimated that the transaction amount in respect of the products and services to be provided by the Enlarged Group to CNPC Group for 2005 will increase by approximately RMB103 million, which represents the expected sales of crude oil by

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Aktyubemunaigaz JSC in Kazakhstan (“AKT”) to CNPC Group. The amount of such transactions depends on the annual crude oil production volume of AKT and the selling price of crude oil to be sold by AKT to CNPC Group.

     In 2004, the annual crude oil production volume of AKT was 5.32 million tons and sales of crude oil to CNPC Group amounted to approximately RMB90 million.

     It is anticipated that the annual crude oil production volume of AKT in 2005 will be 6.1 million tons, representing an increase of 14.7% from that of 2004. Applying the same percentage of increase to the sales of crude oil, it is estimated that the sales of crude oil to CNPC Group will amount to approximately RMB103 million in 2005. The crude oil production volume is expected to increase to 6.1 million tones in 2005 mainly because of the implementation of the development of the oil fields in Kenkiyak Subsalt and South Zhanazhol according to the investment plan and production plan of AKT (including the well drilling plan and other measures to increase and stabilise production).

     Apart from the transactions as described above, it is anticipated that sales relating to products and services provided by the Group to CNPC Group for 2005 shall be RMB38,900 million. Products and services to be provided by the Enlarged Group to CNPC Group mainly include intermediary crude oil products and crude oil products for construction and heating purposes, therefore the amount of this kind of continuing connected transactions is directly correlated to crude oil prices. In estimating the amount of RMB38,900 million, the Company has taken into account the recent oil price fluctuation. The average realized price for crude oil in 2004 was approximately US$34 per barrel, which is substantially lower than the current crude oil price of approximately US$60 per barrel. When determining the Proposed Cap, the Company has considered the possibility of further increases in the oil price during the current year. In addition, the Company considers that the demand for such products from CNPC group will increase as a result of the commencement of production in new facilities in 2005. When this amount of RMB38,900 million is added to RMB103 million arising from the increase in sales from transactions between AKT and the CNPC Group, the total transaction amount for this kind of continuing connected transactions in 2005 will be RMB39,003 million.

     As a result of the Prospective Continuing CT relating to construction and technical services, it is estimated that the transaction amount relating to construction and technical services to be provided by CNPC Group to the Enlarged Group will increase by RMB2,913 million in 2005. Such additional continuing connected transactions principally include the provision of services including but not limited to geophysical surveying, well drilling, logging, well testing, downhole operations and oilfield construction, by CNPC Group to the Enlarged Group.

     The transaction amount of this kind of services is related to the capital expenditure incurred in the Businesses. The greater the amount of capital expenditure incurred, the greater will be the anticipated amount for such transactions.

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     In 2004, the amount of capital expenditure incurred on the Businesses was approximately RMB5,271 million and the transaction amount of such services for the corresponding period was RMB2,331 million, which represented a transaction amount to capital expenditure ratio of approximately 0.44 : 1.

     It is anticipated the capital expenditure to be incurred for the Businesses in 2005 will be approximately RMB6,588 million. Applying the transaction amount to capital expenditure ratio for 2004, the transaction amount for such services for 2005 will be approximately RMB2,913 million. The estimated capital expenditure of the Businesses in 2005 in an amount of RMB6,588 million represents an increase of 25% from the capital expenditure of the Businesses in 2004. This increase is mainly due to the fact that a majority of the oil wells in the Businesses are in their preliminary stage which is a stage involving massive investment. Therefore, the capital expenditure of the Businesses in 2005 is expected to have a mark increase from that of 2004.

     Apart from the transactions as described above, it is anticipated that the transaction amount relating to this kind of continuing connected transactions between the Group and CNPC Group for 2005 will be RMB73,500 million. The amount of this kind of continuing connected transactions accounted for approximately 15% of the Company’s operating expenses and capital expenditure historically. The Company expects that the amount for 2005 will be at a similar level and taking into account its estimates of the operating expenses and capital expenditure for the current year and the possibility of increases in the oil price and construction costs, the amount of this kind of continuing connected transactions is estimated by the Company to be RMB73,500 million. When this amount of RMB73,500 million is added to the RMB2,913 million arising from the increase in transaction amount as described above, the total transaction amount for this kind of continuing connected transactions in 2005 will be RMB76,413 million.

     CNODC has been providing social and ancillary services to the project company in Venezuela through its subsidiary. Such services include the provision of accommodation to the employees of the Venezuela project. The annual service fees charged by CNODC were determined according to market price and in the three years ended 31 December 2004, the fees charged by CNODC in this respect were RMB7 million, RMB10 million and RMB9 million respectively. It is anticipated that the fee to be charged by CNODC in 2005 will not be higher than that in 2004. Therefore, it is estimated that the fee to be charged by CNODC in this respect will be RMB9 million in 2005. Apart from the transaction as described above, it is anticipated that the transaction amount relating to this kind of continuing connected transactions between the Group and CNPC Group for 2005 will be RMB5,000 million. This amount is consistent with the previous caps that were granted for 2002, 2003 and 2004. As the existing specific contracts for such services have not been revised, therefore, the amount for 2005 is expected by the Company to remain at a similar level. When this amount is added to the RMB9 million arising from the transactions involving Venezuela as aforesaid, the total transaction amount for this kind of continuing connected transactions will be RMB5,009 million in 2005.

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     As a result of the Prospective Continuing CT relating to loan borrowing, it is estimated that the average daily outstanding principal amount of loans and the total amount of interest paid annually in respect of such loans relating to the Businesses and involving CPFC for 2005 will be approximately RMB6,913 million, out of which approximately RMB6,584 million will be the average daily outstanding principal amount of the loans and approximately RMB329 million will be the total amount of interest payable annually in respect of such loans.

     As most of the loans relating to the Businesses were advanced from third party banks from 2002 to 2004, the amount of loans advanced from CPFC during such periods were relatively small. Therefore, the figures for 2002 to 2004 do not provide a good reference for future estimation.

     However, it is anticipated that in the future, the amount of loans relating to the Businesses to be advanced from CPFC will increase substantially because:

     The estimated average daily outstanding principal amount of loans for 2005 is RMB6,584 million, which will consist of the following three types of loans:

     CPFC has been advancing loans to CNODC in the past. At the beginning of 2004, such loans amounted to approximately RMB1,400 million. During 2004, such loans had increased by approximately RMB3,600 million to reach an aggregate amount of RMB5,000 million. Upon completion of the Acquisition Agreement, such loans shall be transferred to Newco, therefore, the loan of RMB5,000 million due from CNODC to CPFC will become a loan due from Newco to CPFC upon completion of the Acquisition Agreement.

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     CNPC has been advancing loans to CNPC International Ltd. through CPFC in the past to facilitate the exploration and development activities of certain oil fields. In 2004, such loans amounted to approximately RMB500 million. Upon completion of the Acquisition Agreement, the foresaid oil fields will become part of the Enlarged Group and the loans due to CNPC shall become loans due from the Enlarged Group to CNPC.

     For tax arrangement purposes in Venezuela, CNODC has deposited an amount of approximately US$126 million (approximately RMB1,100 million) with CPFC. As a result of such deposit, CPFC has agreed to advance an equivalent amount of loan to the companies operating the Businesses in Venezuela. Upon completion of the Acquisition Agreement, the companies operating the Businesses in Venezuela will become part of the Enlarged Group and so the amount of loan (which is equivalent to approximately RMB1,100 million) due from such companies to CPFC shall therefore become loans due from the Enlarged Group to CPFC.

     Due to the reasons stated above, the amount of additional loans involving CNPC or CPFC for 2005 arising as a result of completion of the Transactions will be RMB6,584 million. The annual interest rate for each of the above three types of loan shall be approximately 5%. Therefore, the total amount of interest paid in respect of such loans for 2005 will be approximately RMB329 million.

     Apart from the transactions as described above, it is anticipated that the average daily outstanding principal of loans to be advanced by CPFC to the Group and the total amount of interest to be paid annually in respect of such loans for 2005 shall be RMB52,500 million. This amount is based on the total amount of credit facilities available to the Company from CPFC. The Company considers that such credit facilities provide a useful source of funding which increases the Company’s flexibility in pursuing future acquisitions as well as reduces its overall funding costs.

     When the above amount of RMB52,500 million is added to the amount of approximately RMB6,913 million arising from the additional loan (together with amount of interest to be paid annually) as aforesaid, the amount of average daily outstanding principal of loans together with the annual interest thereon will be RMB59,413 million.

     As described above, due to tax arrangement in Venezuela, CNODC has deposited a sum of US$126 million (equivalent to approximately RMB1,100 million) in CPFC and it is anticipated that the amount of interest to be received annually in respect of such deposit will be approximately RMB57 million in 2005.

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     Apart from the transaction as described above, it is anticipated that the average daily deposit in CPFC by the Group and the total amount of interest to be received annually in respect of the deposit by the Group with CPFC for 2005 will be RMB4,500 million. The Company will continue to centralize its cash management system, which will result in a large number of settlements being processed by CPFC. The Company has determined that the amount of this kind of continuing connected transactions will be at a similar level as the last three years. When adding approximately RMB1,157 million arising from the additional deposit (together with amount of interest to be received annually as aforesaid), the amount will be RMB5,657 million in 2005.

     Prior to the completion of the Acquisition Agreement, the members of the CNPC Group (including CNODC, Newco and their respective subsidiaries) operated as an integrated organization which undertook numerous intra-group transactions each year. As a consequence of the Acquisition, Newco will become a subsidiary of the Company and the Prospective Continuing CT will constitute connected transactions for the Company under the Listing Rules.

     The Prospective Continuing CT are and will be conducted in the ordinary and usual course of business of the Enlarged Group. These transactions will continue to be agreed on an arm’s length basis with terms that are fair and reasonable to the Enlarged Group. Due to the long-term relationships between the Group and CNPC Group, the Board considers it to be beneficial to the Enlarged Group to continue the Prospective Continuing CT as these transactions will facilitate the operation of the Enlarged Group’s business.

     Under the Listing Rules, the Prospective Continuing CT will require disclosure and prior Independent Shareholders’ approval.

     The Directors will seek Independent Shareholders’ approval for the Prospective Continuing CT, the Supplemental Comprehensive Agreement and the Proposed Caps for the financial year ending 31 December 2005 on the following conditions:

     As CNPC directly owns an aggregate of 90% of the issued share capital of the Company, transactions between CNPC and its associates and the Group constitute connected transactions for the Company under the Listing Rules. In that regard, the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps are subject to approval from the Independent Shareholders at the EGM by way of poll.

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     In view of the interests of CNPC, CNPC and its associates will abstain from voting in relation to the shareholders resolutions approving the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps.

     An Independent Board Committee has been appointed to advise the Independent Shareholders on whether or not the terms of the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps are in the interest of the Company and are fair and reasonable so far as the Independent Shareholders are concerned.

     ABN AMRO has been appointed as the independent financial adviser to advise the Independent Board Committee regarding the terms of the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps.

     An EGM will be held at Kempinski Hotel, No. 50 Liangmaqiao Road, Chaoyang District, Beijing, the People’s Republic of China (Post Code 100016) at 9 : 00 a.m. on 16 August 2005 to approve the the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps by way of ordinary resolutions. The EGM Notice is set out in pages 87 to 89 of this circular.

     A form of proxy for use at the EGM is enclosed herewith. Whether or not you are able to attend the EGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the registered office of the Company at World Tower, 16 Andelu, Dongcheng District, Beijing, People’s Republic of China as soon as possible but in any event no later than 24 hours before the time appointed for the holding of EGM. In order to be valid, for holders of H Shares, the above documents must be delivered to Hong Kong Registrars Limited, 46/F Hopewell Centre, 183 Queen’s Road East, Hong Kong within the same period.

     Holders of Domestic Shares and H Shares who submit the share transfer application forms to the Company’s share registrar before 4 : 00 p.m. on 15 July 2005 (Friday) and then registered as Shareholders on the register of members of the Company are entitled to attend the EGM. The register of members of the Company will be closed from Monday, 18 July 2005 to Tuesday, 16 August 2005 (both days inclusive), during which period no share transfer will be registered.

     The Articles of Association of the Company provides that Shareholders who intend to attend the EGM shall lodge a written reply to the Company 20 days before the date of the EGM (the “Reply Date”). In case the written replies received by the Company from the Shareholders indicating their intention to attend the EGM represent less than one half of the total number of voting shares, the Company shall within five days from the Reply Date inform the Shareholders of the proposed matters for consideration at the EGM and the date and venue of the EGM by way of a formal announcement. The EGM may be convened after the publication of such announcement.

     You are urged to complete and return the form of proxy and reply slip whether or not you intend to attend the EGM. Completion and return of the form of proxy will not preclude you from attending and voting at the EGM (or any subsequent meetings following the adjournments thereof) should you wish.

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     In accordance with the Articles of Association, the vote of a general meeting of the Company shall be taken on a show of hands unless a request for a voting by poll is made by the following person(s) before or after a voting by a show of hands:

     Unless a request for a voting by poll has been made, the chairman of the meeting shall, based on the results of the voting by a show of hands, announce the results of voting on a resolution and enter the same in the minutes of the meeting.

     In accordance with the Listing Rules, the votes of the Independent Shareholders at the EGM will be taken by a poll and CNPC, the controlling shareholder of the Company, will abstain from voting in respect of the ordinary resolutions to approve the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps at the EGM because of its interest in these transactions.

     Your attention is drawn to the letter from the Independent Board Committee to the Independent Shareholders, which is set out on page 42 of this circular, and which contains their recommendation in respect of the terms of the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps.

     The advice of ABN AMRO to the Independent Board Committee on the fairness and reasonableness of the terms of the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps are set out on pages 43 to 64 of this Circular. ABN AMRO considers that the terms of the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps on the whole are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

     The Directors believe that the terms of the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps.

     Your attention is drawn to the general information set out in Appendix IV to this Circular.

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(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 857)

30 June 2005

Dear Independent Shareholders,

CONNECTED TRANSACTIONS

     We refer to the Circular dated 30 June 2005 of the Company of which this letter forms a part. Terms defined in the circular shall have the same meanings when used herein.

     As CNPC directly owns an aggregate of approximately 90% of the issued share capital of the Company, transactions between the Group and the CNPC Group constitute connected transactions for the Group under the Listing Rules and are subject to approval from the Independent Shareholders.

     In view of the interest of the Independent Shareholders, we have been appointed by the Board to constitute the Independent Board Committee to consider and advise the Independent Shareholders as to the fairness and reasonableness in relation to the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps, details of which are set out in the Letter from the Board in the Circular to the Shareholders. ABN AMRO has been retained as the independent financial adviser to advise the Independent Board Committee in this respect. We wish to draw your attention to the letter from ABN AMRO as set out on page 43 to page 64 of this Circular.

     Having taken into account the information set out in the Letter from the Board, and the principal factors, reasons and recommendations set out in the letter from ABN AMRO, we consider the terms of the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps to be fair and reasonable from a financial point of view insofar as the Independent Shareholders are concerned and believe that the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend that the Independent Shareholders should vote in favour of the resolutions to be proposed at the EGM to approve the Acquisition Agreement, the Transfer Agreement, the Supplemental Comprehensive Agreement, the Prospective Continuing CT and the Proposed Caps.

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     The following is the text of a letter of advice dated 30 June 2005 received from ABN AMRO Asia Corporate Finance Limited which has been prepared for incorporation into this circular:

ABN AMRO Asia Corporate Finance Limited
40/F Cheung Kong Center
2 Queen’s Road Central
Hong Kong

30 June, 2005

To the Independent Board Committee and
  the Independent Shareholders of PetroChina Company Limited

Dear Sirs,

CONNECTED TRANSACTIONS AND
CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

     We refer to our engagement to advise the Independent Board Committee and the Independent Shareholders with respect to the terms of the Acquisition, the Transfer and the Prospective Continuing CT, details of which are contained in the “Letter from the Board” included in the Circular. The Acquisition and the Transfer constitute connected transactions for the Company under the Hong Kong Listing Rules and, pursuant to the provisions thereof, are subject to, among other things, approval by the Independent Shareholders at the EGM. The Prospective Continuing CT constitute continuing connected transactions under the Listing Rules and therefore the carrying on of the Prospective Continuing CT is subject to approval by the Independent Shareholders at the EGM.

     This letter has been prepared for inclusion in the Circular and terms used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

     In making assessment of the fairness and reasonableness of the terms of the Acquisition, the Transfer and the Prospective Continuing CT, we have obtained a substantial amount of relevant information, opinions and facts in relation to the Company, the Businesses and the Newco Group and have relied on the information, opinions and facts supplied, and representations made to us, by the Directors and representatives of the Company as well as the information provided to us by the technical consultants and the Company’s other advisers (including those contained or referred to in the Circular) and have assumed that all such information, opinions, facts and representations, which have been provided by the Directors and such representatives, and for which they are fully responsible, are true, accurate and complete in all respects. We have discussed with the management of the Company about their plans and prospects for the Company and the Newco Group. We have also relied on certain information available to the public and have assumed such information to be accurate and reliable, and we have not independently verified the accuracy of such information. We have studied the relevant market and other conditions and trends relevant to the terms of the Acquisition, the Transfer and the Prospective Continuing CT. Further, we have relied on the representations of the Directors that they have made all reasonable inquiries, and to the best of their

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knowledge and belief, that there are no other facts, the omission of which would make any statement contained in the Circular untrue or misleading. We have assumed that all financial forecasts, estimates and projections relating to the Acquisition, the Transfer and the Prospective Continuing CT were reasonably prepared on the basis of the best currently available information, views and judgments of future requirements of the Company and may be relied upon by us in formulating our opinion without independent verification. We have also assumed that statements and representations made or referred to in the Circular were accurate at the time they were made and continue to be accurate at the date of dispatch of the Circular.

     In providing our opinion, we have not made any independent evaluation or appraisal of, nor have we conducted any form of independent investigation into, the business affairs or assets and liabilities of the Company, the Businesses or the Newco Group. Additionally, we did not conduct any physical inspection of the properties or facilities of the Company, the Businesses, or the Newco Group. It is not within our terms of reference to comment on the commercial feasibility of the Acquisition, the Transfer and Prospective Continuing CT, which remains the responsibility of the Directors. As the independent financial adviser to the Independent Board Committee and the Independent Shareholders, we have not been involved in the negotiations in respect of the terms of the Acquisition, the Transfer and the Prospective Continuing CT. Our opinion with regard to the terms thereof has been made on the assumption that all obligations to be performed by each of the parties to the Acquisition, the Transfer and the Prospective Continuing CT will be fully performed in accordance with the terms thereof.

     Our opinion is necessarily based upon market, economic and other conditions and on the information publicly available to us as of the date of this opinion. We have no obligation to update this opinion to take into account events occurring after the date that this opinion is delivered to the Independent Board Committee and the Independent Shareholders. As a result, circumstances could develop prior to the taking effect of the Acquisition, the Transfer and the Prospective Continuing CT that, if known at the time we rendered our opinion, would have altered our opinion.

     Our opinion is also subject to the following qualifications:

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BACKGROUND INFORMATION

     The information in the Background Information section is based entirely upon information provided to us by representatives of the Company or information contained in the Circular. We have relied on this information in forming our opinion contained at the end of this letter.

     Pursuant to the Acquisition Agreement, the Company has agreed to acquire a 50% interest in Newco at the Total Consideration of RMB20,741,250,000 (equivalent to approximately HK$19,753,571,429). Currently, CNODC and Central Asia own 95% and 5% interests respectively in the registered capital of Newco. Upon completion of the Acquisition Agreement, CNODC will acquire a 5% interest in Newco from Central Asia and the Company will pay the Total Consideration to Newco so that immediately following completion of the Acquisition Agreement, Newco will be owned as to 50% by the Company and 50% by CNODC. The Total Consideration is to be paid to Newco rather than CNODC because the Company is acquiring interest in Newco by way of capital contribution to Newco rather than purchasing existing interest from CNODC.

     Pursuant to the Transfer Agreement, the Company has agreed to transfer and Newco has agreed to purchase, simultaneously with or after the completion of the Acquisition Agreement, the entire issued share capital of PetroChina International at a total consideration of RMB579,355,000 (equivalent to approximately HK$551,766,667). Before the Transfer, PetroChina International is a direct wholly owned subsidiary of the Company. After the Transfer, PetroChina International will become a wholly owned subsidiary of Newco. Since Newco will be a subsidiary of the Company, following the completion of the Acquisition Agreement, PetroChina International will become an indirect non-wholly owned subsidiary of the Company upon completion of the Transfer.

     After completion of the Acquisition Agreement and the Transfer Agreement, CNODC intends to transfer its 50% interest in Newco to CNPC at nil consideration and the Company agrees to waive its right of first refusal, in respect of such transfer.

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     The following two diagrams set out the simplified group structure of Newco immediately after (a) the completion of both the Acquisition and the Transfer; and (b) completion of the Transactions and the transfer of the 50% interest in Newco by CNODC to CNPC.

Notes:

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     The Board is of the view that the Transactions represent a new and important opportunity for the Company to enhance its reserve and production profiles, promote business development and improve financial performance through the sustained growth of Newco’s overseas business.

     As a result of the Transactions, the Board anticipates that the Company can achieve the following:

     The Board considers that the Transactions will achieve the strategic objective of increasing the Company’s reserves and production. The table below sets out selected reserves/production data of the Company, the Businesses and the Group after completion of the Acquisition Agreement on a consolidated basis:

     We are advised by the Board that the assets to be acquired in the Transactions are mainly assets at the growth or development stage. In particular, the Board advised us that the assets in Kazakhstan and the exploration projects in Chad and Niger are expected to have the potential for long-term growth. With the support of Newco in terms of management and sufficient funding, the Board is of the view that these assets may have the potential in attaining substantial growth for the Company and strengthening the Company’s upstream exploration and production capability in its overseas businesses.

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     The Company currently only has limited exploration and production assets outside the PRC, with the Indonesian assets accounting for the Company’s only international oil and gas assets outside the PRC. The Board considers that the Acquisition will facilitate the Company’s strategic objective of becoming a more internationalised oil company with significant oil and gas assets both onshore and offshore as well as in both the PRC and international markets.

     The Board considers that the Transactions provide the opportunity to significantly increase the Company’s level of international reserves and production. It will provide ownership of multiple assets in 10 new countries of operation. Kazakhstan, Peru and Venezuela represent almost 90% of the net asset value of the assets. The Board considers that the ownership of these assets can serve as a footprint for growth in the specific countries:

     The acquisition of a 50% interest in Newco is expected by the Board to increase the consolidated international reserves for the Company from 88.5 million barrels of oil equivalent to 866 million barrels of oil equivalent in 2004, an increase of 879% and increase the consolidated international production for the Company from 11.9 thousand barrels of oil equivalent per day to 149.2 thousand barrels of oil equivalent per day in 2004, an increase of 1,151%.

     More significantly, Newco is expected by the Board to provide a new platform for the Company on acquisitions of international oil and gas assets. By making use of Newco’s international operational experience, the Company considers that it can seek for acquisition targets in a more aggressive and effective manner which will facilitate the development of a significant international asset base.

     Prior to the Transactions, the Company and Newco were operating their overseas businesses independently. The Board considers that the Transactions will create a uniform overseas business development platform for the Company. Newco’s management has significant experience of managing exploration and production assets in the countries of operation and the Board considers that this positions Newco well for future development. Newco is expected by the Board to provide synergies and to benefit from improved operating efficiencies by sharing and transferring management expertise, particularly in reducing the relative cost of managing different international businesses independently. Following the Transactions, Newco will become a subsidiary of the Company, which the Board considers will give Newco stronger financial and other corporate resources to support and facilitate international business development.

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     The Board considers that the Transactions should enhance the Company’s financial performance and pave the way for realizing optimal shareholder value in the long term.

     The Total Consideration of RMB20,741,250,000 (equivalent to approximately HK$19,753,571,429) consisting of US$2.5 billion, based on exchange rates between RMB and US$ as published by the People’s Bank of China on 31 December 2004 plus RMB50,000,000, is payable by the Company for the Acquisition. The Total Consideration is determined by reference to a valuation of the Businesses. The asset valuation is based on production from Newco’s existing reserves and was done in terms of US dollars and the reference date of the valuation was 31 December 2004. Therefore, in order to eliminate any impact on the valuation which may be created by exchange rate fluctuation, the parties to the Acquisition Agreement have agreed to use the RMB/US$ exchange rate as at 31 December 2004.

     Out of the Total Consideration, RMB50,000,000 (equivalent to approximately HK$47,619,048) will be contributed to Newco as new registered capital and the remaining RMB20,691,250,000 (equivalent to approximately HK$19,705,952,381) will be treated as capital reserves of Newco.

     As stated in the Letter from the Board, the Total Consideration has been determined by reference to a valuation of US$2.5 billion for the 100% interest in Newco’s equity. The Total Consideration was determined following extensive due diligence by the Company and its advisers and we have been advised by the Board that it was derived by the estimated net present values of the assets to be included in Newco. The estimated values were derived from the production, operating costs and capital expenditures provided by internationally recognized technical consultants following detailed discussions with CNODC. A summary of the relevant technical consultants report is contained in Appendix I of this Circular. The Total Consideration did not include any profit forecasts of the Company and was solely dependent on the technical data provided by the technical consultants.

     We have been advised that adjustments to the assets valuation were made to reflect the corporate overheads and the individual tax regimes of the countries where the assets are located which were not captured by the asset operation costs and capital expenditure. The corporate overhead costs were determined using historical costs as a benchmark and relate to the specific corporate functions and costs incurred by the Newco’s head office, such as treasury services, accounting, senior management costs etc., but which were not captured in the asset specific operating and capital expenditure costs provided by the technical consultants. The assumptions used to determine the corporate adjustments were historical figures of the Businesses and were agreed between the Company and CNODC. The Total Consideration represents the cash consideration paid by the Company after taxation, net debt and corporate adjustments. We have been advised that the aforesaid adjustment has already been made and it has been reflected in the Total Consideration, and that no further adjustment will be made to the Total Consideration. The Total Consideration will be paid on the completion date of the Acquisition by the payment of cash in RMB. The Total Consideration will be funded by the Group’s internal resources.

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     The total purchase price for the entire issued share capital of PetroChina International is RMB579,355,000 which is equivalent to US$70,000,000, based on exchange rates between RMB and US$ as published by the People’s Bank of China on 31 December 2004 (equivalent to approximately HK$551,766,667).

     As stated in the Letter from the Board, the total purchase price of RMB579,355,000 (equivalent to approximately HK$551,766,667) has been determined by reference to a valuation for the 100% interest in PetroChina International’s equity. We have been advised by the Board that the purchase price was determined following extensive due diligence and was derived by the estimated net present values of the assets to be included in Newco. The estimated values were derived from the production, operating costs and capital expenditures provided by internationally recognized technical consultants following detailed discussions with the Company. A summary of the relevant technical consultants report is contained in Appendix II of this Circular. Adjustments to the asset valuation for the Indonesia reserves were made to reflect the corporate overhead and the individual tax regime of Indonesia where the assets are located, which were not captured by the forecast asset operation costs and capital expenditure. The corporate overhead costs were determined using historical costs as a benchmark and relate to the specific corporate functions and costs incurred by the Company’s head office, such as treasury services, accounting, senior management costs etc, but which were not captured in the asset specific operating and capital expenditure costs provided by the technical consultants. The assumptions used to determine the corporate adjustments, which have not been verified by us, were historical figures of PetroChina International Group and were agreed between the Company and CNODC. The total purchase price of RMB579,355,000 (equivalent to approximately HK$551,766,667) shall be satisfied on the completion date of the Transfer by the payment of cash in RMB.

     Before the completion of the Transactions, Newco and its subsidiaries (including the business carried on by CNODC and its subsidiaries before the establishment of Newco) have been carrying on certain transactions with CNPC and its associates. Certain of these transactions will continue after completion of the Transactions. These transactions primarily include:

     Following the completion of the Acquisition Agreement, Newco will become a subsidiary of the Company, and thus certain transactions involving Newco and the entities in which Newco has direct or indirect interest will constitute continuing connected transactions (i.e., the Prospective Continuing CT) for the Company under the Listing Rules.

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     The nature of the Prospective Continuing CT is the same as the transactions covered in the Comprehensive Agreement. However, since the Prospective Continuing CT is mainly in relation to overseas business, the pricing principles set out in the Comprehensive Agreement, which are suitable for PRC domestic transactions, are not applicable to the Prospective Continuing CT.

     According to the letter of the Stock Exchange dated 26 November 2002, the caps in respect of the transactions under the Comprehensive Agreement corresponding to the continuing connected transactions are:

     Since the terms of the Comprehensive Agreement will be amended by the Supplemental Comprehensive Agreement, the Stock Exchange has indicated that the existing waiver in respect of the above transactions will be revoked.

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     Pursuant to the Supplemental Comprehensive Agreement, CNPC and the Company have agreed, among other things, to amend the term of the Comprehensive Agreement and the definitions of “State-prescribed Price” and “Market Price” as follows:

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     As a result of the Acquisition and the Transfer, the Board anticipates that the Prospective Continuing CT will increase the transaction amount of the existing corresponding transactions under the Comprehensive Agreement. The following table sets out the amount of the Prospective Continuing CT for the three years ended 31 December 2004 and the anticipated transactions amount in respect of the Prospective Continuing CT for the year ending 31 December 2005, only in relation to the Transactions.

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     The Board expects that in 2005, the existing caps in respect of the transactions under the Comprehensive Agreement that are corresponding to the Prospective Continuing CT will be exceeded because of the addition of the Prospective Continuing CT following the completion of the Transactions. Accordingly, the Board proposes the following new caps (i.e., the Proposed Caps) for the following transactions under the Comprehensive Agreement (as supplemented by the Supplemental Comprehensive Agreement). The table below sets out the historical figures in relation to the actual amounts of the relevant continuing connected transactions for the three years ended 31 December 2004 and the proposed amount in relation to the Proposed Caps.

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     The Proposed Caps were determined by the Company by adding the increased amount due to the Prospective Continuing CT to the existing caps of the existing corresponding transactions under the Comprehensive Agreement. The existing caps in respect of the corresponding transactions under the Comprehensive Agreement are:

     The reasons as advised to us by the Board for the Proposed Caps are set out below:

     As a result of the Prospective Continuing CT relating to provision of products and services, the company estimates that the transaction amount in respect of the products and services to be provided by the Enlarged Group to CNPC Group for 2005 will increase by approximately RMB103 million, which represents the expected sales of crude oil by Aktyubemunaigaz JSC in Kazakhstan (“AKT”) to CNPC Group. The amount of such transactions depends on the annual crude oil production volume of AKT and the selling price of crude oil to be sold by AKT to CNPC Group.

     In 2004, the annual crude oil production volume of AKT was 5.32 million tons and sales of crude oil to CNPC Group amounted to approximately RMB90 million.

     The Company anticipates that the annual crude oil production volume of AKT in 2005 will be 6.1 million tons, representing an increase of 14.7% from that of 2004. Applying the same percentage of increase to the sales of crude oil, the Company estimates that the sales of crude oil to CNPC Group will amount to approximately RMB103 million in 2005. The crude oil production volume is expected by the Company to increase to 6.1 million tones in 2005 mainly because of the implementation of the development of the oil fields in Kenkiyak Subsalt and South Zhanazhol according to the investment plan and production plan of AKT (including the well drilling plan and other measures to increase and stabilise production).

     Apart from the transactions as described above, the Company anticipates that sales relating to products and services provided by the Group to CNPC Group for 2005 shall be RMB38,900 million. Products and services to be provided by the Enlarged Group to CNPC Group mainly include intermediary crude oil products and crude oil products for

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construction and heating purposes, therefore the amount of this kind of continuing connected transactions is directly correlated to crude oil prices. In estimating the amount of RMB38,900 million, the Company has taken into account the recent oil price fluctuation. As advised by the Company, the average realized price for crude oil in 2004 was approximately US$34 per barrel, which is substantially lower than the current crude oil price of approximately US$60 per barrel. When determining the Proposed Caps, the Company has considered the possibility of further increases in the oil price during the current year. In addition, the Company has advised us that the demand for such products from CNPC Group will increase as a result of the commencement of production in new facilities in 2005. When this amount of RMB38,900 million is added to RMB103 million arising from the increase in sales from transactions between AKT and the CNPC Group, the total transaction amount for this kind of continuing connected transactions in 2005 will be RMB39,003 million.

     As a result of the Prospective Continuing CT relating to construction and technical services, the Company estimates that the transaction amount relating to construction and technical services to be provided by CNPC Group to the Enlarged Group will increase by RMB2,913 million in 2005. Such additional continuing connected transactions principally include the provision of services including but not limited to geophysical surveying, well drilling, logging, well testing, downhole operations and oilfield construction, by CNPC Group to the Enlarged Group.

     The Company has advised us that transaction amounts of this kind of services are related to the capital expenditure incurred in the Businesses, such that the greater the amount of capital expenditure incurred, the greater will be the anticipated amount for such transactions.

     In 2004, the amount of capital expenditure incurred on the Businesses was approximately RMB5,271 million and the transaction amount of such services for the corresponding period was RMB2,331 million, which represented a transaction amount to capital expenditure ratio of approximately 0.44 : 1.

     The Company anticipates that the capital expenditure to be incurred for the Businesses in 2005 will be approximately RMB6,588 million. Applying the transaction amount to capital expenditure ratio for 2004, the transaction amount for such services for 2005 will be approximately RMB2,913 million. The estimated capital expenditure of the Businesses in 2005 in an amount of RMB6,588 million represents an increase of 25% from the capital expenditure of the Businesses in 2004. We are advised by the Company that this increase is mainly due to the fact that a majority of the oil wells in the Businesses are in their preliminary stage which is a stage involving massive investment. Therefore, the capital expenditure of the Businesses in 2005 is expected to have a marked increase from that of 2004.

     Apart from the transactions described above, the Company anticipates that the transaction amount relating to this kind of continuing connected transactions between the Group and CNPC Group for 2005 will be RMB73,500 million. As advised by the Company, the amount of this kind of continuing connected

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transactions accounted for approximately 15% of the Company’s operating expenses and capital expenditure historically. The Company expects that the amount for 2005 will be at a similar level and taking into account its estimates of the operating expenses and capital expenditure for the current year and the possibility of increases in the oil price and construction costs, the amount of this kind of continuing connected transactions is estimated by the Company to be RMB73,500 million. When this amount of RMB73,500 million is added to the RMB2,913 million arising from the increase in transaction amount as described above, the total transaction amount for this kind of continuing connected transactions in 2005 will be RMB76,413 million.

     CNODC has been providing social and ancillary services to the project company in Venezuela through its subsidiary. Such services include the provision of accommodation to the employees of the Venezuela project. The annual service fees charged by CNODC were determined according to market price and in the three years ended 31 December 2004, the fees charged by CNODC in this respect were RMB7 million, RMB10 million and RMB9 million respectively. The Company anticipates that the fee to be charged by CNODC in 2005 will not be higher than that in 2004. Therefore, the Company estimates that the fee to be charged by CNODC in this respect will be RMB9 million in 2005. Apart from the transaction as described above, the Company anticipates that the transaction amount relating to this kind of continuing connected transactions between the Group and CNPC Group for 2005 will be RMB5,000 million. This amount is consistent with the previous caps that were granted for 2002, 2003 and 2004 as the existing specific contracts for such services have not been revised, therefore the amount for 2005 is expected by the Company to remain at a similar level. When this amount is added to the RMB9 million arising from the transactions involving Venezuela as aforesaid, the total transaction amount for this kind of continuing connected transactions will be RMB5,009 million in 2005.

     As a result of the Prospective Continuing CT relating to loan borrowing, the Company estimates that the average daily outstanding principal amount of loans and the total amount of interest paid annually in respect of such loans relating to the Businesses and involving CPFC for 2005 will be approximately RMB6,913 million, out of which approximately RMB6,584 million will be the average daily outstanding principal amount of the loans and approximately RMB329 million will be the total amount of interest payable annually in respect of such loans.

     As most of the loans relating to the Businesses were advanced from third party banks from 2002 to 2004, the amount of loans advanced from CPFC during such periods were relatively small. Therefore, the Company considers that the figures for 2002 to 2004 do not provide a good reference for future estimation.

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     However, the Company anticipates that in the future, the amount of loans relating to the Businesses to be advanced from CPFC will increase substantially because:

     The estimated average daily outstanding principal amount of loans for 2005 is RMB6,584 million, which will consist of the following three types of loans:

     CPFC has been advancing loans to CNODC in the past. At the beginning of 2004, such loans amounted to approximately RMB1,400 million. During 2004, such loans had increased by approximately RMB3,600 million to reach an aggregate amount of RMB5,000 million. Upon completion of the Acquisition Agreement, such loans shall be transferred to Newco, therefore, the loan of RMB5,000 million due from CNODC to CPFC will become a loan due from Newco to CPFC upon completion of the Acquisition Agreement.

     CNPC has been advancing loans to CNPC International Ltd. through CPFC in the past to facilitate the exploration and development activities of certain oil fields. In 2004, such loans amounted to approximately RMB500 million. Upon completion of the Acquisition Agreement, the foresaid oil fields will become part of the Enlarged Group and the loans due to CNPC shall become loans due from the Enlarged Group to CNPC.

     For tax arrangement purposes in Venezuela, CNODC has deposited an amount of approximately US$126 million (approximately RMB1,100 million) with CPFC. As a result of such deposit, CPFC has agreed to advance an equivalent amount of loan to the companies operating the Businesses in Venezuela. Upon completion of the Acquisition Agreement, the companies operating the Businesses in Venezuela will become part of the Enlarged Group

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and so the amount of loan (which is equivalent to approximately RMB1,100 million) due from such companies to CPFC shall therefore become loans due from the Enlarged Group to CPFC.

     Due to the reasons stated above, the Company estimates that the amount of additional loans involving CNPC or CPFC for 2005 arising as a result of completion of the Transactions will be RMB6,584 million. The annual interest rate for each of the above three types of loan shall be approximately 5%. Therefore, the total amount of interest paid in respect of such loans for 2005 will be approximately RMB329 million.

     Apart from the transactions as described above, it is anticipated that the average daily outstanding principal of loans to be advanced by CPFC to the Group and the total amount of interest to be paid annually in respect of such loans for 2005 shall be RMB52,500 million. This amount is based on the total amount of credit facilities available to the Company from CPFC. The Company advised us that such credit facilities provide a useful source of funding which increases the Company’s flexibility in pursuing future acquisitions as well as reduces its overall funding costs.

     When the above amount of RMB52,500 million is added to the amount of approximately RMB6,913 million arising from the additional loan (together with amount of interest to be paid annually) as aforesaid, the Company estimates that the amount of average daily outstanding principal of loans together with the annual interest thereon will be RMB59,413 million.

(b) Deposit

     As described above, due to tax arrangement in Venezuela, CNODC has deposited a sum of US$126 million (equivalent to approximately RMB1,100 million) in CPFC and it is anticipated that the amount of interest to be received annually in respect of such deposit will be approximately RMB57 million in 2005.

     Apart from the transaction as described above, it is anticipated that the average daily deposit in CPFC by the Group and the total amount of interest to be received annually in respect of the deposit by the Group with CPFC for 2005 will be RMB4,500 million. As advised by the Company, it will continue to centralize its cash management system, which will result in a large number of settlements being processed by CPFC. The Company has determined that the amount of this kind of continuing connected transactions will be at a similar level as the last three years. When adding approximately RMB1,157 million arising from the additional deposit (together with amount of interest to be received annually as aforesaid), the amount will be RMB5,657 million in 2005.

BASIS OF OUR OPINION

     In assessing the fairness of the Acquisition and the Transfer, we have reviewed the net present value calculations provided by the Company and its advisers. In addition, we have compared the implied multiples of the Acquisition and the Transfer with comparable transactions and comparable companies.

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     For our analysis, we have considered recent acquisition transactions that were completed in the same regions as the Businesses and PetroChina International, including Caspian (including Former Soviet Republic countries), North America, South America and South East Asia. In selecting the comparable transactions, we have taken into account various factors including the geographic location of the assets, the oil and gas mix, stage of development and timing of the transaction, based on publicly available information. In assessing the fairness of the Total Consideration and the purchase price to be paid to the Company for the Transfer, we have analysed enterprise value/1P reserves and enterprise value/2P reserves multiples from the precedent transactions.

     A review of over 100 transactions, the majority of which are from the last five years, across the regions in which the Businesses and Petrochina International operate, shows a typical transaction multiple range of between US$2/barrel of oil equivalent (“boe”) to approximately US$5/boe (excluding North America) for 1P reserves. We have also taken into account a number of recent transactions such as PTT Exploration and Production Plc and Mitsui Oil Exploration Co Ltd’s bid for Pogo Producing Company’s Thai assets, Chevron Corporation’s offer for Unocal Corporation and Perenco’s and Neal & Massey Energy bid for BP Plc’s Caribbean assets, which have been completed at significantly higher multiples than this historical range mainly as a result of rising oil prices and increased competition for acquiring oil and gas assets. These recent transactions have been in the range of US$5.7/boe to US$14/boe on a 1P basis.

     Typical 2P reserves multiples across the regions in which the Businesses and Petrochina International operate are in the range of US$1/boe to US$4/boe (excluding North America). Typical transactions in North America show a significantly higher multiple, which for 1P reserves is in the range of US$11/boe to US$15/boe. As majority of the Businesses are located in the Caspian and the South America regions and only a small proportion are located in North America, the precedent transactions in North America are less relevant for our analysis.

     A summary of our comparable transaction analysis is presented below:

     US$/boe

     Source: J.S. Herold Database and other public sources

     Our review of the acquisition multiples of the selected transactions indicates that the implied multiples of the Transactions are within the range of the precedent transactions as stated in the table above.

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     Since the Businesses and PetroChina International operate in many different countries, we have selected our universe of comparable companies from emerging market oil companies as well as internationally focused exploration and production companies. From this universe of companies, we have selected a smaller set of companies based on the extent of their focus on the upstream section of their business, the location of their assets, oil and gas mix (production and reserves) together with other operating and financial characteristics, based on publicly available information. The companies we have considered in our analysis include: China National Offshore Oil Company Limited, PetroChina Company Limited, PTT Exploration & Production PCL, Oil & Natural Gas Corporation Limited, Petroleo Brasileiro SA, Petro-Canada, Santos Limited, Woodside Petroleum Limited, Talisman Energy Incorporated, Apache Corporation, Nelson Resources Limited, Anadarko Petroleum Corporation and PetroKazakhstan Incorporated. In assessing the fairness of the Total Consideration and the purchase price to be paid to the Company for the Transfer, we have reviewed enterprise value/EBITDAX (earnings before interest, depreciation, amortization and exploration expenses) and enterprise value/year-end 2004 1P reserves. In addition, we have analyzed enterprise value/year-end 2004 2P reserves multiples to the extent that such information is publicly available.

     Emerging market oil and gas companies typically trade in a range of US$4/boe to US$10/boe for 1P reserves, with a mean of US$6.3/boe. Enterprise value/EBITDAX multiples for this peer group are in the range of 5.1x to 7.5x, with a mean of 5.8x. Internationally focused exploration and production companies in the peer group considered in this analysis trade in a higher range for 1P reserves of between US$6.9/boe and US$19.0/boe, with a mean of US$13.1/boe. Enterprise value/ EBITDAX multiples for this peer group are in the range of 2.9x to 10.2x, with a mean of 5.8x. The mean enterprise value/1P reserves multiple and enterprise value/EBITDAX multiple for both peer groups is US$10.5/boe and 5.8x respectively.

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     A summary of our comparable company analysis is presented below: