Audit Report
Luzhengxin Audit No. (2006) 1226
To all shareholders of China Petroleum SINOPEC Shengli Oilfield Daming (Group) Co., Ltd.:
We have audited the accompanying financial statements of China Petroleum SINOPEC Shengli Oilfield Daming (Group) Co., Ltd. (hereinafter referred to as "Daming Petroleum Co., Ltd.") as of December 31, 2005, including the balance sheet, consolidated balance sheet, profit and profit distribution statement, consolidated profit and profit distribution statement, cash flow statement, and consolidated cash flow statement for the year 2005. The preparation of these financial statements is the responsibility of the management of Daming Petroleum Co., Ltd. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the Independent Auditing Standards for Certified Public Accountants of China. Our audit included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting policies used and the reasonableness of significant accounting estimates made by management, and evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above comply with the national accounting standards and the "Enterprise Accounting System" regulations, and fairly present, in all material respects, the financial position of Daming Petroleum Co., Ltd. as of December 31, 2005, and the results of its operations and cash flows for the year 2005.
Wang Xiaonan
Shandong Zhengyuan Hexin Certified Public Accountants
Certified Public Accountant Gao Siji
Jinan, China
April 14, 2006
Notes to Financial Statements
Amount Unit: RMB Yuan
1. Company Overview
China Petroleum SINOPEC Shengli Oilfield Daming (Group) Co., Ltd. (hereinafter referred to as "the Company") was established in December 1992 with the approval of the Reform Commission of Dongying City, Shandong Province, initiated by three entities including the Shengli Oilfield Administration Bureau, and confirmed by the Reform Commission and the People's Government of Shandong Province. It is the first pilot enterprise in the oil system of China to adopt a joint-stock system. On June 12, 1996, it was approved by the China Securities Regulatory Commission and the Shenzhen Stock Exchange. The company's shares were issued online, with 14.419 million public shares and 15.581 million employee shares listed on June 28, 1996. On September 9 of the same year, the company increased its capital by 10:5 using reserves. On April 27, 1998, the profit distribution plan of 10 for 8 for the year 1997 was approved by the Shandong Securities Administration. In January 2000, the company issued 134,825,040 ordinary shares at a price of 5 yuan per share. In June 2002, the shareholders' meeting approved a profit distribution plan of 2 shares for every 10 shares, and the total share capital of the company is currently 364,027,608 shares. The company is engaged in oil extraction, with main products including oil. Its main business scope includes oil development, oil well construction services, real estate development and sales, production and sales of chemicals, building materials, and electronic products, hotel management services, and import and export business within the approved scope.