Sinopec Corp. Announces 2006 Annual Results.

BEIJING -- China Petroleum & Chemical Corporation ("Sinopec Corp." or "the Company") (HKEX: 386; NYSE: SNP; LSE: SNP; CH: 600028) today announced its annual results for the twelve months ended 31 December, 2006.

Under PRC accounting rules and regulations, the Company's income from principal operations was RMB 1,044.58 billion (US$131.21 billion) in 2006, an increase of 30.72%. Net profit was RMB 50.66 billion (US$6.36 billion), up 28.08% compared with the same period of 2005.

Under International Financial Reporting Standards (IFRS), the Company's turnover with other operating revenues and income, was RMB 1,076.40 billion (US$135.21 billion) in 2006, an increase of 29.27% compared to 2005. Profit attributable to shareholders was RMB 53.91 billion (US$6.77 billion), an increase of 30.05% compared to last year.

The Board of Directors proposed a dividend of RMB 0.15 per share for the full year of 2006, which is equivalent to RMB 15 (US$1.88) per American Depositary Share (ADR). After deducting the interim dividend of RMB0.04 that has been paid, the final dividend for 2006 is RMB 0.11 per share.

"In 2006, following the guidelines of 'reform, restructuring, innovation and development,' the Company further expanded its operations, improved asset quality, enhanced its profitability and achieved significant growth and earnings," commented Mr. Chen Tong Hai, Chairman of Sinopec Corp. "We are particularly pleased with our success in Exploration and Production. Following a number of years of diligent efforts and through the application of cutting edge technologies in marine facies exploration, we discovered a significant natural gas field in Northeast Sichuan. This will help build our base of reserves over time and set a foundation for the Company's future growth.

"In 2006, we increased both our reserves and production of crude oil and natural gas, with crude oil production exceeding 40 million tonnes for the year. As of December 31, 2006, our refining capacity was the third largest in the world, and our ethylene production capacity was the fourth largest. In our downstream segment, we further improved our sales network for gasoline and diesel products, and with approximately 28,000 service stations as of December 31, 2006, we have the third largest network of gasoline and diesel retail stations in the world. Overall, the Company's competitive advantages as an integrated energy and chemical company have been further enhanced. In 2006, our turnover and other operating revenues surpassed RMB 1 trillion for the first time and our Return on Capital Employed (ROCE) exceeded 13%."

On the same day, Sinopec Corp. made an announcement on profit projection for the first quarter of 2007. In accordance with PRC Accounting Rules and Regulations, the Company's consolidated net profit for 1Q 2007 continued its momentum by recording an increase of more than 50 % compared to the same period in 2006.

Note: In this press release, US$1= RMB 7.961 for data in 2006

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MARKET ENVIRONMENT AND BUSINESS REVIEW

In 2006, the Chinese economy continued to grow at a rapid rate as GDP expanded 10.7%. With international crude oil prices fluctuating at a high level, the Chinese government implemented tight price controls on refined oil products. Petrochemical product prices also remained at high level. Confronted with such a volatile market environment, the Company maintained its outlook for steady development. Accordingly, Management's focus has been to expand resources, implement resource strategies, actively respond to market changes, optimize refining and chemical production, strengthen internal management, improve group integration and concentrate on energy conservation and overall cost savings. As a result, we achieved new growth in production volume, turnover and net profit.

In 2006, domestic demand for refined oil products grew moderately. According to Company statistics, domestic consumption of refined oil products (inclusive of gasoline, diesel, kerosene and jet fuel) in 2006 was 174.4 million tonnes, up by 6.1% compared with 2005. Due to tight control over domestic prices of refined oil products, there was a significant gap between domestic and international prices of refined oil products.

Domestic demand for chemicals remained strong. Domestic ethylene consumption increased by 4.3% over the previous year. Domestic chemical prices increased, witnessing a similar trend as prices in international markets. .

BUSINESS REVIEW

Exploration and Production:

In 2006, the Company achieved solid results in oil and gas exploration and production by intensifying its exploration activities and optimizing its exploration and production businesses.

In connection with exploration activities, the Company especially focused on gas exploration in the Northeast and East Sichuan Province. By further refining oil and gas exploration technologies involving marine facies, the Company discovered the Puguang Gas Field and also made other important discoveries in Northeast Sichuan Province. Additionally, progress was made in Western Tahe and at mature blocks in Eastern China, which should provide a strong base for resource replacement in the future.

In oil and gas production, the Company improved its oil reserve evaluation, and effectively developed its proved reserves. Under the high oil price environment, the Company actively developed low yield reserves and improved the quality and efficiency in new blocks to increase oil and gas production. The Company also focused on the application of new processes and new technologies to the development of mature blocks. In 2006, the oil and gas yield showed steady growth, with crude oil output exceeding 40 million tonnes per annum for the first time.

The Platts's Brent spot price in 2006 averaged US$65.14 per barrel, up by 19.5% compared with 2005. Domestic crude oil prices generally followed international prices. The average realized price of crude oil was RMB 3,194.5 per tonne (US$56.53/barrel), representing an increase of 19.9% over 2005, while the average price of natural gas was RMB 794 per thousand cubic meters, representing an increase of 18.0% compared with 2005.

In 2006, due to the high price of crude oil, in order to increase oil and gas production, the Company developed marginal oil reserves, which together with increased water and electricity charges associated with oil and gas production, contributed to a 6.6% increase in lifting costs of crude oil and natural gas from RMB 488 per tonne (US$8.41/barrel) in 2005 to RMB 520 per tonne (US$9.21/barrel) in 2006.

During the period, the segment's operating profit was RMB 63.2 billion (US$7.9 billion), an increase of 30.7% compared with 2005.

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Refining:

In 2006, Sinopec strengthened the management of its refining facilities and actively pursued high-load production in order to meet market demand. In addition, the Company closely monitored changes in the international crude oil market and continued to diversify crude oil sources and reduce the purchasing cost of crude oil. The Company also sought to optimize storage and transportation facilities, such as newly built crude oil wharves and pipelines, and reduce storage and transportation costs. The Company processed 146.3 million tonnes of crude oil in 2006, an increase of 4.6% over last year.

In 2006, although international crude oil prices remained volatile and at a relatively high level, the PRC government implemented tight controls over domestic prices of refined oil products. As a result, the refining segment incurred significant losses, despite the Company's efforts to offset the high cost of crude oil increasing the processing volume of sour crude as well as expanding the market of other refined oil products and increasing the sales volume of refined oil products with high added value. The refining margin was negative RMB 20 per tonne (negative US$0.34/barrel), decreased as compared to RMB 79 (US$1.32/barrel) in 2005.

In 2006, the cash operating cost of the refining segment was RMB 135 per tonne (US$ 2.31/barrel), an increase of 17.4% compared with 2005. This change was mainly due to the increase in equipment maintenance expenses caused by increased processing volumes of lower quality crude oil, and increased fuel purchases externally, and an increase in costs related to product optimization.

During the period, international crude oil prices rose continuously and remained at a high level for an extended period, while domestic oil product prices remained tightly controlled and deviated from crude oil prices. Therefore, the central government provided a RMB 5 billion one-off subsidy, which has been added to the Company's profit before taxation for 2006. In 2006, this segment incurred an operating loss of RMB 25.3 billion (US$3.2 billion), an increase in loss of RMB 21.8 billion (US$2.7 billion) compared with 2005.

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Marketing and Distribution Segment:

In 2006, Sinopec attempted to expand the end-user market for gasoline, diesel and kerosene and optimized its marketing structure. As a result, the retail sales volume of gasoline, diesel and kerosene increased significantly. In addition, the Company gathered resources from multiple channels, strengthened the integration of different regions, optimized resource allocation, and guaranteed market supply. Furthermore, the Company optimized its marketing network and further increased the number of independently-operated gas stations. The average pump volume per station increased gradually and Petrol IC cards were used widely, allowing customers to use one card at all of the Company's petrol stations across the nation. At the same time, the Company reinforced its non-oil product business. "Drive Through" restaurants jointly managed by the Company and McDonald's entered in service at select gas stations. In 2006, the Company's sales volume of gasoline, diesel and kerosene reached 112 million tonnes, up 6.8% compared with 2005. Of this, retail volume was 72.2 million tonnes, up 13.6% over 2005. In 2006, the segment's unit cash selling expenses were RMB 167 per tonne, an increase of 2.7% compared with 2005. This increase was primarily due to the increased retail volume and higher maintenance expenses due to the plan to improve the image of petrol stations.

In 2006, the segment's operating profit was RMB 30.2 billion (US$3.8 billion), an increase of 192.1%. The increase was primarily due to the increase in sales volume and higher prices of refined oil products, and the continuous optimization of the marketing structure to further increase the percentage of retail sales as a proportion of the total sales volume of gasoline and diesel.

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Chemicals:

In 2006, the Company leveraged its advantage of centralized chemical product sales, unified its operations, closely combined production and sales and attempted to match quantities and pricing. As a result, the sales volume of chemical products increased at a steady rate, reaching 29.56 million tonnes at the end of 2006. The sales of chemical products sold through the centralized network reached 19.58 million tonnes in 2006, an increase of 8.5% compared with 2005. The Company produced 6.16 million tonnes of ethylene, up 15.9% compared with 2005.

In 2006, the segment's operating profit was RMB 17.2 billion (US$2.2 billion), an increase of 20.6% compared with 2005.

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Research and Development: In 2006, the Company made great efforts to facilitate technological innovation. The exploration areas were expanded gradually with the development of new theories and technologies for oil and gas marine facies exploration. After years of endeavor, the company has successfully developed the technology to upgrade its gasoline and diesel quality to levels equivalent to European IV standards. In addition, the Company is capable of building ethylene facilities with production capacity of one million tonnes per annum. The company has implemented an array of information management applications based on its ERP system and has begun to enhance its research and development efforts on alternative energies. In 2006, the company applied for 842 patents in total, with 703 patents granted and won 9 National Science & Technology Invention Awards.

Cost Saving: In 2006, the company took various measures to reduce cost, such as optimising resource allocation and leveraging existing logistics system, reducing transportation cost, further increasing processing volumes of high sulphur and heavy crude oil, reducing the procurement cost of crude oil and consumption of energy and materials in the production process by optimizing facility operations. In 2006, the company effectively saved RMB 2,781 million (US$349 million) in cost, which exceeded the original target of RMB 2,500 million (US$314 million) by RMB 281 million (US$35 million). Of the total cost saved, Exploration and Production, Refining, Marketing and Distribution and Chemicals achieved cost saving of RMB 720 million (US$90 million), RMB 721 million (US$91 million), RMB 561 million (US$70 million), and RMB 779 million (US$98 million) respectively. The company continued to streamline its work force to enhance efficiency and reduced headcount by 24,000.

Capital Expenditure: In 2006, the total capital expenditure of the Company was RMB 79.8 billion (US$10.0 billion). Among which, the expenditure for Exploration and Production was RMB 31.7 billion (US$4.0 billion). With the investment, oil and gas exploration in Northeast Sichuan and the preparations for the "Sichuan to East China Gas Project" were fully started, and the oil and gas production construction in Tahe in the West, Shengli Chenbei Marine Oilfield in the East and Daniudi Gasfield progressed smoothly. The newly built crude oil and natural gas capability hit 6.465 million tonnes and 1.9 billion cubic meters per annum respectively. The expenditure for Refining was RMB 21.97 billion (US$2.8 billion). The newly added comprehensive crude oil processing capability reached 14.7 million tonnes per annum. The newly built and reconstructed projects such as the Hainan and Guangzhou refineries were completed and started operations. The Yanshan Refinery Upgrading Project was also completed, and the Cezi Island Wharf and Yichang Crude Oil Pipeline projects were finished and commenced operations. In addition, some storage and transportation facilities such as the Tianjin Refining & Chemical integrated project and the Caofeidian Crude Oil Wharf have started construction. The expenditure for Marketing and Distribution was RMB 11.3 billion (US$1.4 billion). The Company further improved its refined oil products sales network through construction, acquisition and renovation of petrol stations. In 2006, the Company added 827 petrol stations to its network. The expenditure for Chemicals was RMB 12.6 billion (US$1.6 billion). The newly added production capacity of ethylene, PTA, and styrene-butadiene rubber was 750,000 tpa, 450,000 tpa and 100,000 tpa respectively. The Maoming ethylene revamping project was completed and put into operation and the chemical fertilizer revamping projects in Anqing, Hubei and Baling were completed and realized successful trial commissioning. The integration of Fujian Refinery, Tianjin Ethylene and Zhenhai Ethylene are progressing on schedule. The expenditure for Corporate and Others was RMB 2.2 billion (US$270 million), which was used for the construction of information technology systems and research.

In addition, the Company spent RMB 3.4 billion (US$420 million) to acquire three oil production companies at the end of 2006. The Company's joint ventures had capital expenditures of RMB 260 million (US$30 million) in 2006.

Health, Safety and Environment: Guided by scientific development, the Company has long been dedicated to performing its social responsibilities and achieving balanced development between health, safety and environment (HSE) and economic growth and has instituted a mechanism for effective long-term operations.

While maintaining full load and longer cycle production, the Company in 2006 continued to focus on operational safety and improved environmental protection and made continuous efforts to care for the health of its employees and its relations with the communities to achieve harmonious growth.

BUSINESS OUTLOOK

Looking forward to 2007, China's economy is expected to maintain stable and rapid growth, which should help sustain reasonable growth in domestic demand for oil and petrochemical products. Crude oil prices are expected to remain high and prices of most petrochemical products are expected to stay at relatively high levels. With the international crude oil price falling back from a record high level at the end of 2006 and the gradual promotion of the comprehensive reform of the national petroleum price mechanism, it is expected that the operational environment for the refining business would improve. In addition, with the full opening of the domestic market for refined oil products, competition in domestic refined oil products market should be stronger.

Under such market environment, the Company will continue to apply flexible operation strategies, further strengthen internal management, and endeavor to organize production and save energy and materials. In particular, the Company intends to focus on the following areas:

Exploration and Production: the Company will further implement its oil and gas resource strategies and accelerate the "Sichuan to East China Gas Project" as well as expand exploration and production of natural gas in Northeast and Western Sichuan. In addition, the Company will consolidate mature exploratory areas in the East, quicken the development of oil areas in the West and substantially expand gas production, with a view to maintaining the upward trend in oil and gas production. The Company plans to produce 291.1 million barrels of crude oil and 282.48 billion cubic meters of natural gas in 2007.

Refining: the Company intends to full exploit existing systems, leverage the potential of its facilities, optimize resource structure, increase processing volumes of high sulfur, sour and heavy crude oil and reduce the purchase cost of crude oil. In addition, by relying on technological advancement, the Company will focus on specific technologies to conserve energy, reduce consumption and the efficiency of resource utilization. The Company will also optimize production schemes, adjust product structures, and increase the throughput of higher added-value products. Finally, the Company will purchase crude oil carefully and diversify its sources, ensuring safe supplies. The Company plans to process 156 million tonnes of crude oil in 2007.

Marketing and Distribution: The Company intends to further improve its service and marketing network to expand total sales and retail sales volumes. The Company will monitor market dynamics closely, balance the resources from an overall perspective, optimize resource allocation, enhance operation efficiency in refined oil products pipelines, reduce transportation cost and actively promote the use of cleaner fuel. The Company plans to sell a total of 117 million tonnes of refined oil products, including 75 million tonnes to the retail market.

Chemicals: The Company intends to strengthen its management to enhance operational levels at its chemical facilities, and intends to ensure safe and full-load production at the facilities. In addition, the Company will further optimize regional resources, optimize internal supplies of chemical feedstock, respond to market change flexibly, actively produce high-demand products, leverage the advantages of the centralized sales, expand market steadily and increase sales volumes of the products. The Company plans to produce 6.45 million tonnes of ethylene, 19.13 million tonnes of synthetic resin, rubber and fibers in 2007.

Research and Development: In line with the Company's production and development needs, Sinopec intends to further strengthen its research in key technologies. It will place particular emphasis on developing core technologies such as marine facies oil and gas exploration, increasing reserves and stabilizing production in the oil fields in the East. Other priorities will include enhancing low-quality crude oil processing, chemical utilization of natural gas, production of cleaner fuels and superior performance synthetic materials, all with a view to sharpening the Company's competitive edge. Moreover, the Company intends to enhance its efforts to promote mature technologies, improve the production technology level, reduce production costs, further integrate technological resources, improve equipment for scientific research and improve the efficiency of development of scientific research.

Cost Saving: In 2007, the Company intends to rely on scientific and technological advancement and improved management practices to deepen reforms and enhance operating efficiency. Management plans to achieve cost savings of RMB 2,600 million (US$330 million), including RMB 700 million (US$90 million) in Exploration and Production, RMB 600 million (US$80 million) in Refining, RMB 600 million (US$80 million) in Chemicals, and RMB 700 million (US$90 million) in Marketing and Distribution.

Capital Expenditure: The Company will continue to uphold its guidelines of "Spend reasonably in light of income, control total expenditures, centralize decisions, adjust structure, optimize projects and increase returns" and will attempt to realize effective development of the Company. According to the current market situation and overall economy, the Company's planned capital expenditure is RMB 110.1 billion (US$13.8 billion) for 2007. The projected expenditure for Exploration and Production is RMB 53.1 billion (US$6.7 billion) which is expected to accelerate the "Sichuan to East China Gas Project" and strengthen oil and gas exploration and production in Northeast Sichuan, Ordos, the Tahe Oil field and Southern Tian Mountain; RMB 22.7 billion (US$2.9 billion) for Refining, primarily for the Qingdao oil refining project, Bohai Bay crude oil transportation and unloading facilities construction and revamping projects in Gaoqiao, Yanshan Petrochemical Refining Plant, etc.; RMB 19.5 billion (US$2.4 billion) for Chemicals, for the Fujian, Tianjin and Zhenhai ethylene projects and to promote end-user markets for monomers of synthetic fiber and organic materials, and revamping projects at Yangzi, Shanghai and Jinling Petroleum; RMB 12.0 billion (US$1.5 billion) for Marketing and Distribution, to optimize and improve the marketing network for refined oil products and accelerate the construction of the pipelines and oil storage for refined oil; and RMB 2.8 billion (US$350 million) for Corporate and Others.

Notice: Sinopec Corp. will announce its 2006 annual results at www.sinopec.com and in major newspapers on April 10, 2007. An archived webcast to discuss Sinopec Corp. Corp's results will be posted on the same day on the Company's website at www.sinopec.com

About Sinopec Corp.

Sinopec Corp. is the first Chinese company that has been listed in Hong Kong, New York, London and Shanghai. The Company is an integrated energy and chemical company with upstream, midstream and downstream operations. The principal operations of Sinopec Corp. and its subsidiaries include: exploring, developing, producing and trading crude oil and natural gas; processing crude oil into refined oil products; producing, trading, transporting, distributing and marketing refined oil products; and producing and distributing chemical products. Based on 2006 turnover, Sinopec Corp. is the largest listed company in China. The Company is the largest crude oil and petrochemical companies in China and Asia. It is also one of the largest gasoline, diesel and jet fuel and other major chemical products producers and distributors in China and Asia.

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

Disclaimer

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