中國石化 (SNP) 2016 Q4 法說會逐字稿

(interpreted) Ladies and gentlemen, good noon. Welcome to Sinopec 2016 results announcement. Please allow me to introduce our senior executives, Mr. Wang Yupu, Chairman; Mr. Dai Houliang, Vice Chairman and President; Mr. Jiao Fangzheng, Director and Senior Vice President; Mr. Wang Dehua, CFO.

In today's meeting, first we will discuss 2016 performance, 2017 production and operation plans and future reform and growth initiatives then we will have a Q&A session. Now I'd like to invite Mr. Dai Houliang, Vice Chairman and President to present the performance highlights.

(interpreted)Ladies and gentlemen, good noon. Now I'll preview our performance in 2016. In 2016, the global economic recovery was weak yet China's economy maintained a stable growth with GDP grew by 6.7%. International oil prices continue to be fluctuated and picked up from a low level. Domestic oil products' consumption increased by 4.3% among which gasoline and kerosene grew significantly while diesel continued to decline. Domestic consumption of ethylene equivalent was up by 3%. The government further improved their pricing mechanism of oil products.

In 2016, the Company gained full advantage of integration and actively addressed the market trends through focusing on growth, quality, efficiency and transformation. We pressed ahead with market development, optimization, cost reduction, risk control and to coordinate all aspects of work in upstream. We addressed local price with a focus on cost control and finding reserves with scale and quality. Our unweakened effort in exploration paid off with several important discoveries. We also pushed forward shale gas capacity building introduced public and private capital into gas pipeline project from Sichuan to eastern China for mixed-ownership operation which improved assets efficiency. In refining, we completed GB V vehicle gasoline and diesel upgrade program, ahead of schedule, and supplied Beijing VI gasoline.

Reinforced the adjustment of product slate increased gasoline, especially premium gasoline and kerosene output. Meanwhile, we utilized our trading and supplies trends to further cut crude procurement cost. In marketing, our network strengths and resources coordination helped maintain robust growth in total business volume and retail. The synergy between fuel and non-fuel business was tapped and non-fuel business transaction value increased by 41.4%.

In chemicals, our strengths in refining and chemical integration technology and marketing network was further consolidated. The structure of feedstock products and facilities was optimized, and good results were achieved with increased specialty chemicals ratio, lowered unit cost, and good margin.

In 2016, we brought integration advantage into foreplay with significant growth of refining profit, and a steady improvement of marketing and chemicals profit. The strong performance of downstream effectively offset the negative impact brought by low crude price. EBIT grew significantly to RMB86.8 billion, up by 32%, earnings per share was RMB0.385, grew by 43.1%, which was better than expectation.

In 2016, through reinforcing capital management, cutting down tied-up capital and improving efficiency of capital turnover, net cash flow from operating activities reached RMB214.5 billion, up by 29.4%. We optimized and adjusted investment scale according to market trends with net cash used for investing activities RMB66.2 billion, down by 43.3%, free cash flow increased significantly. Cash and cash equivalent was RMB142.5 billion at end of reporting period.

In 2016, we kept optimizing debt scale portfolio of various maturities and currencies in response to market changes. By yearend, the Company's debt to asset ratio was 44.5%, the lowest since IPO. Net assets was RMB711 billion, up by 5.1%. The Company remained a sound financial position. Considering the profitability and cash flow, we proposed a yearend dividend of RMB0.17 and the full year dividend of RMB0.249 reaching the payout ratio 65% and dividend yield above 5.4%. In 2016, we implemented cost reduction strategy to address the low crude price and achieved remarkable results in cost reduction. In upstream, we cut down high cost crude production, deepen reform of oil products subsidiaries and cut down the lifting cost by 5.5%. In refining, we cut cash operating cost by 7.3% while completing fuel quality upgrade and product mix adjustment. In chemical, we continue to cut total costs and also in marketing, the cash operating cost was under control while we achieved continuous growth in retail premium products and non-fuel business.

In investment, the Company focused more on development quality, efficiency and investment return and optimized capital projects. The Company's CapEx for the year was RMB76.5 billion. CapEx for E&P was RMB32.2 billion, mainly used for shale gas capacity building and the construction of LNG projects and natural gas pipelines. Refining was RMB14.4 billion mainly used for fuel quality upgrading and structural adjustment of product slate. Marketing and distribution was RMB18.5 billion, mainly used for revamping of service stations and the construction of oil products or pipelines and depots. Chemicals was RMB8.8 billion, mainly used for construction adjustment of facilities, feedstock, product mix and the construction of coal chemical projects.

In 2016, the Company pushed ahead with the innovation-driven strategy, improved mechanism of R&D, adopt a problem-oriented approach and achieved breakthroughs in core technologies. In upstream, focusing on increasing reserves, we made several important discoveries. In refining, our efforts was mainly on adjustment of product mix which resulted in commercialization of FCC Diesel to high-octane number gasoline technology. In chemicals, we carried out research on higher value added synthetic materials and coal chemical and realized wide application of multiple technologies. Meanwhile, we continued to strengthen prospective and basic research for the future sustainable growth of the Company.

In 2016 the Company filed 5,612 patents applications home and abroad, among which 3,942 were granted and won four prizes of the State Technological Award, one golden prize and nine recognition prices of China Patent Award.

In 2016, the Company strengthened elimination of potential hazards, implemented identification and control of risks, carried out safety training for all employees and achieved safe production and operation. Sticking to our commitment on environmental protection, energy saving and emission reduction, we completed a Clear Water Blue Sky, environmental protection project with total investment of RMB20.92 billion for 870 projects in three years. We also continue to push forward the energy efficiency doubling initiative. Compared with last year energy intensity was down by 1.59%, industrial water consumption was down by 1.1% which consolidated the base for the Company's sustainable growth.

The Company actively fulfilled its social responsibility and strengthened efforts on poverty alleviation with targeted measures and donated RMB133 million among which RMB105 million for targeted measures lifting the 28,000 people out of poverty. We also carried out charity and social welfare programs such as the gas station that cares serving 400,000 customers, Sinopec brightness Lifeline Express curing 38,000 patients, which helped win recognition from the society. With this, I conclude the performance highlights.

Now I'd like to invite Mr. Wang Dehua, CFO, to present the Company's performance by segments.

(interpreted) Now I will review segment performances. In 2016, despite low oil prices, our unweakened efforts in gas exploration paid off with important oil discovery in Shunbei area of Xinjiang Tarim, an important shale gas finding in Yongchuan block of Sichuan Basin, adding to our shale gas capacity besides Fuling.

In production with our profitability-oriented approach, we adjusted the development structure, enhanced our cost discipline, and produced 430 million of oil equivalent. We actively pushed forward gas development. Phase one capacity building of our Fuling was fully completed, 22% ahead of the schedule with the completed capacity of 7 billion cubic meters. Phase two capacity of Yuanba was completed. Our gas production was up by 4.3%.

In 2016, the Company took substantial measures to lower cost. Despite decreasing production, lifting cost was $16.65 per barrel, down by 5.5%. Our realized crude oil prices stood at $37.05 per barrel, down by 17.8%. Gas price of $5.4 per trillion cubic feet, down by a 21.9%. In 2016, we made lower efficient asset impairment RMB11.6 billion.

Sichuan-to-East China Pipeline mixed ownership reform was completed with a gain of RMB20.6 billion. Despite depressed oil price E&P segment achieved a positive free cash flow.

In refining through technological produce, we made 6.2% year-over-year increase in gasoline output. With proprietary technologies, we carried oil products quality upgrading at low cost. In response to abundant market supply, the Company maintained a relatively high utilization rate and processed the 236 million tonnes of crude.

We utilized our strength in trading and supply to cut cost and moderately increased oil products export. By centralized marketing, we further improved the margin of LPG and asphalt.

Refining margin was $8.82 per barrel, up by 26 point. Refining EBIT was RMB57.3 billion, up by 164.5% recording best ever performance. In oil products, marketing, we intensified our experience in integrated business model and a marketing network, coordinate resources and achieved continuous growth. And increased the retail premium of high octane gasoline products. We also improved our vehicle gas business, expedited the construction and operation of gas stations and achieved 25% growth in vehicle gas sales volume. Oil product sales volume was 195 million tonnes, up by 2.9% and retail scale continue to expand by 0.9%. We effectively controlled marketing cash operating cost. The marketing EBIT was RMB34.6 billion, up by 0.2%. In chemicals, we focus on basic plus high-end chemicals and added premium products to [supply]. We stress on operational excellence of manufacturing facilities by adjusting utilization rates. Ethylene output for the year was 11.06 million tonnes and our specialty resin ratio reaching 61.4%, up by 2%. Chemicals sales volume was 69.96 million tonnes, up by 11% year-on-year. For 2016, because of the structure of feedstock products and facilities, our unit [oil] cost was -- the chemical EBIT was RMB26.4 billion, up by 15.7%. So now, I present our operational plan with more uncertainties in world economy, China's economy will maintain steady growth, evolving demand of structure of oil products and more demand for high-end chemicals international oil products are expected to fluctuate with an upward trend. E&P will increase exploration intensity, solidify reserve base, push forward profitable production, adjust the production structure and completed 10 billion cubic meters of shale gas capacity construction. Plan to increase production by 10 million barrels of oil equivalent. In refining, we'll continue to optimize product slate and push forward quality upgrading. Refinery throughput were up by 4 million tonnes year-on-year. In marketing, we will continue to increase our feedstock products and facility structure adjustment, ethylene output will be up by 600,000 tonnes. For 2017, our planned CapEx is RMB110.2 billion, among which E&P is RMB50.5 billion, mainly for oil and gas exploration, capacity construction for Fuling Shale gas project, Tianjin LNG project, gas storage facilities and pipelines, refining segment RMB22.8 billion mainly for regional refining centers construction, oil products, quality upgrading and refinery revamping. Marketing RMB18 billion, mainly for service stations construction and revamping and storage and logistics facilities building, chemicals RMB15.1 billion, mainly for product slate adjustment, the integrated projects in Zhanjiang and Gulei. For 2017, the Company will focus on profitability, adhere to market-oriented approaches and fully leverage our strength in integrated business model to return good return to our shareholders. Thank you.

(interpreted) Thank you, President, Dai and CFO, Wang. And also thank you for all attentions from the investors. Also our special thanks to those who cannot enter into this room. Before the Q&A session, we would like to invite Mr. Wang Yupu, the Chairman to discuss about the general plans of the future corporate reform.

(interpreted) Ladies and gentlemen, good afternoon. I'd like to thank all our friends from the capital market and media for continued interest and the support to Sinopec. In 2016, despite of the severe challenges and complexities brought by the low oil price, we completed the compiling for the Company's 13th five-year plan, pressed ahead with the supply side structural reform, focused on transformation and upgrading, and achieved progress on all fronts.

President, Dai and CFO, Wang have just reported the Company's results and plan. As you can see, the falling oil prices brought severe challenges to the industry, yet, we achieved 43.6% growth. This shows our unique strengths of integrated business model, effect of stringent management, and our growth potential.

We stress on value management, we paid -- I paid as close attention as you do to the Company's share price. In the past year, the strengths of our integrated business model was unleashed and our share price outperformed the market for which I felt relieved. According to the dividend plan, the dividend payout ratio will be 65%, and the dividend yield above 5%, I'm delighted that the good return is delivered due to our hard work.

Year 2017 will see deepened supply side structural reform, and the Company will constantly focus on reform and innovation, improve its supply capacity and quality and enforce new competitive strengths. First, for upstream we will address the low price challenge and seek sustainable growth. Exploration will be intensified in Tarim, Junggar and Erdos in the West and rich oil bearing areas and the shallow sea in Bohai Bay in the East so as to solidify reserve base. We aim to achieve the significant growth in gas by completing the 10 billion cubic meters capacity building of Fuling, increasing exploration and development efforts in West, Sichuan and Erdos. Meanwhile we will continue focusing on lowering cost through various measures such as increasing reserves, optimizing structure, deepening reform and stringent management.

We will also look at overseas quality asset opportunities. We will strive to increase proven and economic reserves, achieve above 100% reserve replacement ratio and gain a better position for sustained growth.

Second, we will build for world-class refining and chemicals clusters to be more competitive globally. During the 13th five-year plan period while keeping total refining capacity, we will build four centers in Maoming-Zhanjiang, Zhenhai, Shanghai and Nanjing with a focus on scale, intensity, fuel quality extending value chain and increasing added value and supply efficiency. These centers are located in the regions where the belt and road initiatives routes meets Yangtze River economic belt and the great area of Guangdong, Hong Kong or Macau. They are also at the heart of our markets where energy products move in and out of China. We will be cost competitive in building these centers with proprietary refining and ethylene technologies and while in operation the centers will help us become more competitive in terms of cost, products' quality, margin and profit by integrating our strengths in technology, strategic location management and business model.

Third, we will push forward the mixed ownership reform to be more market-based and invigorated in mechanism. The mixed ownership reform is the key to SOE's reform. We will continue to support the marketing company restructure, improve market based mechanism, invigorated and encourage innovation to tap our strengths in network and branding and forge new business by using internet plus while maintaining our strong position in fuels marketing. Reform is more than joining people and capital but complementing strengths and establishing platforms that requires better utilization of the marketing companies, 100 million fielding cost resources, providing one-stop services to customers and increasing loyalty.

EPEC, Sinopec's material supplier and our procurement e-commerce portal is another important platform which shares our strengths and resources with the public and private sectors and at lower cost. We will also deepen cooperation with investors of different sectors in upstream, refining and chemical low carbon business achieving complement mentality and win-win. These will not only create value for the Company, but also provide growth opportunities for small and the medium sized enterprises. For us it will be an important contributor to the belt and road initiative. This initiative is China's strategic move for all around opening up in the New Year. The belt and road countries roughly account for half of the world's oil and gas resources production, consumption and trade. The Middle East is the most important hydrocarbon base for the world and source for China's crude import. Russia and Central Asia connect Europe with Asia and are also rich in oil, gas and coal.

Western Europe has leading new materials, technologies and also professional financial services. South and Southeast Asia promise great market potential with large population. Most countries in Africa are embracing more modern way of living and the potential in resources and market is to yet to tap. There are also other strategic locations, onshore and offshore, along the global oil and gas trading route. Hong Kong, for example, is just one of these locations and we shall make comprehensive plans for ports, terminals, storages and pipeline development. We will better utilize these opportunities to bring blueprint, our international operations, with oil and gas E&P, refining, chemical, logistics and numerous services and in trading integrate domestic, international businesses, create synergy and contribute to the belt and road initiatives.

In addition to create economic value we attach great importance to our social value and responsibility as a corporate citizen. 20 years ago, some people in Hong Kong sponsored the first Lifeline Express for treating cataract patients on China's Mainland.

Sinopec joined 13 years ago and worked with the compatriots from Hong Kong, on this philanthropic program curing a total of 38,000 patients in the past 13 years. Our input in targeted poverty alleviation and aiding to that and Shanghai was also increased to RMB133 million last year, helping people in need.

Deepening the supply side structural reform is truly a transformational process. The Company's strong cash position and low debt ratio provide a solid base for continued growth. We will best our cash use with a focus on creating more value and achieving strategic development. On this transformation journey, we are confident that with support from our shareholders and friends and a concerted effort by our staff, we will be able to overcome all challenges, become bigger, stronger, and more sustainable and create greater value for the country, our shareholders, employees and the society. Thank you.

(interpreted)Thank you, Chairman Wang. Now let's come to the Q&A session. Because of the time limit, each one should only have two questions in order to let more people to have the opportunity to raise questions. Next, the first question.

Good afternoon. This is Gordon Kwan of Nomura. Thank you management for giving us a very informative presentation and congratulations on your excellent results for last year and of course your generous dividend. Just a couple of questions from me. Investors always demand perfection and I think you could do better on upstream. You have revised down your proven reserves by one-third. What can we do to reverse this, especially your declining oil production trend?

Second question I have is China is a making a big push for electric cars. Do you think they will succeed in the longer term, and if so, what is the implication on your refining margin outlook, especially this year, because last year you enjoyed a very, very high refining margin? Thank you.

(spoken in foreign language)

(interpreted). Our response to the reserve question, impacted by the falling oil and gas prices, the Company's oil and gas equivalent reserve was reduced by 21.6% last year and the reserve replacement ratio was negative 75.4%. To be specific, for crude reserve, the reduction was 30% to 1,552 million barrels, reserve replacement ratio was minus 127.7%. Gas reserve reduction was 5.2% to 7,177 billion cubic feet with the reserve replacement ratio at 48.7%. In terms of this year, the Company will increase its effort particularly in exploration activities and prioritize increasing reserve base for the Company. In fact, ever since the falling of the international oil prices, the Company has not weakened its efforts in exploration, and this will continue to be our focus in 2017.

Regarding this, I'd also like to add three points. The first one is the Company's proven reserves means economically recoverable. And over the past years, the Company has new findings, but due to the development scale, we are not ready to file for -- be booked as proven reserve.

That is to say, the Company has new discoveries or reserves which due to the lack of scale of development and readiness for development, they are not booked under the proven reserve category.

Secondly, due to the falling oil price, some of the proven reserves were written down due to the criteria and the written down for reserve assets value last year was RMB12 billion.

However, we see positive signs due to the return of reserves because the reserve quality is increasing. At the same time, we also adjust our production plan to shut down the low cost or low efficiency production.

And third, despite of the falling prices over the past several years, the Company has not weakened its input in exploration and we have made actually some new discoveries both in net crude oil and in natural gas.

For instance, last year we had a big discovery with the drilling of the Wei number 4 well. However, due to the price environment, we did not develop or produce from this well in that area. Above all, we are very confident about our upstream and I hope our investors could also share our confidence.

(interpreted)Response to Gordon's second question, regarding the e-cars which draw a lot of attention, in the past year China's new energy car sales number was 500,000 vehicles, accounting for 2% of national's total sales number of cars. And this also accounts for 50% of global e-car sales.

The main reason for this fast growth in electric cars in China was the subsidies from the Chinese government. However, the governments will reduce subsidies in 2017 and further reduce subsidies in 2019 and 2020. So when the subsidy is gradually phased out, this fast growth of electric cars will be challenged. At the same time, the development of the e-cars is also closely linked with the lithium price and during the past two years particularly due to the fast development, lithium is becoming more expensive so this also drives the high cost of electric cars now.

With all these backgrounds, there is an industry consensus that for at least the coming 15 years, cars run on fuels will continue to be the major consumption structure in the market, particularly with the increasing spending capabilities in China particularly from the countryside, the demand for family or passenger cars will continue to rise. Therefore, we are very confident about our refining margin in the coming years.

Good afternoon gentlemen, it's Scott Darling from JPMorgan. Congratulations on your excellent set of results. A couple of questions from me. The first one, can you sustain a high dividend payout within the context of you spending more this year and by your own admission, we're in a low oil price environment. And then the second question is specifically for your targets around reform, what would you really like to get completed in 2017? Thank you.

(interpreted) Thank you for the question. For the dividend payout ratio since 2014 and 2015, the Company's dividend payout ratio has been above 50% regardless of the increasing CapEx expectation for this year, the Company will continue to deliver at a relatively high level and also sustained level of dividend payout ratio, which is in alignment with the Company's commitment to create more value and return for our shareholders. Thank you.

(spoken in foreign language)

(interpreted) Regarding the question for reform, the Company has very detailed set out the items for reform, and the task force for 2017, and in the years ahead. The mix ownership reform is critical, and actually key to the SOE's reform. The Chinese government as well as relevant government ministries are pushing forward this task, and has issued relevant policies and regulations.

Sinopec will utilize our own competitive strength and under the macro level planning by the government carry out specific reform targets. At the same time, we also is focusing on streamlining our businesses, separate our non-commercial functions such as social welfare, social programs that should be bared by the society and local governments. We're also working towards the National's target including the debottlenecking, cut inventory, et cetera.

Actually, I cannot share with you a specific numbers or timetable we are targeting at for this year's reform, but later on, we can share with you some information. Overall speaking, we are also focusing our international operations, particularly utilizing the opportunities brought by the National China's health and growth initiative. And we are building a number of platforms overseas to integrate all Company resources and operations. Thank you.

(interpreted) A question from Morgan Stanley. Also congratulate the Company on the business results as well as high level of dividend payout. Regarding the Company's CapEx in 2017, we see a 60% increase over 2016, and the Company has also mega plan to build the full refining and the chemical regional centers.

At the same time private sectors has also plans to build 10 million tonne scale refining capacities and there will be incremental refining capacity from the US and the Middle East. So the question comes with how the Company views the refining and the chemical markets demand and its growth potential. And what would be the Company's plan, particularly how Sinopec would unleash its competitive strength in domestic market and also in exports.

(interpreted) Thank you for the questions regarding downstream. The Company's mega plan to build [four] integrated centers is on the basis that the total refining capacity will not be increased by a big margin and the focus is to increase the intensity and the scale of economy. At the same time, we're also focusing on improving the supply quality. That is to say, to supply premium fuels products into the market and this is actually a strategy to restructure our refining and chemical businesses as well as the strategic locations. And the chemicals focus will be on the new materials and high-value products. This is also in alignment with the National's supply side structure reform and this will meet more robust market demand.

We assume there will be some competition from the private sectors. However, they are more focusing on increasing the refining capacity. We are more focusing on increasing the intensity and developing the chemicals and downstream derivatives. At the same time, we also will cooperate with the private sector investors through mix ownership reform and other forms of joint venture cooperation.

Regarding overseas, we also have projects under review or negotiation in the Middle East, and after the Spring Festival, this year I visited three countries in the Middle East area and we have very strong intention and the specific projects for cooperation with those host countries. Recently, the King of Saudi Arabia visited China and lead a big delegation. During that visit, Sinopec also signed a strategic agreement with Saudi partner. So, we really see this belt and road initiative as an important opportunity and we wish to be a major contributor to this initiative.

Let me also add that during our engagement with the project's opportunities in the Middle East, the AIIB as well as other Chinese financial institutions have also shown great interest to support Sinopec to carry out those projects. So we really have a very solid foundation to develop those projects in terms of funding capabilities.

(interpreted) The first one is that for the Sinopec Marketing Company, the company has achieved very stable and a good profit level over the past three years. Last year's profit was RMB34 billion, and this year, the Company has a CapEx plan of RMB18 billion. Does the Company see still great growth potential for the Sinopec Marketing? The second question is two years ago Sinopec introduced private and social investors into this marketing company. Does the Company has a specific timetable for the IPO?

(interpreted) For the marketing segment profitability, along with the opening of China's refining industry, competition in the market will be becoming more fierce, however the Company is really confident, and we are capable of continuously being more competitive in the market and improve the profit level for this segment.

In the past two years as the investors can see, the non-fuel business for the marketing segment has contributed a lot for the profit and this has enjoyed a very good growth potential. Regarding the CapEx of RMB18 billion this year, the capital will be used for renovation and the revamping of the stations due to national environment regulations.

At the same time, we will be focusing more on the fast growth and development of China's roads and expressways. We will use that capital to build stations along those strategic roads and expressways to further gain our strategic locations advantage.

Regarding the restructuring and reform of the marketing segment, we have introduced more than 20 strategic investors and now the Company's Board of Directors has been established and fully functional. Regarding its future development plan, the Board of Directors will decide and make relevant move according to the articles of association of the Company. Thank you.

(interpreted) I also like to add in the CapEx for marketing segment that will also be used to develop the Internet class model and new business platforms and this is also one of the measures of deepening reform in this marketing business. The Internet class is developing very fast and we need to build emerging business platforms so as to transform from a fuels provider to an integrated service provider. So this is a long term and strategic decision. Thank you.

(spoken in foreign language)

Yes. Good afternoon. Neil Beveridge from Bernstein, two question. First is, you've recently made a major acquisition in South Africa to buy a refining business there. In my observation, the Company seems to be an increasingly strong downstream company, but also getting much weaker in the upstream.

As you look forward, do you think that the focus is going to be on continuing to build a much stronger downstream company or do you think the focus will shift back into becoming more of an integrated company and rebuilding upstream, and what's the balance M&A in that process versus organic growth.

The second question is really around the gas business. Last year, you came out with some very aggressive gas growth targets. Growth last year was less than 5%. This year you've come out again with some very strong cash growth targets. What do you think is going be different this year in terms of delivering those numbers? Thank you.

(spoken in foreign language)

(spoken in foreign language)

(interpreted) It's true that the Company has just recently bought assets in South Africa which covers refining and marketing business. In M&A, we wish to utilize our strength in refining and chemical and marketing is our strength but that doesn't mean that we are not looking at opportunities in upstream. Actually, we also have some potential targets under review or under negotiation. We also have plan to cooperate with foreign partners. So it's really not an unbalanced development. We are still focusing or targeting to become an integrated Company with upstream, midstream and downstream.

(interpreted)I like to respond to question for natural gas. The Company's planned production for last year was 24.5 billion cubic meters. The actual production was 21.6 billion cubic meters. The reason was there was a large increase last year for China's imported both piped gas as well as LNG. So, due to the unleash of the imported supply of natural gas, the Company cut production from its own gas fields.

And along with stringent requirements, particularly for environmental protection, we assume the natural gas demand will continue to rise and the Company's incremental natural gas production mainly comes from shale gas fields. Company's 2016 production of shale gas was 5 billion cubic meters, 2 billion cubic meters more than 2015 production, and in 2017, the Company's shale gas production target is 6 billion cubic meters. So there will be an increase of another 1 billion cubic meters.

Meanwhile, we're also doing a lot of work in expanding the market for natural gas sales so that we can prepare the market ready for increased production from the Company's fields. Thank you.

(spoken in foreign language)

Good afternoon. This is Aditya Suresh from Macquarie. I have two questions for your refining business. So basically a guidance for throughput. It seems like utilization is going to be stable at about 82%. I'm trying to understand what are the practical considerations for management to increasing that utilization to say the high 80%s and maybe exporting that surplus to Asia?

And second is regarding the fuel upgrades to China Five. So we estimate a delta of about $1 to $1.5 to your normalized margins, is that in line with your expectations? Thank you.

Sir, can you repeat the second question?

Just the margin upside from China Five. Thank you. The incremental margin upside from China Five refining?

(spoken in foreign language)

(interpreted)It's true that the supply situation in Asia's market is changing very fast. However, we also very confident and actually competitive in this business. Sinopec's export of refined products last year was 19 million tonnes, representing a 25% increase over the same period for the previous year. So the Company is in a very strong position to better coordinating domestic and international markets so as to tap our potential as well as to increase the refinery utilization rate.

On the marketing side, we will also adjust according to market changes to increase the self-supplied products to the marketing system, so that the refinery utilization rate could also be increased. Regarding the -- after the implementation of the Euro-V standards, what will be the margin level for the refining segment. It seems that your model, dismatch with our model, but your number had some -- there is some reason or some route in your number. Thank you.

(spoken in foreign language)

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.