PetroChina Company Limited (PTR) Q2 2022 Earnings Call Transcript

PetroChina Company Limited (PTR) Q2 20222 Earnings Conference Call August 25, 2022 5:00 AM ET

Company Participants

Wang Hua - Chief Financial Officer

Dai Houliang - Chairman

Huang Yongzhang - Executive Director and President

Ren Lixin - Executive Director and Senior Vice President

Yang Jigang - Vice President and Chief Engineer

Wan Jun - Vice President

Conference Call Participants

Wang Hua

Ladies and gentlemen, good afternoon. I'm Wang Hua, PetroChina's CFO and Board Secretary. Welcome you all to 2022 Interim Results Announcement. First, allow me to reduce the Board Members in top management present today. They are Mr. Dai Houliang, Chairman of the company; Mr. Huang Yongzhang, Executive Director and President; Mr. Ren Lixin, Executive Director and SVP; Mr. Yang Jigang, VP and Chief Engineer; Mr. Wan Jun, Vice President.

The presentation includes four parts; first, review of the financial performance in H1. Next overview or operation performance, then remarks from the Chairman, followed by our Q&A session. First, the review on the company's financial performance. Built on the seven year high operation performance last year Petro China's sustained growth in H1 and saw all time path in total revenue and net profit attributable to parents with profits groups across business segments, realized oil price averaged $94 per barrel up by $35 year-on-year or 59.2%. Revenue RMB 1.6 trillion up by 34.9%. OP RMB 419 billion or 34.5%. Net profit attributable to owners RMB 82 billion up RMB 29.3 billion or 55.3%. Bits of EPS $0.45 up $0.16 year-on-year. Committed to discipline [indiscernible] with optimize investment structure based on oil process and continue of E&P our multi structural and to quote in some steps in the key projects.

CapEx was RMB 92 billion up 24.9% the skill was visible in control. CapEx E&P was RMB 72.8 billion accounting for 78.9% took RMB 16.8 billion or 18.2%. Low-cost growth and enhanced by management container to boost quality and efficiency meet the rising prices or feedstock fuel and power increase of major costs was well contained. Lifting costs $11.6 per barrel up 9.6%. year-on-year. And the cost is $12.2 in China up 9% mainly driven by higher power and operating costs. Cash processing costs RMB 209 UN per ton up 5.4% year-on-year managerial to higher fuel and power prices. Marketing costs RMB 381.29 per ton down 1.9% year-on-year. We continued to step up asset and cash flow management and to further optimize that structure.

Financial profile remains sound with high interim net CFFO and FCF as of June 30 to the assets RMB 2.8 trillion up 10.8% versus spend in last year. Interest bearing debt RMB 335.7 billion 1.4% lower. Debt to capital ratio 18.3% now 1.2 percentage points. CFFO RMB 196.06 billion up by 69%, SCF was RMB 93.8 billion up RMB 89.2 billion.

Next the breakdowns of operating profits. In the first half of year, we achieved profits across all business segments E&P at RMB 2.4 billion up RMB 51 billion year-on-year. Price changes added to the profit by RMB 122 billion. Sales changes added RMB 7.29 billion, including RMB 4.14 billion from higher crude sales and RMB 3.15 billion from more gas sales. More all packs in order cut profit by RMB 77.86 billion. Many due to higher prices and outputs. More purchases cut profit by 39 billion. The higher taxes except income tax costs RMB 31.6 billion.

RMC built RMB 24.06 billion up 8.5% year-on-year. OP for refining business RMB 23.97 billion up RMB 10.52 billion. Higher refining margin adding to the profit by RMB 17.16 billion last through the rounds kind of profit by RMB 690 million. Higher OpEx cut profit by RMB 5.95 billion.

For chemical business, we saw our operating profit of RMB 90 million down by RMB 8.6 billion year-on-year. Price changes had its RMB 15.8 billion, sale changes at RMB 5.27 billion. Higher OpEx cut the property by RMB 29.7 billion mainly due to high oil prices and feedstock fuel and power.

OP for marketing business RMB 8.52 billion up RMB 1.88 billion year-on-year. Marketing in China at RMB 3.3 billion up 670 million. Net sales cut the profit by RMB 1.1 billion and less OpEx added to the profit by RMB 1.7 billion. International trading business booked RMB 5.19 billion up RMB 1.2 billion year-on-year. In H1 natural gas marketing business at RMB 13.6 billion down by RMB 23.2 billion year-on-year.

Gas marketing made a profit of RMB 6.7 billion down by RMB 6 billion. Profit for domestic gas was RMB 10.67 billion up RMB 830 million. [Indiscernible] gas suffered a loss of RMB 3.9 billion, RMB 7.07 billion lower than last year. City gas and pipeline at RMB 9.5 billion up RMB 1.9 billion. Others cut profit by RMB 18.9 billion including RMB 18.32 billion from process of restructuring and cola energy in last year, authorized by AGM, the board decided to pay out 45% of the net profits attributable to parents according to IFRS as interim dividends, i.e., $20.258 per share, totaling RMB 37 billion the highest interim dividends ever.

Now I'd like to pass the floor to Executive Director and President Mr. Huang to brief view on company's operation performance.

Huang Yongzhang

Thank you, Mr. Wang. Now, I'd love to brief you on the PetroChina's performance of operation in H1. Facing new changes and challenges, including higher geopolitical risks -- sorry, commodity prices, greater downward pressure for Chinese economic developments, and frequent COVID fill ups, PetroChina stick to the foreign corporate strategies of innovation, resources, market, internationalization, green and low carbon and saw progress in business growth, reform, innovation, quality and efficiency, as well as ESG or a gas industry change within some operation. Realized price for crude was up by 59.2%. And average selling price for gas in China was up by 19.6%.

We delivered the best ever interim operation performance. We see initiative in domestic production ramp up. In the first half of year, we emphasized efficient exploration had enhanced risk aspiration, in new blocks and errors 14 major discoveries and 30 achievements were made in intensive explorations in basements of Junggar, Tarim, Sichuan, Ordos and [indiscernible]. 100 million ton oil reserves in Tarim. [Indiscernible] and 100% gas reservoirs in China Ordos are taking shape.

Riding on the high oil prices. PetroChina enhance resource appraisal and production and ramp up rework to control natural decline in legacy fuels, while promoting cost effective capacity building in new ones. We step up economic shell oil and gas development as skill. Good outputs in China 398 million barrels, marketable gas 2.3 TCF, production new oil equivalent terms up by 3.9%. [Indiscernible] in overseas cooperation in the first half of the year to 100 million ton reservoirs were proven impairment of Asia. We moved faster in capacity building and completed at 81.6 million BoE of net output. We continued to optimize business layout and asset structure with a completion of a rock restructuring.

In the first half of year, the company's oil and gas output 850 million BoE amount of output in China 760 million BoE up 3.9% year-on-year. Crude output in China 390 million barrels up 3.4%, marketable gas output 2.3 Tcf up 4.4% year-on-year, gas takes up a larger share of our domestic production with its mix for the optimized. We made solid progress in refining and chemical structure adjustments, refining business to [indiscernible] steps and coping with market changes, optimized resource allocation and product mix, material progress was made in fuels while adding chemicals, especially products, crude was 600 million barrels down by 1.4%, fuels output 51.5 million tons down by 6.2%, output of gasoline and kerosene down by 12.8% and 40.8% respectively, diesel was up by 10.4%, fuel yield 63.7%, down by 3.2 percentage points, all products like chemical light oil, aromatics, and petroleum coke saw high output versus last year.

Construction of key projects are well underway. Content integrated project has been finalized and preparing for startup. In the first half of the year, chemical commodities were 15.945 million tons up by 8.3% year-on-year, a record interim results, the outputs of ethylene synthetic resin, rubber, urea was up by 23.7%, 16.1%, 8.7% and 25.9% respectively. New material business picked up pace with 397,000 tons outputs marked progress was made in R&D restructuring to 1.2 million ton ethylene projects in Jilin and Guangxi completed national certification and approval with the former is now under construction.

Fuel business went for lean marketing, it will stay client oriented worked on institutional and end user clients, differentiated marketing key players like Winter Olympics as to provide high quality products and services, fuel sales 71.43 million tons in H1 including domestic sales 50.34 million tons. Gasoline and kerosene down 12.1% and 45.5% respectively. Diesel grew by 10.2%, not all business that mean to the potential of key categories boosted online marketing, and saw fast growth in both revenue and gross margins.

As for gas marketing, efforts to add sales and secure profits proved effective with surging import costs and imbalanced downstream demand. We closely followed market trends, improved resource portfolio, market layout and distribution export to premier markets and direct supply clients and push for online auctions marketing profits grew steadily. In H1, gas sales totaled 130.3 BCM, sales within China 103.7 BCM up 7.8% year-on-year which is a record interim high end-user sales 23.28 BCM up 4.6%.

Our new energy's advanced at 15 with net ongoing and low carbon energy demo basis, clean power projects at [indiscernible] in Northeast, Northwest, and North in China and geothermal markets in and around Beijing, Xinjiang, Liaohe. We got approval for 5.36 gigawatts of wind and solar power added 11.2 million square meters of geothermal heating fields the first new carbon heavy and brought online the first floating PV station. Thermal products have integrated upstream and downstream, clean alternatives and green operations zones were underway.

Full value chain demo of million pounds this year was launched in Songliao Basin. The innovation and digitalization was accelerated. In H1, we improved committee and build a three tiered Innovation Management System, which further optimized our scientific institution.

The bottlenecking of key technologies made new progress. New breakthroughs were made on continental ENPC, CCUS for illustration technologies, and IoT tag and theory of high viscosity crude. We launched initial demo projects for scale application of major type achievements. Digital transformation and smart development are taking shape with some milestones were representing progress of the industry. Shenzhen New Energy Institute and Shanghai New Materials Institute are now up and running in an orderly fashion.

Here on this slide is our 2022 annual operation targets and progress of Q1 for your reference. That is all for my presentation. Now let's welcome our Chairman Mr. Dai Houliang to say a few words.

Dai Houliang

Dear investors and friends from the media, ladies and gentlemen, good afternoon. It is a real pleasure to e-meet you once again. And thank you for your support for PetroChina. In 2022, faced with unexpected changes in the macro environment, we prioritized stability and sort steady progress with efforts overcame much hardship and made progress on all fronts. Oil and gas industry trends remain smooth and efficient with fruitful results in E&P. Solid progress in R&D restructuring transformation and upgrading and continuous marketing improvement, new energies, new materials and new businesses all paste up.

New products are shaping up and being delivered, product innovation and digitalization accelerated, areas like continental shale oil and CCUS saw R&D breakthroughs. Many core tags and equipments have achieved industrial application, quality and efficiency improvement was effective and boosted corporate value. Operational performance maintained upward trend, revenue, net profit, net profit attributable to current FCF and net operating cash flow outscored new interim records. These results would be impossible without the support of shareholders and the public. On behalf of the board, total management and all PetroChina's staff, I would like to once again offer my sincere gratitude.

Currently, we are still facing rising complexity, difficulty and uncertainties. But with complete industry change, we are a resilient company with great potential. China's economy is recovering faster, oil and gas markets further rebounds. National stimulus package yields positive results. policies like the unified national market are taking shape. Tech and industrial revolutions have posed both higher standards for the industry and also major opportunities for our transformation and development.

In H2, we will stick to the overall principle of steady progress, work on compliance and law based covenants. Enhanced management followed strategies of innovation resource market internationalization and low carbon. Our strategic measures include building quality workforce, improving quality and efficiency, promoting low cost development and fostering corporate culture will deepen reform and innovation transform for development will maintain stable production operations, build on current progress and open new chapters for quality development.

We're going to work on the following aspects first, for the boost with an output, domestic E&P push for at scale reserve went up in key regions, enhanced pre-explorations at economic recovery reserve and profitable production to balance between reserve output and costs. Overseas E&P will focus on economic explorations, optimized production improved asset management and smooth operation of key projects. Second, transformation upgrading of R&C business with the principle of safe, stable, sustained full capacity and optimize operations will stay market and profit oriented and as product feedstock and run rate to produce more marketable and high VA boost.

Third, improved marketing will stay client oriented strive to provide top quality products and services to create value for customers. Fourth, spring and low carbon transition. Following the approach of clean alternatives, strategic replacement and growing development proposed for integrated development of hydrocarbon and new energies speed up key products like PV and geothermal heating wind power work on CCS and CCUS and build thermals of low and zero carbon on gas fields.

Fifth, scientific and technological innovation prioritize high power as a driver for development, strive to build a world leading research institutes and innovative companies fast integrate industrial and innovation teams plus the new growth drivers and competitive edge. Sixth, we'll continue to improve quality and efficiency. We'll stick to disciplined, targeted and cost effective investment, timely adjusting annual investment plan and structure and further improve our value creation capabilities and profitability.

Seventh, various risks with preventive studies and proactive response will closely monitor changes in geopolitics, hydrocarbon markets, and exchange rates to optimize and change our operation production strategies to fend off all kinds of risks.

Ladies, gentleman and friends. I believe that with the support of shareholders and the public, with the tireless efforts of the board, top management and our staff. We are going to create more value for shareholders and the society. Thank you all.

Wang Hua

Thank you, Chairman. Now we'll have a Q&A session with English, Chinese consecutive interpreting to give more people the chance to ask each pleased with no more than two questions. And first to inform which organization you represent. Now the floor is open for questions.

Question-and-Answer Session

Operator

[Foreign Language]

[Operator Instructions].

[Foreign Language]

And the first question is [indiscernible]. Please go ahead.

Unidentified Analyst

[Foreign Language]

I've got two questions. First is I'm wondering why PetroChina got delisted from New York Stock Exchange and what's your follow-up arrangements? And the second question is around your latest developments in green and low carbon transition. And what about progress of new or new energies and new materials projects and what is your development plan for the 14 five year plan period? Thank you.

Wang Hua

[Foreign Language]

PetroChina CFO and the Board Secretary Mr. Wang Hua is taking your first question.

[Foreign Language]

To better safeguard the interests of our investors. After a careful consideration PetroChina's Board of Directors decided to delist the company and is ADR shares from New York Stock Exchange and is mainly based on the following three aspects of reasons. The first is the ADR only takes of quite small percentage of the company's H shares and total shares. And the trading volume is relatively small compared with global trading volume of H shares.

And second, due to the differences in regulation in the listing places PetroChina needs to pay a relatively large administrative burden if we want to maintain top listed on the New York Stock Exchange. And third after delisting our H and E shares will continue to be traded on the Hong Kong and Shanghai Stock Exchanges, which can meet the demand for both investors and the company.

[Foreign Language]

For the next steps PetroChina will follow-up with the rules and regulations, securities supervision of the United States to fulfill our delisting procedures. And we expect to submit our delisting applications to SEC on August 29. And to finish the delisting process from New York Exchange on September the 8th. And after that, when we meet relevant requirements we will submit our application for the cancellation of ADR and its corresponding H shares to SEC. And before is fully finished. The company will continue to fulfill our information disclosure responsibilities, and make sure everything will go on smoothly.

[Foreign Language]

In 12 recent years, guided by science and technical innovation, PetroChina has accelerated its process of digitalization, green and low carbon transition. We continue to upgrade our modernization level of corporate governance and deepen our special actions on quality and efficiency enhancement.

We have achieved a great deal in high quality development and improved operation benefits since we've got listed 22 years ago, PetroChina has balanced the long-term development of the company and the returns to our shareholders. We have maintained a more than 45% payout ratio, which has brought up good returns to our shareholders.

Currently well based on the market conditions, studying how to further strengthen our market cap management and taking concrete steps. I thank you for your long-term support, and I hope looking forward, our investors and shareholders will continue to support PetroChina and the share the bright future and development achievements with us.

Dai Houliang

[Foreign Language]

Our Chairman will take your next question.

[Foreign Language]

I'm taking the question about green and low carbon transition.

[Foreign Language]

Energy transition and development globally has been a common understanding and for the energy transition development in China. Currently China have the landscape of coal taking the majority of the energy supply, while oil gas and new energy taking a smaller percentage. And after careful analysis, we believe that after 2050 the situation might change when the new energies might be the predominant source of energy in China gradually increase its percentage to above 80%. While coal, oil and gas will take a smaller percentage.

[Foreign Language]

PetroChina has formulated of three step approach of clean alternative strategic replacement and green development. Currently we are working on the clean alternative stage.

[Foreign Language]

Looking from the statistics for the first half of this year, PetroChina has obtained the green light for a -- got 5,360 megawatts of wind and solar power generation and we have newly added geothermal heating acreage of $11.2 million square meters and that is to say the achievements we have made is ahead of our expectations. And our annual target for this year for the green light for wind and power generation is 20,000 megawatts and for the thermal heating acreage is 20 million square meters. And this is remarkable achievement in our clean alternative steps.

[Foreign Language]

For the 14th five year plan period, our new energies, production capacity is expected to be 15 million tons of oil equivalent and to fulfill our clean alternative stage development goals. And our target for 2035 is to have new energies, oil and gas, taking one-third of our total production capacity respectively. And by 2050 new energies are expected to take about half of our total capacity. And this is in line with our national goal.

[Foreign Language]

While developing new energies, PetroChina takes energy conservation at most important step. And for carbon reduction we take it as a priority in our daily work. And we have achieved a great deal in CCS and the CCUS. For instance, in the storage of carbon dioxide and related enhanced oil recovery. This year, we have achieved a carbon storage of 1 million tons in enhancing oil recovery.

[Foreign Language]

Looking forward, we will continue to achieve our targets in green transition and development will surely make long-term progress in developing new energies and new materials and make PetroChina's do contribution to the oil and gas industry.

[Foreign Language]

Operator

[Operator Instructions]

The next question is from [indiscernible] from China Energy. Please go ahead.

Unidentified Analyst

[Foreign Language]

My first question is how do you look at China's economic development in the following years? And how do you look at China's oil and gas demand? And second, could you please give us more color on your reserve situation for the first half of this year? And what's your expectation for the reserve changes within the year? And what major discoveries have you made in oil and gas exploration?

Huang Yongzhang

[Foreign Language]

President Huang Yongzhang is taking your two questions.

[Foreign Language]

I'm happy to take your questions about China's economy and China's oil and gas demand. This year, the macro environment in China and the world has undergone tremendous changes which are beyond our expectations. For instance, the resurgence of COVID cases and fluctuations in the prices of bulk commodities, the international environment is becoming more and more complicated and stringent.

But on the other hand, Chinese economic development has also enjoyed many favorable strategic conditions. China is very resilient and has a lot of growth potential and fundamentals supporting China's long-term good prospects will not change. And the government is launching a series of policy measures to stabilize the economy and the effects will gradually be seen and other policy dividends, such as the development of an integrated large market in China will also emerge. We believe Chinese economy will accelerate its recovery. And along with the recovery of the oil and gas demand in China, we believe in the following months, our economic growth will be maintained within a proper range. This will create favorable conditions for PetroChina's development and we are bullish about our prospects.

[Foreign Language]

As for the demand for refined oil products, we believe the domestic economic recovery will support the steady growth of demand. And we expect for the second half of this year, the apparent assumption -- apparent consumption of refined oil products in China will stand at 180 million tons, an increase of 1.6% year-on-year and gasoline, diesel and jet fuel will increase differently. And the air travel will boost the demand for aviation jet fuel. And as our Chairman just said, the new energies are also developing very rapidly in China and also for PetroChina. They are increasing ownership of EVs, so we believe in the following years the consumption of refined oil will maintain slow growth, which is different from the previous years.

[Foreign Language]

Like refined products along with the recovery of Chinese economy, our natural gas demand will continue to increase. And if the coming winter is a cold winter, we believe the increase will be substantial. And we estimate the apparent consumption of natural gas in China in the second half of the year will grow by around 5.5% and the annual apparent consumption will be 380 BCM. And in following years, the natural gas demand will continue to increase fairly rapidly by 2025, the demand in China might reach 450 to 500 BCM.

[Foreign Language]

And for your second question about the reserves in the first half of this year, we have more focus on PetroChina's exploration and production and we have achieved a great deal in this regard.

[Foreign Language]

As I just reported in our results announcement, we have focused on efficient exploration and the risk taking formation in new zones and new areas and the concentrating exploration in key areas. So the important progress and for the important discoveries have been made in many basins including the Junggar Basin.

[Foreign Language]

In this year, we have made proven and recoverable reserves of crude oil of 83.74 million tons, natural gas 200 BCM.

[Foreign Language]

It is estimated our annual proven recoverable reserves of crude oil will be more than 100 million tons, natural gas 300 BCM and for the SEC standards of proved reserve, the first half of this year we have recognized a proven and developed reserve of crude oil of 49.5 million tons, natural gas 25 BCM, oil and gas equivalent 69.49 million tons.

[Foreign Language]

We will give you several examples. To demonstrate that, we have increased more focus on E&P. In the first half of this year, we have made some 30 important progress in Mahu, Fukang of Junggar Basin, Kuche of Tarim Basin, Central Sichuan of Sichuan Basin, geo formation of stations and [indiscernible] Basin and we have recognized a series of reserve areas with considerable size.

[Foreign Language

In the Junggar Basin, the daily gas production of value depth of 5,000 meters in the formation of the Southern Rim was 758,000 cubic meters. Oil was 427 cubic meters, when we have achieved important breakthroughs in the exploration in this new type of area.

[Foreign Language]

Who else in the former oil field of the Tarim Basin has achieved a high production of more than 1 million tons, the oil and gas bearing area has expanded, which had laid a more solid foundation for the development of a big oil field of around one billion tons.

[Foreign Language]

Two formations in the risk taking wells of Central Sichuan Basin has made an industrial gas flow of 20.3 of 203,000 and 83,000 cubic meters steady production, it has been a very historical breakthrough in these formations.

[Foreign Language]

Important progress has been made in the formation of the depression of Basin and two members of a well in this area have made a daily production of oil of 367 and 173 cubic meters and six wells has made a high production of more than 100 tons.

[Foreign Language]

It is important formation discoveries has set the stage for our reserve increase and also set a very solid foundation for the sustainable and high quality development of the company and for us to ensure China's energy supply. Thank you.

[Foreign Language]

Operator

[Foreign Language]

So next question is [indiscernible] from Everbright Securities. Please go ahead.

Unidentified Analyst

[Foreign Language]

Thank you for giving me this opportunity. My first question is around the oil supply and the demand because we can see the oil prices for this year have been affected by multiple factors, then how do you look at the oil and gas demand internationally in the future and what's your price assumptions for both oil and gas and my second question is around COVID, COVID continue to impact China and also its oil and gas demand. So I'm wondering about its impact on PetroChina's production and operations? Thank you.

Ren Lixin

[Foreign Language]

Senior Vice President, Ren Lixin taking your two questions.

[Foreign Language]

For the first question impacted by multiple factors including COVID and the slow growth of global economy. The crude oil demand is growing less than expected and there are a lot of uncertainties in the supply side. And the international oil prices have been fluctuating at a very high level. For the longer-term along with the rebalancing of the global economy, we believe the oil and gas demand, the oil demand will be returned to a proper level along with these prices.

[Foreign Language]

Natural gas impacted by the Ukraine crisis and other factors, despite the amount of the International natural gas has profound changes. In the international market, the spot price of LNG skyrocketed for the second half of this year, impacted by the fundamentals of supply and demand. We believe the spot LNG will continue to be maintained at a very high level, but an increase of prices will also curb the demand growth of major consuming countries.

Looking forward, when the Ukraine crisis abates, and when some of the LNG liquefaction projects come on stream, we believe the spot price of LNG in the international market will be on the downward trend and be returned to a proper range.

[Foreign Language]

Generally speaking, the COVID cases has impacted China's refined oil markets and for PetroChina. In general, our refined oil sales volume was also in the decline, a decrease of 6.1% year-on-year, but the diesel sales volume increased substantially up by more than 10%. In face of demand surprises in the domestic and international of macroenvironment PetroChina has followed closely with market changes and respond quickly, while ensuring the increase of reserve and production. We have made a timely adjustments in our resource allocation, product structure and processing utilization to ensure the stable and controlled operation of our oil and gas value chains and we have achieved satisfactory operational results. Thank you.

[Foreign Language]

Operator

[Foreign Language]

The next question now is [indiscernible] from Haitong Securities. Please go ahead.

Unidentified Analyst

[Foreign Language]

Congratulations on your stellar results. For my first question. Could you briefly explain why your company's performance has achieved such substantial growth year-on-year. And what's your expectations for the annual result? And the second question is one that has attracted a lot of attention. That is, what is your interim payout policy? And so how do you look at your annual dividends?

Wang Hua

[Foreign Language]

CFO and Board Secretary, Wang Hua is taking questions. This year, our results have improved substantially. And it has been the best for the same periods of PetroChina in history. And there are mainly two kinds of reasons. The first is the increase of crude prices. And the second is artwork pays off. In face of the fluctuations in international situations. The resurgence of COVID in China, and the decrease of demand in the refined oil in China, PetroChina has increased more efforts in quality and efficiency enhancement. As our Chairman just mentioned, a lot of achievements and progress has been made in various aspects about production and operations.

[Foreign Language]

In the high oil price environment, we have worked on reserves and production ramp up. Our domestic oil and gas production grew by 3.9% year-on-year and the market goal natural gas production achieves the highest volume for the same period in history. We have focused on the market orientation approach and more on efficiency enhancement. And we have optimized our products mix produce more products with higher value-added. The chemical commodities and chemical new materials output has been the highest ever. Then we focus more on low carbon -- a low cost development. While the materials fuel and power has increased substantially oil costs and fees has to be properly and effectively controlled.

And meanwhile, we also work on green and low carbon transition. Our efforts in new energies, new materials and new businesses as accelerated and concrete results have been seen in the development of major projects. And we deepened the quality and efficiency enhancement activities and many key performance indicators has reaped the best results. And even better when the oil prices were higher.

[Foreign Language]

For the whole year we will continue to guard against various kinds of risks and challenges, deeper reform and innovation, quality, efficiency enhancement, transition development and guard against risks. We will maintain the stable and efficient operation of oil and gas value chains to maintain a good momentum in our operations and production. Hopefully, we will create more value for our shareholders. Thank you.

[Foreign Language]

According to the articles of association of PetroChina, we have a policy of cash dividend percentage of no less than 30% of the net income attributable to the parent. To reward our shareholders decided by our General Meeting, the Board of Directors decided to apply a 45% payout ratio 45% of the net income attributable to the parent according to the International Financial Reporting Standards, and the total dividend will be $37.1 billion, the highest ever and the dividend per share is 0.25 ATN [ph] up by 55.3%. The annualized dividend yield of A shares and H shares is 7.6% and 12.7% respectively, far higher than relevant interest rates in the capital market. The payout ratio and dividend yield is at a fairly high level compared with industry peers.

[Foreign Language]

For our annual dividend we will continue to carry forward the achievements we've made in the first half of this year and maintain the good momentum, we will balance the returns to our investors and company's sustainable and high quality development to decide on a proper dividend. Thank you.

Wang Hua

[Foreign Language]

In the interest of time, one final question please.

Operator

[Foreign Language]

The last question is [indiscernible] from Citibank. Please go ahead.

Unidentified Analyst

[Foreign Language]

Thank you for this opportunity. And my first question is about the company's CapEx, in this year the CapEx has increased quite substantially especially in the E&P segment. So could you please give us more color about your CapEx allocation for the first half of this year? And what is your average return on invested capital? And how about your investment in new energies business and second question about the downstream business segments, the second quarter impacted by the crude prices, the profitability of your refining and chemicals business has been impacted. So could you please give us more color about the concrete impact? Thank you.

Wang Hua

[Foreign Language]

Your first question will be answered by our Vice President, Mr. Wan Jun and second will be answered by Vice President and Chief Engineer, Mr. Yang Jigang.

Wan Jun

[Foreign Language]

This year, we have focused more on enhancing efficiency more on our core business and the strategic industries. We implemented the targeted investment approach and strictly controlled the size of our CapEx. And we continue to optimize our investment structure. And the total CapEx stood at RMB 92.31 billion up by 24.9%. As you just mentioned, the E&P segment was RMB 72.82 billion up by 34.7%, refining chemicals RMB 16.83 billion up by 1.1%. The average return of invested capital for the first half of this year was 5.6%.

[Foreign Language]

The investment in new energy businesses is included in our E&P segment. As our Chairman just mentioned, for the following months of this year, the new energy business of PetroChina will accelerate and the relevant indexes will also be enhanced. We will fully consider this year's crude oil developments and the development of companies fundamentals and to apply the principles of stringent investment, targeted investment and cost effective investment to properly optimize and adjust our annual CapEx plan.

[Foreign Language]

Thank you.

Wang Hua

[Foreign Language]

Vice President Yang Jigang is taking a question about refining.

Yang Jigang

[Foreign Language]

As you mentioned in this year in face of high oil prices, the growth refining margin was relatively low.

[Foreign Language]

And then we face tremendous pressure and we focus our work on the following aspects. The first is to maintain the stable operation of our business. And second is focus on the optimization of the full value chain to better coordinate the production with the market demand with sales of products and also with the demand of chemicals.

[Foreign Language]

And another aspect is to strictly control the cost, which has been has shown quite positive results for the first half of this year, because we have seen increasing prices of fuels and materials, but cost has been very effective controlled especially in the fuels, power, steam and water we use.

[Foreign Language]

The profitability or earnings acquired by the refining business had mainly two reasons. The first one is our efforts in quality and efficiency enhancement. The second is the inventory gain due to high prices.

[Foreign Language]

Thank you.

Wang Hua

[Foreign Language]

Operator

Ladies and gentlemen, this is the end of our interim results now. Thank you for your participation.