Sinopec Oilfield Service : Interim Report 2020

(Stock Code A Share : 600871 ; H Share : 1033)

2020

Interim Report

IMPORTANT NOTES

1. The Board and the Supervisory Committee of the Company and its directors, supervisors and senior management warrant that there are no false representations, misleading statements or material omissions in this Interim Report and individually and jointly accept full responsibility for the authenticity, accuracy and completeness of the information contained in this Interim Report.
2. The 2020 Interim Report has been approved at the twenty-rst meeting of the ninth session of the Board. Seven directors of the Company attended the meeting. Mr. Wei Ran, Director, was absent from the meeting due to official affairs, but had authorized Mr. Chen Xikun, Chairman, to attend the meeting and exercise his rights.
3. The interim nancial statements of the Company for 2020, which have been prepared in accordance with the PRC Accounting Standards for Business Enterprises ("PRC ASBE") and International Financial Report Standards ("IFRS"), are unaudited. But the interim nancial statements of the Company for 2020 which have been prepared in accordance with IFRS have been reviewed by Grant Thornton Hong Kong Limited.
4. Mr. Chen Xikun, Chairman, Mr. Yuan Jianqiang, General Manager, Mr. Xiao Yi, Chief Financial Officer, and Mr. Pei Defang, Manager of the Accounting Department of the Company, hereby warranted the authenticity, accuracy and completeness of the interim nancial statements contained in the Interim Report.
5. According to the Articles of Association of the Company, the Board resolved that no interim cash dividend was paid for the year ended 31 December 2020, and no issue of bonus shares by way of capitalization of common reserves.
6. Due to the uncertainty of the forward-looking statement about the future plan and development strategy in the Interim Report, the company cannot make a substantive commitment to investors, the Company would ask investors to notice the investment risks.
7. There was no occupancy of non-operating funds by the controlling shareholder of the Company and its connected parties.
8. The Company did not provide external guarantees made in violation of required decision-making procedures.

C o n t e n t s

Section I	Denitions	2
Section II	Company Prole and Principal Financial Indicators	3
Section III	Business Summary	7
Section IV	Discussion and Analysis of Operation	8
Section V	Signicant Events	19
Section VI	Changes in Ordinary Shares and Information
	on Shareholders	28
Section VII	Directors, Supervisors and Senior Management	31
Section VIII	Financial Reports
	Prepared in accordance with PRC
	Accounting Standards for Business Enterprises	34
	Prepared in accordance with
	International Financial Reporting Standards	124
Section IX	Documents Available for Inspection	151

Section I Denitions

In this Interim Report, unless the context otherwise requires, the following expressions shall have the following meanings:

Company	Means	Sinopec Oilfield Service Corporation (中石化石油工程技術服務股份有限公司), a joint stock limited
		company incorporated in the PRC whose A Shares are traded on the SSE (Stock code 600871) and H
		Shares are listed on the Main Board of the HKSE (Stock code 1033)
Group	Means	The Company and its subsidiaries
Board	Means	The board of Directors of the Company
Articles of Association	Means	The articles of association of the Company, as amended, modified or supplemented from time to time
CPC	Means	China Petrochemical Corporation, a wholly State-owned company established in the PRC and the
		controlling shareholder of the Company
Sinopec	Means	China Petroleum & Chemical Corporation, a joint stock limited company established in the PRC and listed
		on the Main Board of the HKSE as well as in New York, London and Shanghai, the subsidiary of CPC
A Share	Means	Domestic Shares in the share capital of the Company of par value at RMB1.00 each which are listed on
		the SSE
H Share	Means	Overseas listed foreign Share(s) in the share capital of the Company of par value at RMB1.00 each
		which is(are) listed on the Main Board of the HKSE
SSE	Means	Shanghai Stock Exchange
HKSE	Means	The Stock Exchange of Hong Kong Limited
Listing Rules	Means	The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
Model Code	Means	Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the
		Listing Rules
CSRC	Means	China Securities Regulatory Commission
Century Bright Company	Means	Sinopec Century Bright Capital Investment, Ltd.
SOSC	Means	Sinopec Oilfield Service Company Limited, a subsidiary of the Company
Shengli Petroleum Engineering	Means	Sinopec Shengli Oil Engineering Company Limited
Company
TSFL	Means	Taiping & Sinopec Financial Leasing Co. Ltd.
Qi Xin Gong Ying Scheme	Means	Qi Xin Gong Ying Scheme for the management of Sinopec Oilfield Service Corporation
Share Option Scheme	Means	A Share Option Incentive Scheme of the Company
This Grant	Means	The grant to the Participants no more than 50,850,000 Share Options pursuant to the Share Option
		Scheme by the Company
Shanghai Offshore Petroleum	Means	Sinopec Group Shanghai Offshore Petroleum Bureau Co., Ltd., a wholly-owned subsidiary of CPC
Bureau
Geophysical exploration or	Means	A method and theory of exploration the underground mineral and researching the geological formations
geophysical		by using physics principles. Such as seismic exploration, electrical and magnetism exploration
Drilling	Means	The engineering of drilling formations down to a certain depth by using the mechanical equipment, and
		finally forming a cylindrical hole
Completion	Means	The last part of the drilling engineering, including connecting the drilling casing to the oil layer, selection
		of completion method, cementing, and perforating, etc.
Logging	Means	Acquiring, analyzing and interpreting the data related to the geological characteristics and hydrocarbon
		potential by using special tools or equipment and technology
Mud Logging	Means	Recording and acquiring the information during the drilling process. Mud Logging is the basic technique
		in oil and gas exploration and production activities, and is the most timely and most direct way to find and
		evaluate the reservoir. It has the characters of timely and various to acquire the downhole information
Downhole Operation service	Means	During the oilfield exploration, in accordance with the requirement of the oilfield, using take technical
		measures, equipment and tools to oil or water wells for the purposed of EOR, increasing the amount
		of injection and production, improving oil flow conditions, improving well conditions and increasing
		production rate, etc.
Two dimensional geophysical	Means	A method for seismic data gathering by using a set of sound source and one or more collection point; 2D
		is generally used for drawing geographical structure for a preliminary analysis
Three dimensional geophysical	Means	A method for seismic data gathering by using two sets of sound source and two or more collection point;
		3D is generally used for acquiring sophisticated seismic data, and improving the chances of successful
		drilling to the oil and gas wells
CNPC	Means	China National Petroleum Corporation
CNOOC	Means	China National Offshore Oil Corporation
Sinopec Star	Means	Sinopec Star Petroleum Company Limited
PRC	Means	People's Republic of China
Hong Kong	Means	Hong Kong Special Administrative Region of the People's Republic of China
Epidemic	Means	Novel Coronavirus Pneumonia Outbreak

Sinopec Oileld Service Corporation Interim Report 2020	2

Section II Company Prole and Principal Financial Indicators

1. Company Information

Chinese name	中石化石油工程技術服務股份有限公司
Abbreviation of Chinese name	石化油服
English name	Sinopec Oilfield Service Corporation
Abbreviation of English name	SSC
Legal Representative	Chen Xikun

2. Contact Persons and Contact Information

	Secretary to the Board	Securities Affairs Representative
Name	Li Honghai	Shen Zehong
Address	Office of the board of directors,
	No. 9 Jishikou Road, Chaoyang District, Beijing, PRC
Telephone	86-10-59965998
Fax	86-10-59965997
E-mail	[e-mail]

3. The Changes for the Company Prole

Registered address	No. 22 Chaoyangmen North Street,
	Chaoyang District, Beijing, PRC
Post Code of Registered	100728
address
Office address	No. 9 Jishikou Road, Chaoyang District,
	Beijing, PRC
Post Code of Office address	100728
Company Internet Website	http://ssc.sinopec.com
E-mail	[e-mail]
Query index for the change	There was no change of the basic
during the reporting period	information of the Company during the
	reporting period

4. The Changes for the Information Disclosure and Inspection Place

Domestic Newspapers disclosing	China Securities, Shanghai Securities
information	News, Securities Times
Internet website designated by	www.sse.com.cn
CSRC to publish the Interim
Report
Internet website designated by	www.hkexnews.hk
HKSE to disclose information
Place where the Interim Report	Office of the board of directors of the
available for inspection	Company
Query index for the change	There was no change of information
during the reporting period	disclosure and place for access to
	information of the Company during
	the reporting period

5. Stock Briefs

				Stock name
Share Type	Place of listing	Stock name	Stock Code	before altering
A share	SSE	SINOPEC	600871	-
		SSC
H share	HKSE	SINOPEC	1033	-
		SSC

3	Sinopec Oileld Service Corporation Interim Report 2020

Section II Company Prole and Principal Financial Indicators

6. Other Related Information

Auditors
Domestic Auditor:	Grant Thornton (Special General Partnership)
Address:	5th Floor, Scitech Place, 22 Jianguomen Wai Avenue, Chaoyang District, Beijing
Overseas Auditor:	Grant Thornton Hong Kong Limited
Address:	12th Floor, 28 Hennessy Road, Wanchai, Hong Kong
Legal advisors
PRC:	Beijing Haiwen & Partners
	20th Floor, Fortune Financial Center, No. 5 Dong San Huan Central Road, Chaoyang District, Beijing
Hong Kong:	Herbert Smith Freehills LLP
	23rd Floor, Gloucester Tower, 15 Queen's Road, Central, Hong Kong
Share registrars and transfer office
H Share:	Hong Kong Registrars Limited
	Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Roads East, Hong Kong
A Share:	China Securities Registration and Clearing Corporation Limited, Shanghai Branch
	36th Floor, China Insurance Building, 166 Lujiazui East Road, Pudong New District, Shanghai

7. Key nancial data and nancial indicators of the Company (extracted from the interim nancial report prepared in accordance with the PRC ASBE which is unaudited)

(1) Key nancial data

Operating income

Operating profit

Profit before income tax

Net profit attributable to equity shareholders of the Company

Net profit deducted extraordinary gain and loss attributable to equity shareholders of the Company

Net cash inflow from operating activities ("-" for outflow)

For the	For the
six months ended	six months ended
30 June 2020	30 June 2019	Increase/(Decrease)
RMB' 000	RMB' 000	(%)
31,432,437	30,256,030	3.9
454,574	736,554	-38.3
452,870	742,777	-39.0
298,277	509,428	-41.4
227,701	430,060	-47.1
281,258	-709,159	Not applicable

Total equity attributable to equity shareholders of the Company

Total assets

As at	As at
30 June	31 December
2020	2019	Increase/(Decrease)
RMB' 000	RMB' 000	(%)
7,374,726	6,763,872	9.0
65,539,809	62,069,378	5.6

Sinopec Oileld Service Corporation Interim Report 2020	4

Section II Company Prole and Principal Financial Indicators

(2) Key nancial indicators

Basic earnings per share (RMB/share)

Diluted earnings per share (RMB/share)

Basic earnings per share deducted extraordinary gain and loss (RMB/share)

Weighted average return on net assets

Weighted average return on net assets deducted extraordinary gain and loss

For the	For the	Increase/(Decrease)
six months ended	six months ended
30 June 2020	30 June 2019	(%)
0.016	0.027	-40.7
0.016	0.027	-40.7
0.012	0.023	-47.8
4.31%	8.44%	decreased by 4.13
		percentage points
3.29%	7.13%	decreased by 3.84
		percentage points

Explanations for key nancial data and key nancial indicators

• Applicable √  Not Applicable

8. Differences between the interim nancial reports of the Company prepared in accordance with the PRC ASBE and IFRS (Unaudited)

	Net profit attributable to equity	Total equity attributable to equity
	shareholders of the Company	shareholders of the Company
	For the	For the
	six months ended	six months ended	As at	As at
	30 June 2020	30 June 2019	30 June 2020	1 January 2020
	RMB' 000	RMB' 000	RMB' 000	RMB' 000
PRC ASBE	298,277	509,428	7,374,726	6,763,872
Adjustment of items and amount in accordance
with the IFRS:
Specific reserve (a)	310,278	294,485	-	-
IFRS	608,555	803,913	7,374,726	6,763,872

Explanations for the related differences

1. Specic reserve

Under PRC ASBE, accrued production safety cost as expense in prot or loss and separately recorded as a specic reserve in shareholders' equity according to the national regulation. As using Safety Fund, if it is prot or loss related, the cost of expenditure is directly charged against the Specic reserves. While if it is capital expenditure related, the cost being used is recorded in Construction in Progress, and transferred to xed assets when it is ready for its intended use. Meanwhile, the cost of xed asset is offset against the specic reserves and the same amount of accumulated depreciation is recognized, then the xed asset is no longer depreciated in its useful life. Under IFRS, these expenses are recognized in prot or loss as and when incurred. Relevant capital expenditure on production maintenance and safety facilities are recognized as property, plant and equipment and depreciated according to the relevant depreciation method.

9. Extraordinary gain and loss items and amount (figures are based on the interim financial report prepared in accordance with the PRC ASBE which is unaudited)

Extraordinary gain and loss items	Amount (RMB' 000)
Disposal of non-current assets	3,839
Government grants recognized in profit or loss during the current period	49,257
Gain and loss on debt restructuring	37,298
Other non-operating income and expenses excluding the aforesaid items	-1,703
Effect of income tax	-18,115
Total	70,576

5	Sinopec Oileld Service Corporation Interim Report 2020

Section II Company Prole and Principal Financial Indicators

10. Key nancial data and nancial indicators prepared under IFRS (Unaudited)

Total assets

Total liabilities

Total equity attributable to equity shareholders of the Company

Net assets per share attributable to equity shareholders of the Company (RMB)

As at	As at	Increase/(Decrease)
30 June 2020	31 December 2019	from last year
RMB' 000	RMB' 000	(%)
65,539,809	62,069,378	5.6
58,165,083	55,305,506	5.2
7,374,726	6,763,872	9.0
0.388	0.356	9.0

Profit attributable to equity shareholders of the Company

Basic and diluted earnings per share

Net cash generated from/(used in) operating activities

Return on net assets

Net cash generated from/(used in) operating activities per share

For the	For the	Increase/(Decrease)
six months ended	six months ended	from corresponding
30 June 2020	30 June 2019	period of last year
RMB' 000	RMB' 000	(%)
608,555	803,913	(24.3)
RMB0.032	RMB0.042	(23.8)
281,258	(709,159)	Not applicable
8.25%	12.21%	Decreased by 3.96
		percentage points
RMB0.015	RMB (0.037)	Not applicable

Sinopec Oileld Service Corporation Interim Report 2020	6

Section III Company Business Summary

1. The Company's main business, business model and industry situation in the reporting period

With more than 50 years of business operation and rich experience in project execution, the Company is the largest, integrated, and professional oileld service provider in China and a leader in providing integrated and full industrial-chain services covering the whole life cycle of oil and gas eld exploration. As at 30 June 2020, the Company provided oileld services in 76 basins and 561 blocks in more than 20 provinces in China, while its overseas business keeps growing with execution in more than 30 countries and regions.

The Company has ve major business sectors - geophysics, drilling, logging & mud logging, downhole operation service and engineering construction, covering the full industrial-chain from exploration, drilling, completion, oil and gas production, collection and transportation, and well abandonment.

The Company has a technological R&D supporting system covering the full industrial-chain from oil and gas exploration to production. the Company is able to provide integrated services in high-acid oil & gas, tight oil & gas, shale gas and heavy oil reservoirs which was awarded National Special Prize for Progress in Science and Technology and the Golden Prize of National High-Quality Project for the Sichuan-Eastern China Natural Gas Transportation Pipeline project. The Company has shale gas oileld supporting technologies featuring ve technological series of drilling, logging, fracturing and testing, equipment manufacturing, and engineering and construction at shallow shale gas reservoirs above 3,500 meters with most key and core technologies localized, making the Company a national leader in this respect.

Committed to the vision of "leading technology, creating value, supporting oil & gas, serving customers", the Company will vigorously promote its specialized, market-oriented, distinctive, high-end and international business. It will expand its business from onshore to offshore elds, from domestic to international markets, from conventional to unconventional elds, and from single engineering service to integrated reservoir services in order to realize its corporate vision-aworld-class integrated oileld service provider.

During the reporting period, there are no signicant changes of the main business of the Company.

2. Substantial changes to the Company's major assets in the reporting period

On 30 June 2020, according to the PRC Accounting Standards for Business Enterprises, the Company's total assets were RMB65,539,809,000, an increase of 5.6% from the end of the previous year, mainly due to delayed project settlement caused by the Epidemic and increase in occupation of contract assets, of which foreign assets were RMB18,491,934,000, accounting for 28.2% of the total assets; The net assets attributable to equity shareholders of the Company were RMB7,374,726,000, increased by 9.0% from the end of the previous year, mainly due to the increase in special reserves of RMB310,278,000 and the accumulation of operations in the rst half of the year; the ratio of total liability to assets was 88.7%, a decrease of 0.4 percentage points from the end of the previous year.

During the reporting period, there are no signicant changes of the main assets of the Company.

3. Analysis on core competitiveness in the reporting period

The Company has service capabilities covering the entire oileld service industry chain. As at 30 June 2020, the Company has 690 onshore drilling rigs (Among them, 301 units above 7,000 meters), 14 offshore drilling platforms, 69 sets of seismic acquisition equipment and 142 sets of imaging logging tools, 445 sets of comprehensive logging instruments, 133 sets of Model 2500 and Model 3000 fracturing trucks and 43 sets of 750 HP and above workover rigs and 1,797 professional teams, which are able to provide oil and gas elds with services throughout the life cycle from exploration to development and production can bring value to oil companies. The Company has been the largest onshore drilling contractor for Saudi Aramco, Kuwait Petroleum Company and Ecuadorian National Oil Company, and the largest international geophysical contractor in Algeria for many years.

The Company is the biggest provider of petroleum engineering services and integrated oilfield technical services in China, with over 50 years of experiences for oileld service and strong execution capabilities. Its representative projects include Puguang gas eld, Fuling shale gas, Yuanba gas eld, Tahe oileld, Shunbei oil and gas eld, etc.

The Company has advanced exploration and development technologies as well as strong R&D abilities. It has a number of advanced technologies with proprietary intellectual property rights, such as shale gas, high-acidic oil & gas reservoirs, ultra-deep drilling and completion etc, which can bring sustainable high value-added to its services.

The Company has the experienced management as well as highly efficient and well-organized operation team.

The Company has a stable and growing client base. It has the solid client base such as CPC in China, and the growing number of clients overseas.

During the reporting period, there are no signicant changes of core technical team and key technicians of the Company.

7	Sinopec Oileld Service Corporation Interim Report 2020

Section IV Discussion and Analysis of Operation

1. Review of results of operations and the business prospect of the Company during the reporting period

Financial gures, where applicable, contained herein have been extracted from the Company's unaudited interim nancial report prepared in accordance with PRC ASBE.

Interim results

In the face of the outbreak of the epidemic and the plunge of international oil prices in the rst half of 2020, the Company focused on the prevention and control of the epidemic, actively promoted work and production resumption, vigorously explored markets and optimized resources allocation, achieving better operating results than expected. The Company's consolidated revenue was RMB31,432,437,000, representing an increase of 3.9% compared to RMB30,256,030,000 for the same period of last year. Net prot attributable to shareholders of the Company was RMB298,277,000, decreased by 41.4% compared to RMB509,428,000 for the same period of last year; basic earnings per share was RMB0.016, decreased by RMB0.011 compared with the same period of last year; and net cash inow from operating activities was RMB281,258,000.

In the first half of 2020, the Company's operating results declined firstly and recovered later, with results increasing from negative to positive and signicant improvement in major operating indicators in the second quarter. In the rst quarter, due to the impacts of the epidemic, net prot attributable to shareholders of the Company was RMB-182,308,000, representing a year-on-year decrease of 196.9%. In the second quarter, the Company seized the favorable opportunity of the continuous improvement in the domestic prevention and control of the epidemic and solidly advanced production and operation, reform and development as well as other work with the campaign on achieving breakthroughs and improving efficiency in 100 days as the driver, achieving net prot attributable to shareholders of the Company of RMB480,585,000, representing a year-on-year increase of 49.6%.

Market review

In the rst half of 2020, the global spread of the epidemic brought greater downward pressures on the global economy, resulting in signicant increases in instabilities and uncertainties. The economic operation in China was also affected. The gross domestic product (GDP) decreased by 1.6% over the same period of last year. The international crude markets witnessed oversupply due to the macro economic downturn and other factors and international oil prices plunged signicantly with the average price below the same period of last year. The average Europe Brent Spot Price was USD40.2 per barrel, representing a decrease of 39.1% as compared to the same period of last year. As a result, oil companies reduced upstream exploration and development capital expenditure, bringing signicant shock to the oileld service industry. However, the three major domestic oil companies continued to promote oil and gas exploration and development, providing support to the workload of the Company.

In the rst half of 2020, the Company made more efforts in improving the engineering technical service capability and strengthened win-win cooperation with oil companies, achieving increases in market expansion against the market trend. The total newly signed contracts amounted to RMB42.97 billion, representing a year-on-year increase of 0.3%. In particular, the newly signed contracts in the Sinopec Group market amounted to RMB21.84 billion, representing a year-on-year decrease of 5.0%. The newly signed contracts in domestic external markets amounted to RMB8.98 billion, representing a year-on-year increase of 13.1%. The newly signed contracts in overseas markets amounted to RMB12.15 billion, representing a year-on-year increase of 1.9%.

Operation review

In the face of the complicated and severe market situation in the rst half of 2020, the Company coordinated the prevention and control of the epidemic and work and production resumption, played its role as the main force for oil and gas exploration and development, coordinated and optimized the market layout, reinforced the production organization of projects under construction, explored the market and tapped into the potential to reduce costs, reducing the adverse effects of the epidemic and the plunge in oil prices to the maximum extent and maintaining stable production and operation on the whole.

1. Geophysical service

In the rst half of 2020, the Company's geophysical services business recorded a revenue from principal business of RMB1,808,761,000, representing a decrease of 3.3% from RMB1,869,906,000 for the corresponding period of last year. The completed 2D seismic exploration accumulated for 6,479 kilometers, representing a year-on-year decrease of 50.8%; while the completed 3D seismic exploration accumulated for 11,368 square kilometers, representing a year-on-year increase of 120.7%; the qualied rates of data records for both 2D and 3D seismic exploration are 100%. In the rst half of the year, the Company vigorously promoted advanced technologies such as high-density seismic exploration, high-precision seismic exploration in complex mountainous areas and nodal seismic acquisition system to comprehensively enhance its oil and gas exploration capabilities. It actively served oil and gas exploration of Sinopec in Shunbei, southeast Sichuan and other regions. In the rst half of the year, the newly signed contracts in the Sinopec Group market amounted to RMB1.24 billion, representing a year-on-year increase of 12.7%. The Company vigorously expanded external markets. It signed the contract on the 3D seismic information collection program of CNOOC Shenzhen Branch and renewed the ship service program of Zhanjiang Branch with a total contracted amount of RMB240 million.

1. Drilling service

In the first half of 2020, the Company's drilling services business recorded a revenue from principal business of RMB16,917,552,000, representing an increase of 0.8% from RMB16,779,456,000 for the corresponding period of last year. The completed drilling footage reached 4,880 kilometers, representing a year-on-year decrease of 2.6%. The average utilization rate of domestic drilling teams reached 80%. The Company continued to optimize the team and market layout, enhanced the production operation and organization, strengthened technical breakthroughs, optimized construction techniques, improved construction quality and operation efficiency of drilling rigs and achieved remarkable results in on-site improvement of the quality, service speed and efficiency. The average drilling cycle at key construction area in "Northwest China, North China, Northeast China and Sichuan" and the time on complicated failures reduced by 20.3% and 44.1% compared with the same period of last year, respectively, fully guaranteeing the construction of key production capacity in the second phase of Weirong shale gas eld, Shunbei oil and gas eld, West Sichuan marine natural gas eld, Erdos tight gas eld and old oilelds in the east and effectively serving high-quality exploration and efficiency development of Sinopec. It rmly seized the favorable opportunity of rigs insufficiency in the domestic external markets and continuously consolidated and expanded the markets of scale such as PetroChina and CNOOC.

Sinopec Oileld Service Corporation Interim Report 2020	8

Section IV Discussion and Analysis of Operation

1. Logging and mud logging service

In the rst half of 2020, the Company's logging and mud logging services business recorded a revenue from principal business of RMB1,138,241,000, representing an increase of 8.6% from RMB1,048,528,000 for the corresponding period of last year. The completed logging projects accumulated for 135,940,000 standard meters, representing a year-on-year increase of 10.9%. The completed mud logging projects accumulated for 4,830,000 meters, representing a year-on-year increase of 5.7%. The various quality and technical indicators of logging and mud logging services were maintained well and the pass rate of logging and mud logging data was 100%. The workload of the logging and mud logging business generally remained stable in the rst half of the year. The development of Weirong shale gas, Shunbei and West Sichuan marine gas and other oil and gas elds of Sinopec provided guarantees to the workload and the Sichuan basin shale gas of PetroChina and other domestic external markets also supported the logging and mud logging services business of the Group. Ancillary technologies continued to improve, and new records were created for various indicators such as logging construction and perforating, providing technical support for exploration and development and key market guarantees.

1. Downhole operation service

In the first half of 2020, the Company's downhole operation services business recorded a revenue from principal business of RMB3,782,642,000, representing an increase of 18.3% as compared with RMB3,197,268,000 for the corresponding period of last year. The Company has completed downhole operation for 3,106 wells/times, with a year-on-year decrease of 7.6%. The qualified rate of one-time downhole special operation was 99.7%. The shale gas fracturing timeliness was improved by 24.5% year on year. The Company consistently strived to increase its support for the exploration and development of Sinopec in "Northwest China, North China, Northeast China and Sichuan". On the basis of accelerating production and operation, deepening cost reduction and potential tapping and strengthening technology research and development, the Company focused on achieving breakthroughs and gave full play to the advantages of professionalism and integration in horizontal well subdivided fracturing, large-scale acid fracturing, acid gas testing, high-pressure and high temperature well testing, horizontal well repairment, high-pressure operations and coiled tubing, providing strong technical support to Fuling shale gas eld, Weirong deep shale gas eld, tight gas eld in North China, Shunbei ultra-deep oil and gas eld and other internal markets of Sinopec and the Sichuan basin shale gas of PetroChina and other domestic external markets.

1. Engineering and construction service

In the rst half of 2020, the Company's engineering and construction services business recorded a revenue from principal business of RMB6,792,317,000, representing an increase of 4.8% as compared with RMB6,481,250,000 for the corresponding period of last year. In the rst half of 2020, the Company has completed contracts valued of RMB7.17 billion, representing a year-on-year increase of 3.6%; the newly signed contracts were valued at RMB8.91 billion, representing a year-on-year decrease of 13.9%. The Company fully promoted the construction of key projects such as new gas pipeline, Rizhao-Puyang-Luoyang Crude Pipeline, Qingdao-Nanjing Gas Pipeline and the construction of MIP16 and 17 pipelines in Saudi Arabia. The Company vigorously expanded in the Sinopec rening and crude oil (gas) commercial reserve and other markets and won the bids for various projects, such as the construction of production capacity of Shunbei oil and gas eld, Hainan Rening and crude oil commercial reserve in Kuche, and the newly signed contracts were valued at RMB4.72 billion. The Company vigorously expanded domestic external markets such as gas, roads and bridges and the newly signed contracts were valued at RMB3.15 billion. It won the bids for the expansion of Huaian-Jiangdu section of Beijing-Shanghai Expressway, the expansion of Three Gorges Renewables and other high-quality projects.

International business

In the rst half of 2020, the Company's international business achieved a revenue from principal business of RMB6,195,560,000, representing an increase of 3.1% as compared with RMB6,009,307,000 for the corresponding period of last year, accounting for 19.9% of the revenue from principal business of the rst half of the year. In the rst half of the year, the Company vigorously focused on the prevention and control of the epidemic, production and operation in overseas countries, expanded markets, stabilized projects and maintained high efficiency. Through strict control of risks of the epidemic and timely work and production resumption, the international business remained stable on the whole. The Company fully expanded overseas key markets and made positive progress in key large-scale markets. It signed contracts on 12 wellbore projects with Saudi Arabian Oil Company, including the 5-year project of 4 oil well repairment and 6 drilling rigs for irregular gas wells, with a contract value of USD1.22 billion. It obtained the qualication for providing screwing services to Saudi Arabian Oil Company. In the Kuwaiti market, the Company signed contracts for 10 drilling and repairing rigs project and renewed 6 drilling rigs project with total contract value of USD180 million, obtained the qualication for providing services to directional wells of Kuwait Petroleum Company (KOC). In the Algerian market, the Company signed contracts for three 3D seismic information collection and two information handling projects with SONATRACH with a contract value of USD80 million. The Company signed contracts for a 3D seismic information collection project in the Nigerian market and contracts for the road upgrading and transformation project in the Kenyan market.

Technology research & development

In the first half of 2020, the Company improved the scientific mechanism, optimized R&D resources and established the Sinopec Oilfield Acid Gas Technology Center. It promoted the integrated development of the R&D and application of testing, logging and locating businesses and consolidated and established Shengli Measurement Technology Institute. It made more efforts in promoting the application of transformation of scientic and technological achievements and achieved industrial application of 175℃ high temperature MWD instrument and SINOLOG900 network imaging logging instrument. Shunbei 55X well constructed by the Company achieved a drilling depth of 8,725 meters, setting a record in the depth of onshore directional wells in Asia and making a new step in the ultra-deep drilling technology of the Company. The comprehensive evaluation technology on shale oil mud logging provided strong supports to the segmented and clustering fracturing of horizontal wells. The Company actively advanced the integration of research, production, sales and services covering measurement while drilling, core chemical additives, logging and mud logging instruments and coiled tubing instruments and sped up in the development of emerging businesses. In the rst half of the year, a total of 364 domestic and overseas patents were newly applied by the Company, of which 234 patents were granted.

Internal reform and management

In the rst half of 2020, the Company fully sped up in market layouts and resources optimization and formulated the guideline on coordinating market layouts and optimizing resources allocation and the plan on the industrial zones in Northeast China and North China as well as the implementation plan on international business. The Company continued to deepen the reform of ancillary business and further promoted the professional development of ancillary business. The number of ancillary business units decreased from 114 at the beginning of the year to 88, representing a decrease of 22.8%. The Company actively and appropriately advanced the reform of three systems, strictly controlled total labors, revitalized the stock and constantly optimized the team structure. The Company fully implemented the assessment of single-well/project by strengthening performance assessment and intensifying the linkage between compensation and efficiency. It continued to improve the construction of six major systems and advanced rened and scientic project management. The Company amended and improved the management systems and measures on the internal control system and consistently enhanced the risk prevention and corporate governance capabilities according to laws and regulations. The Company continuously strengthened project quality management by strictly controlling procurement quality, and effectively improved the quality management. Both the wellbore quality qualication rate and the cementing quality qualication rate reached 100%. The Company also strengthened the costs and target management of all employees, created its low-cost advantages focusing on reducing operation costs, procurement fees and institutional operation expenses, and achieve a cost reduction of RMB190 million.

9	Sinopec Oileld Service Corporation Interim Report 2020

Section IV Discussion and Analysis of Operation

Capital expenditure

In the rst half of 2020, capital expenditure of the Company reached RMB610 million. In the rst half of the year, the Company adhered to the "proactive and prudent" investment principle, optimized investment structure, strengthened resource coordination, and continued to play the leading and supporting role of investment, mainly for the procurement of 6 drilling rigs for oil elds won the bids in Saudi Arabia, 4 electric fracturing pumps for shale gas oilelds in Southwest China, 9 supporting drilling rigs for deep wells in Shunbei and 1 set of 50,000 seismic acquisition and construction equipment.

(1) Main business analysis of the Company

A. Changes in the relevant items of nancial statements

	For the	For the
	six months ended	six months ended
	30 June 2020	30 June 2019	Change
	RMB' 000	RMB' 000	(%)
Operating income	31,432,437	30,256,030	3.9
Operating costs	28,654,955	27,487,631	4.2
Selling and distribution expenses	28,878	25,300	14.1
General and administrative expenses	1,150,692	1,060,520	8.5
Net financial expense	487,147	455,088	7.0
Net cash inflow from operating activities ("-" for outflow)	281,258	-709,159	Not applicable
Net cash inflow from investing activities ("-" for outflow)	-439,267	-697,409	Not applicable
Net cash inflow from financing activities	523,554	1,116,539	-53.1
Research and development expenditure	619,803	479,782	29.2
Credit impairment loss	-78,454	4,188	-1,973.3
Other income	102,783	26,527	287.5
Investment income	40,318	84,919	-52.5
Non-operating income	18,226	24,355	-25.2
Income tax expense	154,593	233,349	-33.8

Reasons for the changes:

1. The change in net cash inow from operating activities was mainly due to the increase in clearance of inventories and account receivable and settlement in bill payable.
2. The change in net cash inow from investing activities was mainly due to the optimization of investment of company reduction of equipment purchase expenses under low oil prices.
3. The change in net cash inow from nancing activities was mainly due to the increase in cash payment for debt repayment in the rst half of 2020.
4. The change in credit impairment loss was mainly due to the account receivables reversal of provision for bad debts in the rst half of 2019 and cash receipt for 2020 which is lower than the provision for bad debts made in the previous year.
5. The change in other income was mainly due to the consumption tax refund in the rst half of 2020 and the increase in value-added tax deductions on year-to-year basis, etc.
6. The change in investment income was mainly due to the decrease in gains on debt restructuring in the rst half of 2020.
7. The change in income tax expanse was mainly due to the decrease in prot of the Company in the rst half of 2020.

1. Others

1. The specic information about the change of Company's prot structure or its prot resource

• Applicable √  Not Applicable

1. Other

• Applicable √  Not Applicable

1. Explanations of signicant changes in prot led by the Non-core business
   □ Applicable √ Not Applicable

Sinopec Oileld Service Corporation Interim Report 2020	10

Section IV Discussion and Analysis of Operation

(3) Statement of assets and liabilities analysis

1. Assets and liabilities

		Percentage of			Changes from
			Percentage of	the end of the
		amount at		amount at	preceding year to
	Amount at	30 June 2020	Amount at	31 December 2019	the end of the
	30 June 2020	in total assets	31 December 2019	in total assets	reporting period
Item	RMB' 000	(%)	RMB' 000	(%)	(%)
Cash at bank and on hand	2,039,924	3.1	1,668,837	2.7	22.2
Notes receivables	0	0.0	500	0.0	-100.0
Accounts receivable	11,162,893	17.0	11,996,355	19.3	-6.9
Account receivable financing	1,753,783	2.7	1,446,389	2.3	21.3
Prepayment	793,408	1.2	553,726	0.9	43.3
Inventories	1,389,044	2.1	1,185,504	1.9	17.2
Contract assets	13,849,140	21.1	9,570,249	15.4	44.7
Other current assets	1,805,477	2.8	1,742,338	2.8	3.6
Long-term equity investments	41,100	0.1	39,718	0.1	3.5
Fixed assets	22,210,373	33.9	23,516,427	37.9	-5.6
Construction in progress	506,523	0.8	213,819	0.3	136.9
Right-of-use assets	1,422,614	2.2	1,547,822	2.5	-8.1
Intangible assets	340,129	0.5	392,947	0.6	-13.4
Short-term borrowings	21,565,624	32.9	20,403,075	32.9	5.7
Notes payable	7,028,358	10.7	4,733,932	7.6	48.5
Accounts payable	20,246,217	30.9	20,068,294	32.3	0.9
Contract liabilities	2,523,545	3.9	3,575,654	5.8	-29.4
Other payables	1,949,557	3.0	1,770,597	2.9	10.1
Non-current liabilities due within	519,018	0.8
one year	535,475	0.9	-3.1
Long-term borrowings	530,963	0.8	474,382	0.8	11.9
Long-term payable	764,525	1.2	784,377	1.3	-2.5
Lease liabilities	1,049,718	1.6	1,134,746	1.8	-7.5
Deferred income	74,341	0.1	92,211	0.1	-19.4
Specific reserve	683,516	1.0	373,238	0.6	83.1

1. Limitation of main assets by the end of the reporting period

√  Applicable □ Not Applicable

On 30 June 2020, the Company's funds with restricted use such as margin deposit, etc. was RMB41,754,000 (On 31 December 2019: RMB18,105,000).

1. Notes:

1. Notes receivable decreased by RMB500,000 compared with the beginning of the fiscal year, mainly because the company strengthened bill management, improved the efficiency of capital use, increased the endorsement of bills receivable, and reclassied notes receivable to accounts receivables nancing.
2. Prepaid payments increased by RMB239,682,000 compared with the beginning of the scal year, mainly due to the increase in prepayments for material procurement in the rst half of 2020.
3. Contract assets increased by RMB4,278,891,000 compared with the beginning of the scal year, mainly due to the increase in completed and not yet billed projects in the rst half of 2020.
4. Construction in progress increased by RMB292,704,000 compared with the beginning of the scal year, mainly due to the purchase of construction equipment for Saudi gas wells in the rst half of 2020.
5. The notes payable increased by RMB2,294,426,000 compared with the beginning of the scal year, mainly due to the increase in the settlement volume of supplier bills.
6. The special reserve increased by RMB310,278,000 compared with the beginning of the scal year, mainly due to the decrease in safety production expenses in the rst half of 2020.

11	Sinopec Oileld Service Corporation Interim Report 2020

Section IV Discussion and Analysis of Operation

(4) Analysis of investments

1. Signicant equity investment

• Applicable √  Not Applicable

1. Signicant non-equity investment

• Applicable √  Not Applicable

1. Information of nancial assets measured at fair value

• Applicable √  Not Applicable

(5) Sales of major assets and equity

During the reporting period, no sales of major assets and equity of the Company occurred.

(6) Information on the Company's subsidiaries and shareholding companies

								Unit: RMB' 000
	Registered	Shareholding	Amount of	Amount of	Amount of		Amount of
Name of company	capital	percentage	total assets	total liabilities	total net assets		net profit
		%						Main Business
Sinopec Oilfield Service Company	RMB4,000,000,000	100	65,539,570	62,513,763	3,025,807	313,331	Petroleum
Limited								engineering
								technical service
Sinopec Shengli Oil Engineering	RMB700,000,000	100	12,332,117	12,095,870	236,247	109,835	Petroleum
Company Limited*								engineering
								technical service
Sinopec Zhongyuan Oil Engineering	RMB450,000,000	100	12,897,328	12,548,012	349,316	163,805	Petroleum
Company Limited*								engineering
								technical service
Sinopec Jianghan Oil Engineering	RMB250,000,000	100	4,634,940	3,363,102	1,271,838	36,738	Petroleum
Company Limited*								engineering
								technical service
Sinopec East China Oil Engineering	RMB860,000,000	100	4,844,428	4,262,594	581,834	29,870	Petroleum
Company Limited*								engineering
								technical service
Sinopec North China Oil Engineering	RMB890,000,000	100	4,779,598	2,553,956	2,225,642	98,225	Petroleum
Company Limited*								engineering
								technical service
Sinopec Southwest Oil Engineering	RMB300,000,000	100	5,703,627	2,007,791	3,695,836	106,714	Petroleum
Company Limited*								engineering
								technical service
Sinopec Oil Engineering Geophysical	RMB300,000,000	100	3,386,307	3,112,472	273,835	9,647	Geophysical
Company Limited*								exploration
Sinopec Oil Engineering and	RMB500,000,000	100	21,225,805	21,039,078	186,727	2,362	Construction
Construction Corporation*
Sinopec Shanghai Offshore Oil	RMB2,000,000,000	100	5,126,766	1,426,228	3,700,538	15,639	Offshore Oil
Engineering Company Limited*								Engineering
								Technology Service
Sinopec International Oil Engineering	RMB700,000,000	100	3,660,505	2,615,593	1,044,912	7,514	Petroleum
Company Limited*								engineering
								technical service
						Revenue	Operating profit
Name of company					RMB' 000	RMB' 000
Sinopec Oilfield Service Company Limited				31,432,437	469,628
Sinopec Shengli Oil Engineering Company Limited*				6,683,733	136,861
Sinopec Zhongyuan Oil Engineering Company Limited*				5,998,556	204,082
Sinopec Jianghan Oil Engineering Company Limited*				2,651,830	43,745
Sinopec East China Oil Engineering Company Limited*				1,757,949	36,269
Sinopec North China Oil Engineering Company Limited*			2,203,195	107,242
Sinopec Southwest Oil Engineering Company Limited*				2,658,383	107,889
Sinopec Oil Engineering Geophysical Company Limited*			1,716,404	16,511
Sinopec Oil Engineering and Construction Corporation*				6,894,434	40,826
Sinopec Shanghai Offshore Oil Engineering Company Limited*				737,740	14,589
Sinopec International Oil Engineering Company Limited*				405,569	28,629

*Note: The Company holds shares though SOSC.

Sinopec Oileld Service Corporation Interim Report 2020	12

Section IV Discussion and Analysis of Operation

(7) The structured entity controlled by the Company

• Applicable √  Not Applicable

(8) Statement of the operations by products, industry and regions operating

1. Statement of operation by industry and products

				Increase/	Increase/
				(decrease) in	(decrease) in
	Operating Income	Operating cost		operating income	operating cost
	for the first half	for the first	Gross Profit	as compared	as compared	Gross profit margin
	of 2020	half of 2020	Margin	with last year	with last year
	compared with
	RMB' 000	RMB' 000
Industry	(%)	(%)	(%)	last year
Geophysical	1,808,761	1,686,201	6.8	-3.3	-5.1	Increased by
						1.8 percentage points
Drilling	16,917,552	15,380,280	9.1	0.8	1.8	Decreased by
						0.9 percentage points
Logging and Mud	1,138,241	898,987	21.0	8.6	8.2	Increased by
logging						0.3 percentage points
Downhole	3,782,642	3,501,686	7.4	18.3	18.8	Decreased by
operation						0.4 percentage points
Engineering and	6,792,317	6,330,907	6.8	4.8	6.4	Decreased by
Construction						1.4 percentage points
Other	627,847	656,365	-4.5	-0.9	3.3	Decreased by
						4.2 percentage points
Total	31,067,360	28,454,426	8.4	3.5	4.4	Decreased by
						0.8 percentage points
B. Statement of operation by regions
						Increase/(decrease)
					Operating income	as compared with
					for the first	the corresponding
					half of 2020	period of last year
Region					RMB' 000	(%)
Mainland China					24,871,800	3.6
Hong Kong, Macau, Taiwan and overseas				6,195,560	3.1

13	Sinopec Oileld Service Corporation Interim Report 2020

Section IV Discussion and Analysis of Operation

2. Market prospects and operation arrangements in the second half of 2020

(1) Market Forecast for the Second Half of 2020

Looking forward to the second half of 2020, the oil service industry will face challenges as well as opportunities and the operation situation will be severe and complicated on the whole. Currently, the global epidemic is still spreading. With increasing external risks and challenges, the domestic economic recovery will still face pressures. The international oil prices are expected to maintain uctuation at low levels due to the declining demands. Due to the impacts of the epidemic and the oil prices, oil companies adjusted strategies and tightened investments to reduce the cost. At the same time, requirements of the oil service industry for improving the quality and speed of oil service business and increasing production and reducing costs are more intense and urgent. However, we also saw that the stable and positive fundamentals of China's economic development remain unchanged and China's economy has rstly recovered in the second quarter. It is expected that the trend of China's economic recovery and improvement is likely to continue in the second half of the year. The three major oil companies in China will continue to implement the seven-year action plan for oil and gas exploration and development, which will provide opportunities for the development of the domestic oil service industry.

(2) Operation Plans for the Second Half of 2020

In the second half of 2020, the Company will continue to leverage the advantages of complicated services and special technologies to support exploration and development of Sinopec and continue to optimize the market layout and fully expand the market. The Company planned to achieve a newly signed contract value of RMB25.1 billion in the second half of the year, in which RMB16.1 billion will be from Sinopec's internal market, RMB4.5 billion from domestic external market, and RMB4.5 billion from overseas market. In addition, focusing on efficiency improvement, the Company will optimize and integrate internal resources, strengthen technological innovation and application, further strengthen cost control, strive to expand operating results and improve the corporate development quality.

1. Geophysical service

In the second half of 2020, the Company will effectively serve the exploration and development of domestic and overseas oil companies, continue to strengthen the efficiency exploration with project management as the core, and improve the operation efficiency of projects. It will explore the establishment of a new cooperation model of sharing risks and interests with oil companies and promote the standardized, mechanized, informationalized and intelligent geophysical construction and jointly solve the difficulties in exploration and development. The Company will strengthen market tracking and development for China Geological Survey, the Chinese Academy of Geological Sciences and Beijing Energy Group. It will make more efforts in the expansion of overseas land and offshore markets such as Middle East, Ecuador and Algeria and strive for more quality seismic information collection projects. In new business markets such as non-seismic, surveying and mapping, measurement, etc., it will actively expand and cultivate business growth points. In the second half of the year, the Company plans to complete the 2D seismic information collection of 2,721 kilometers and the 3D seismic information collection of 8,547 square kilometers.

1. Drilling service

In the second half of 2020, the Company will continue to enhance the engineering technology service capability, strengthen the integration of geology and engineering and optimize key factors restricting the improvement of drilling quality, speed and efficiency to effectively control construction risks, raise the drilling efficiency and shorten the drilling cycle. It will consistently strengthen the service of high-quality exploration and efficiency development in the upstream of Sinopec, give play to its advantages in complete industrial chains and technologies, reinforce the scientic operation of the team, strengthen the support of production enhancement technology to ultra-deep wells, shale gas, tight oil and gas and the mature oil elds in Eastern China, and make good efforts in the development of key projects such as the second phase of Weirong shale gas, West Sichuan marine gas eld, Shunbei oil and gas eld and North China tight gas eld to consolidate its market share. The Company will continue to expand the coverage of both domestic and overseas markets such as PetroChina and CNOOC and expand the market share of domestic shale gas, conventional oil and gas, coalbed methane, etc. In the second half of the year, a drilling footage of 4,300,000 meters is planned to be completed.

1. Logging and mud logging service

In the second half of 2020, the Company will continue to improve the professional technology system for logging and mud logging service, expand the application of various new technologies for logging and mud logging, and continue to improve the support capacity of exploration and development services. While maintaining the stable Sinopec Group market, the Company will actively expand domestic external markets and the overseas service business and accelerate the expansion of scale and effective market. The Company will also continue to strengthen the promotion and application of integrated geological orientation of testing, logging and locating and build technical reserves. In the second half of the year, the Company plans to complete a logging of 142,060,000 standard meters, and a mud logging footage of 4,010,000 meters.

1. Downhole operation service

In the second half of 2020, the Company will constantly raise its technical service and support capability and continue to develop high-end business such as coiled tubing and high-pressure operations. It will improve the reservoir reform and testing capabilities, develop the market of pressure cracking for shale gas in Sichuan and Chongqing, tight gas in North China and ultra-deep oil and gas in Northwest China. The Company will continue to expand and strengthen the overseas well repairment market such as Kuwait to expand the share of the high-end markets such as coiled tubing business in Saudi Arabia. In the second half of the year, the Company plans to complete the 4,009 downhole operations.

Sinopec Oileld Service Corporation Interim Report 2020	14

Section IV Discussion and Analysis of Operation

1. Engineering and construction service

In the second half of 2020, the Company will effectively promote the construction of key projects under construction, including Sinopec Shunbei No. 5 Joint Station and Dongjiakou-Dongying crude oil pipeline, vigorously expand utility projects and businesses in rening and sales sectors and strive to seize the long-distance oil and gas pipeline market. It will focus on the development of key projects such as crude oil commercial reserve bases and gas elds in western Sichuan to consolidate and expand the share in the Sinopec market. In domestic external markets, the Company will continue to expand market expansion in the National Oil and Gas Pipeline Company, local gas pipeline, oil and gas commercial reserve and local roads and bridges and vigorously promote its featured technologies in professional maritime engineering, wind power projects and full automatic welding for pipeline in particular topographies. In overseas markets, the Company will focus on Saudi Arabia, Thailand, Kenya and other mature markets. It will pay close attention to market changes in crude and natural gas pipeline and ground projects construction in oilelds in African countries and conduct preliminary examination on projects to gradually expand overseas markets. In the second half of the year, the Company plans to sign new contract valued at RMB6.8 billion and complete contracts valued at RMB8.1 billion.

1. International business

In the second half of 2020, the Company will, as always, vigorously implement the "internationalization" business strategy. Based on the overall requirements of "strict control of risks, supporting excellent and strong players and improving quality and efficiency", the Company will advance the coordination of market layouts and the optimization of resources allocation for the international business in an orderly manner, support excellent and strong players in eight key markets such as Saudi Arabia and Kuwait, expand and enhance 14 potential markets such as Kazakhstan and Iraq and withdraw from inefficient markets in an orderly manner. The Company will vigorously expand wellbore technical services, oileld comprehensive services, geophysical services, ground engineering construction and other professional sectors to lay a solid foundation for "making half contributions" to the international business. In the Saudi Arabian market, the Company will focus on expanding the gas well drilling market, speed up in qualication review on directional wells and fracturing and promote the lump-sum contract of shale gas projects. In the Kuwaiti market, the Company will continue to expand deep wells drilling and repairing, mud logging, drilling rig and well site construction businesses. It will continuously strengthen supervision on project implementation, overseas prevention and control of the epidemic, public security and HSE supervision to consistently enhance the efficiency improvement capabilities of projects.

1. Technology research and development

In the second half of 2020, the Company will strengthen the leading role of technology and promote power shift and upgrading. Firstly, it will continue to improve and optimize the R&D system and complete the establishment of the Tight Oil and Gas Technical Center for Oil Projects of Sinopec for operation. Secondly, it will speed up in achieving breakthroughs in technical bottlenecks, focus on key technologies such as drilling rotation guidance with high build-rate,high-pressure and high-temperature MWD above 185℃, generators for measuring and control instruments while drilling and oileld chemicals resistant to high temperatures, and promote the pilot application of drilling rotation instruments with regular build-rate. Thirdly, it will vigorously conduct technology research and efficiency improvement, reinforce the support of engineering technology and promote the application of engineering technologies on speed and efficiency improvement such as long open-hole wellbore strengthening, integrated completion of ultra-deep well and one-trip drilling techniques in ultra-deep oil and gas reservoirs and deep shale gas in Shunbei industrial zone and other key sectors.

1. Internal reform and management

In the second half of 2020, the Company will continue to improve the overall plan on corporate reform and development, promote the management of "small institutions and large departments", implement "release management services" reforms and focus on the improvement of the effectiveness of corporate governance. The Company will continue to coordinate regional market layout, optimize resources allocation and improve the overall efficiency and effectiveness of the Company. It will complete market layout and resources coordination and optimization in industrial zones in northeast and southwest China by the end of the year and promote the coordination of market layout and the optimization of resources allocation in industrial zones in northwest and southwest China. The Company will formulate plans on equipment development in a scientic manner and fully leverage on the Asset Swap and Leasing Center to coordinate and optimize equipment resources to improve the equipment efficiency. The Company will give full play to the role of the Human Resources Allocation Center, advance the structural optimization of teams, reasonably reduce the size of teams and improve the labor productivity of the entire staff. It will fully promote corporate governance according to laws and regulations and establish an integrated management mechanism with the connection and coordination of compliance operation with internal control, risk control, audit and supervision. The Company will also strengthen the cost control of all employees, all elements and the whole process by seizing the key process and key areas and strictly controlling non-production expenses, so as to ensure the smooth realization of the cost reduction target formulated at the beginning of the year.

1. Capital expenditure

In the second half of 2020, our planned capital expenditure is RMB2.35 billion. The Company will focus on economic benets, continue to enhance its service exploration and development capabilities, strengthen resource integration and coordination, focusing on ensuring urgent production needs, enhancing technical service capabilities, upgrading and transformation of equipment with potential safety and environmental protection risks, and the construction of integrated cloud platforms for oil projects. By further promoting the transformation of development mode and adjustment of market structure through investment, the Company will cultivate its core competitiveness.

15	Sinopec Oileld Service Corporation Interim Report 2020

Section IV Discussion and Analysis of Operation

3. Other matters of disclosure

(1) Warnings on potential uctuation from the net prot to the loss for the period from the beginning of the year to the end of next reporting period or signicant changes as compared with the same period of the preceding year

• Applicable √ Not applicable

(2) Potential risks

The Company actively took various measures to avoid and mitigate various types of risks. However, in practice, it may not be possible to prevent all risks and uncertainties completely.

1. Increase of the uncertainties of international oil price trend

The international crude oil price signicantly decreased in the rst half of 2020 and the average spot price of North Sea Brent crude oil is US$40.2/barrel and 39.1% lower than the same period last year. With the conclusion of the new production reduction agreement, international crude oil prices have slightly improved. The current epidemic is still raging around the world, and the impact of the epidemic on the world economy will continue to intensify. The resulting weakness on the demand side will increase the possibility of international crude oil prices oscillating at low levels. The rise and fall of international oil prices is directly related to the operating income of oil companies, which in turn affects their upstream exploration and development capital expenditures. Moreover, the upstream exploration and development capital expenditure directly affects the number of oil service companies' orders, which in turn affects the oil service company's earnings.

1. Market competition risk

At present, the competitive landscape of the oileld service market has not undergone major changes, and there is still an oversupply situation. Coupled with the inuence of political, economic and other factors, there are still uncertainties in the trend of international oil prices and there may be some countries or regions protecting the local oileld service industry market. The market competition is still erce. At the same time, the impact of the epidemic is superimposed. The oileld service industry is facing greater operating pressure.

1. Environmental damage, hidden hazards and force majeure risk

Petrochemical services involve certain risks, which may cause unexpected or dangerous incidents such as personal injury or death, property damage, environmental damage and disruption to operations, etc. In light of tougher requirements in environmental protection, the Company may cause environmental pollution caused by accidents in its operation, stand trial and pay compensation. As its operation expands, hazard risks faced by the Company also increase accordingly. Further, new regulations promulgated by the state in recent years set out higher standards for production safety. In addition, natural disasters such as earthquake and typhoon as well as emergency public health events may cause losses to properties and personnel of the Company, and may affect the normal operations of the Company. The Company has implemented a strict HSSE management system and used its best endeavors to avoid the occurrence of accidents. However, the Company cannot completely avoid potential nancial losses caused by such contingent incidents.

1. Overseas operation risk

The company has business in many foreign countries who will have political, legal, supervision and management influences on the business. The conditions there are unstable and quite different with those in developed countries. There may also be risks of political volatility, unstable scal and tax policies, import and export restrictions, breach of contract, tax dispute and regulatory dispute, etc. At the same time, the current epidemic situation in countries where the company's key overseas markets is located continues to spread, and some newly signed projects have been delayed and construction efficiency has decreased, which has also increased the company's overseas operating risks.

1. Exchange rate risk

At present, the implementation of the RMB exchange was based on market supply & demand, regulated and managed by oating exchange rate system with the reference to a basket of currency. As the Company uses foreign currency to pay international business and signs the contract mainly in US dollar, the uctuation in exchange rates of US dollar or other currency to RMB will affect the revenue of the Company.

Sinopec Oileld Service Corporation Interim Report 2020	16

Section IV Discussion and Analysis of Operation

(3) Assets, liabilities, equities and cash flow (Extracted from the financial statements prepared in accordance with International Financial Reporting Standards ("IFRSs"))

The Group's primary sources of funds, coming from operating activities, short-term and long-term borrowings etc., are primarily used in operating activities, capital expenditures and repayment of short-term and long-term borrowings.

A. Assets, liabilities and shareholders' equity analysis

	As to 30 June	As to 31 December
	2020	2019	The change
	RMB' 000	RMB' 000	RMB' 000
Total assets	65,539,809	62,069,378	3,470,431
Current assets	35,641,488	30,547,900	5,093,588
Non-current assets	29,898,321	31,521,478	-1,623,157
Total liabilities	58,165,083	55,305,506	2,859,577
Current liabilities	55,432,817	52,438,357	2,994,460
Non-current liabilities	2,732,266	2,867,149	-134,883
Total equity attributable to equity shareholders of the Company	7,374,726	6,763,872	610,854

As at 30 June 2020, the Group's total assets were RMB65,539,809,000 and total liabilities were RMB58,165,083,000. The total equity attributable to shareholders of the Company was RMB7,374,726,000. Compared with the consolidated statement of financial position as at 31 December 2019 ("Compared with that at the end of last year"), the changes and its main reasons were as follow:

Total assets were RMB65,539,809,000, increased by RMB3,470,431,000 compared with that of the end of last year, including that (i) current assets were RMB35,641,488,000, increased by RMB5,093,588,000 compared with that of the end of last year, mainly due to the increase in completed and not yet billed projects in the rst half of the year, resulting in an increase in contract assets of RMB4,572,052,000. (ii) non-current assets were RMB29,898,321,000, decreased by RMB1,623,157,000 compared with that of the end of last year, mainly due to normal depreciation and amortization of the Group's xed assets and other non-current assets were normally provided in the rst half year.

The total liabilities were RMB58,165,083,000, increased by RMB2,859,577,000 compared with that of the end of last year, including that (i) current liabilities were RMB55,432,817,000, increased by RMB2,994,460,000 compared with that of the end of last year, mainly due to an increase of RMB2,472,349,000 of notes and trade receivables, an increase of RMB1,146,092,000 of short-term loans in the rst half of the year. (ii) non-current liabilities were RMB2,732,266,000, decreased by RMB134,883,000 compared with that of the end of last year, which is mainly due to decrease of RMB150,328,000 in lease liabilities in the rst half of the year.

Total equity attributable to shareholders of the Company was RMB7,374,726,000, increased by RMB610,854,000 compared with that of the end of last year. It mainly due to prot attributable to shareholders of the Company for the rst half of 2020 was RMB608,555,000.

As at 30 June 2020, the ratio of total liabilities to assets was 88.7%, comparing with 89.1% as at 31 December 2019.

1. Cash ow analysis

The main items of cash ow of the Company in the rst half of 2020 and the rst half of 2019 showed in the following table.

	For the six months ended 30 June
	2020	2019
Main items of cash flow	RMB' 000	RMB' 000
Net cash inflow generated from/(used in) operating activities	281,258	(709,159)
Net cash inflow used in investing activities	(439,267)	(697,409)
Net cash inflow from financing activities	523,554	1,116,539
Increase/(decrease) in cash and cash equivalents	365,545	(290,029)
Cash and cash equivalents at the beginning of the period	1,650,732	2,173,580
Exchange gains/(loss) in Cash and cash equivalents	(18,107)	2,323
Cash and cash equivalents at the end of the interim period	1,998,170	1,885,874

17	Sinopec Oileld Service Corporation Interim Report 2020

Section IV Discussion and Analysis of Operation

In the first half of 2020, the Group's net cash inflow from operating activities was RMB281,258,000, representing an increase of cash inflow by RMB990,417,000 as compared with the corresponding period of last year mainly due to the cash collection of notes receivable and inventories and settlement of notes payable by the Group in the rst half of 2020.

In rst half of 2020, the Group's net cash outow from investing activities was RMB439,267,000, an decrease of cash outow by RMB258,142,000 as compared with the corresponding period of last year. It was mainly due to the optimization of investment by the Group in the rst half of 2020 to reduce equipment purchase expenses.

In the first half of 2020, the Group's net cash inflow from financing activities was RMB523,554,000, a decrease of cash inflow by RMB592,985,000 compared with the corresponding period of last year. It was mainly due to the increase in cash to repay borrowings in the rst half year.

1. Borrowings

As at 30 June 2020, the Group's borrowings from bank and related companies were RMB22,096,587,000 (as at 31 December 2019: RMB20,877,457,000). These borrowings include the short-term borrowings of RMB21,565,624,000 and the long-term borrowings due more than one year of RMB530,963,000. As at 30 June 2020, approximately 88.9% of the borrowings were denominated in Renminbi (as at 31 December 2019: 86.6%) and approximately 11.1% were denominated in US Dollars (as at 31 December 2019: 13.4%).

1. Gearing ratio

As at 30 June 2020, the gearing ratio of the Group was 75.1 % (as at 31 December 2019: 76.1%). The gearing ratio = (liability with interest - cash & cash equivalents)/(liability with interest - cash & cash equivalents + shareholders' equity).

1. Assets pledge

For the year ended 30 June 2020, there was no pledge on the Group's assets.

1. Foreign Exchange Risk Management

It is set forth in note 8 of the interim nancial statements prepared in accordance with the PRC ASBE.

Sinopec Oileld Service Corporation Interim Report 2020	18

Section V Signicant Events

1. Summary of Shareholders' Meetings

During the reporting period, the Company held the annual general meeting for the year 2019, the rst A shareholders class meeting for 2020 and the rst H shareholders class meeting for 2020 on 16 June 2020 in Beijing. Details are as follows:

		Website designated for
Name of meeting	Date of meeting	searching the resolutions	Disclosure date of resolutions
The annual general meeting for the year 2019	16 June 2020	www.sse.com.cn	17 June 2020
		www.hkexnews.hk
The first A shareholders class meeting for 2020	16 June 2020	www.sse.com.cn	17 June 2020
		www.hkexnews.hk
The first H shareholders class meeting for 2020	16 June 2020	www.sse.com.cn	17 June 2020
		www.hkexnews.hk

2. Interim cash dividends plan for 2020 and plan to convert capital reserves into share capital

In accordance with the Articles of Association of the Company, the Board resolved that no interim cash dividend was paid for the year ended 31 December 2020, and no issue of bonus shares by way of capitalization of common reserves.

3. Performance of undertakings

The special undertakings made by the Company and its shareholders holdings more than 5% of the shares of the Company and their performance of the undertakings as of 30 June 2020:

					Whether
					there is a
Undertaking	Undertaking			Date and duration	performance	Whether the undertaking has been
background	type	Undertaking party	Undertaking	of the Undertaking	period	strictly and timely fulfilled
Undertaking	To solve	CPC	The Non-Competition Undertaking	Date of undertaking:	No	During the reporting period, China
regarding the	horizontal			12 September 2014		Petrochemical Corporation did not act
material assets	competition		1. China Petrochemical Corporation undertook that it	Duration: long term		contrary to the undertaking.
reorganization			would not engage with the Company's production and
			business activities in competition, and will ensure its
			subsidiaries not to engage with the Company's production
			and business activities in competition through exercise
			of its shareholder rights. 2. After the material assets
			reorganization, if Sinopec Star's new business opportunity
			has any direct or indirect competition with the Company's
			main business, priorities of the above-mentioned
			opportunity will be given to the Company. 3. After the
			material assets reorganization, if China Petrochemical
			Corporation and its subsidiaries' new business opportunity
			has any direct or indirect competition with the Company's
			main business, priorities of the above-mentioned
			opportunity will be given to the Company. If China
			Petrochemical Corporation intends to transfer, sell, lease,
			license or otherwise transfer or permit to use any of the
			above business which would result in the competition with
			the Company's main business, priorities of the above-
			mentioned opportunity will be given to the Company
			for avoiding the competition. 4. China Petrochemical
			Corporation consent that it will bear and pay damages
			to the listed companies caused by its violation of the
			commitment.

19	Sinopec Oileld Service Corporation Interim Report 2020

Section V Signicant Events

					Whether
					there is a
Undertaking	Undertaking			Date and duration	performance	Whether the undertaking has been
background	type	Undertaking party	Undertaking	of the Undertaking	period	strictly and timely fulfilled
Undertaking	To solve	CPC	The Undertaking of Regulating the connected transaction:	Date of undertaking:	No	During the reporting period, China
regarding the	connected		China Petrochemical Corporation and its other controlling	12 September 2014		Petrochemical Corporation did not act
Material Assets	transactions		companies will regulate its/their connected transactions	Duration: long term		contrary to the promise.
Reorganization			with the Company. For the connected transactions with
			reasonable grounds, China Petrochemical Corporation
			and its controlling Company's will sign the standard
			agreement of connected transactions, and will fulfill the
			obligations of the program approval and information
			disclosure, in accordance with the provisions of relevant
			laws and regulations, and the Company's Articles
			of Association. The confirmation price related to the
			connected transaction will follow the principle of fair,
			reasonable and impartial.
Undertaking	Others	CPC	Issued "The commitment letter regarding to the	Date of undertaking:	No	During the reporting period, China
regarding the			regulating of connected transaction and maintaining the	12 September 2014		Petrochemical Corporation did not act
Material Assets			independence of the Company": 1. China Petrochemical	Duration: long term		contrary to the promise.
Reorganization			Corporation and its controlling companies guarantee
			the maintaining of the separation from the Company's
			asset, personnel, finance, organization and business,
			strictly comply with the relevant provisions regarding
			to the listed Company's independency of CSRC. China
			Chemical Corporation will not utilize, control or violate the
			Standardized operation program of the listed company,
			not intervene the Company's operating decisions, and
			not jeopardize the legitimate rights and interests of the
			Company and its shareholders. 2. China Petrochemical
			Corporation and its controlling companies guarantee not
			to illegally use the funds of the Company and its holding
			Company. 3. If China Petrochemical Corporation violate
			the above commitment, it would undertake the law and
			compensate the losses caused to the Company.

4. The situation of appointment and dismissal of the accounting rms

The Company didn't change its accounting rm during the reporting period.

As proposed by the nineteenth meeting of the ninth session of the Board of Directors of the Company and approved by the shareholders at the annual general meeting for 2019, the Company has appointed Grant Thornton (special general partnership) and Grant Thornton Hong Kong Limited as the Company's domestic and international auditors for 2020, and further appointed Grant Thornton (special general partnership) as the Company's auditor regarding internal control for 2020.

Explanation of the Company on non-standard opinion given by the auditors

• Applicable √ Not applicable

Explanation of the Company on non-standard opinion of nancial report for 2019 given by the auditors

• Applicable √ Not applicable

5. Insolvency and restructuring

During the reporting period, the Company was not involved in any insolvency or restructuring matters.

Sinopec Oileld Service Corporation Interim Report 2020	20

Section V Signicant Events

6. Material litigation and arbitration

• Applicable. During the reporting period, there were material litigations and arbitrations.

• Not applicable. During the reporting period, there were not material litigations and arbitrations.

7. The punishment or rectication situation suffered by the Company or its directors, supervisors, senior management, controlling shareholders and ultimate controllers and acquirer

During the reporting period, none of the Company or its Directors, Supervisors, senior management, shareholders who hold more than ve percent of the Company's shares or actual controller was subject to any investigation by relevant authorities or enforcement by judicial or disciplinary departments or subject to criminal liability, or subject to investigation or administrative penalty by the CSRC, nor any denial of participation in the securities market or deemed unsuitability to act as directors thereby by other administrative authorities or any public criticisms made by a stock exchange.

8. Credibility for the Company, controlling shareholders and de facto controller

• Applicable √ Not applicable

9. The Company's share option incentive scheme and its effect

1. Date and number of the Grant
   Grant date: 1 November 2016
   Number of share options granted: 49,050,000
   Number of participants: 477 persons
2. Information on share options granted to directors, chief executives or major shareholders

The Company granted a total of 1.85 million shares of A-share options to ten persons, including, Director Mr. Lu Baoping, Deputy Manager Mr. Zhang Yongjie, Deputy Secretary of the Party Committee Mr. Liu Rushan, Deputy General Manager Mr. Zuo Yaojiu, Deputy General Manager Mr. Zhang Jinhong, Secretary to the Board Mr. Li Honghai, Former Vice Chairman and General Manager Mr. Sun Qingde, Former Director and Deputy General Manager Mr. Zhou Shiliang, Former Supervisor Mr. Huang Songwei and Former Chief Accountant Mr. Wang Hongchen, accounting for 3.8% of the total amount of share options in the Proposed Grant, and accounting for 0.0131% of the total shares of the Company.

(3) Information on share options granted to key business personnel holding core positions

The Proposed Grant covers 467 key business personnel holding core positions, and the total amount of share options granted to them was 47.20 million shares, accounting for 96.2% of the total amount of the share options in the Proposed Grant, and accounting for 0.3337% of the total shares of the Company.

(4) Exercise price of the Grant

According to the determining principle of exercise price, the exercise price of the Grant is RMB5.63 per share (If, during the Validity Period, any capitalisation of capital reserves, distribution of dividend, subdivision, allotment or reduction of the Shares, rights issue or any other events takes place, an adjustment to the number of Share Options shall be made accordingly).

21	Sinopec Oileld Service Corporation Interim Report 2020

Section V Signicant Events

(5) Validity Period and Exercise Arrangement under the Grant

The validity period of the share options shall be ve years commencing from the grant date, but is subject to the following exercise arrangements. The exercisable period for the share options shall be three years commencing from the expiry of the two-year period after the grant date. There shall be three exercisable periods (one year for each exercisable period, same hereinafter) under the Share Option Incentive Scheme. Upon the fulllment of the exercise conditions, 30%, 30% and 40% of the total share options granted shall become exercisable within the 1st, 2nd and 3rd exercisable periods, respectively.

Stage	Timing Arrangement	Exercise Ratio Cap
Grant Date	To be determined by the Board upon fulfilment of the grant conditions under the Scheme
1st Exercise Period	Commencing on the first trading day after the expiration of 24 months from the Grant Date and	30%
	ending on the last trading day of 36 months from the Grant Date
2nd Exercise Period	Commencing on the first trading day after the expiration of 36 months from the Grant Date and	30%
	ending on the last trading day of 48 months from the Grant Date
3rd Exercise Period	Commencing on the first trading day after the expiration of 48 months from the Grant Date and	40%
	ending on the last trading day of 60 months from the Grant Date

(6) Exercise and cancellation under the Grant during the reporting period

As the performance of the Company has not fullled the condition for exercise of the options during the 1st exercise period under the First Grant of the A Share Option Incentive Scheme, the Participants can not exercise the Options. On 29 October 2018, the Company convened the 7th meeting of the 9th session of the Board at which the "Resolution relating to non-fulllment of the exercise conditions for the 1st exercise period under the rst Grant of the A share Option Incentive Scheme" was considered and approved, the Board decided to cancel the 14,715,000 Share Options corresponding to the 1st exercise period which have been granted but not yet been exercised under the First Grant of the A Share Option Incentive Scheme.

Meanwhile, in view of a total of 24 Participants of the Company's A Share Option Incentive Scheme came across matters such as retirement, change in job positions, resignation and death, etc., according to the Share Incentive Plan Measures and the relevant provisions of the Share Option Scheme, as the above Participants have not met the qualications, the Company proposed to cancel a total of 2,163,000 Share Options that have been granted to but not yet been exercised by the above-mentioned personnel. After this adjustment, the Participants of the Company's A Share Option Incentives were adjusted from 477 to 453, and the number of A Share Options which have been granted but not yet been exercised were adjusted from 34,335,000 to 32,172,000.

For details, please refer to the "Announcement relating to Non-fulllment of Exercise Conditions for the First Exercise Period and Adjustment to the List of Participants and the Number of Share Options under the First Grant of the A Share Option Incentive Scheme" (P. 2018-064) disclosed at "China Securities Journal", "Shanghai Securities News", "Securities Times", and on www.sse.com.cn on 30 October 2018 and disclosed on www.hkexnews.hk on 29 October 2018.

As the performance of the Company has not fullled the condition for exercise of the options during the 2nd exercise period under the First Grant of the A Share Option Incentive Scheme, the Participants can not exercise the Options. On 28 October 2019, the Company convened the 17th meeting of the 9th session of the Board at which the "Resolution relating to non-fulllment of the exercise conditions for the 2nd exercise period under the rst Grant of the A share Option Incentive Scheme" was considered and approved, the Board decided to cancel the 13,788,000 Share Options corresponding to the 2nd exercise period which have been granted but not yet been exercised under the First Grant of the A Share Option Incentive Scheme.

Meanwhile, during 29 October 2018 to 28 October 2019, in view of a total of 30 Participants of the Company's A Share Option Incentive Scheme came across matters such as retirement, change in job positions, resignation and death, etc., according to the Share Incentive Plan Measures and the relevant provisions of the Share Option Scheme, as the above Participants have not met the qualications, the Company proposed to cancel a total of 1,300,000 Share Options that have been granted to but not yet been exercised by the above-mentioned personnel. After this adjustment, the Participants of the Company's A Share Option Incentives were adjusted from 453 to 423, and the number of A Share Options which have been granted but not yet been exercised were adjusted from 18,384,000 to 17,084,000.

For details, please refer to the "Announcement relating to Non-fulllment of Exercise Conditions for the Second Exercise Period and Adjustment to the List of Participants and the Number of Share Options under the First Grant of the A Share Option Incentive Scheme" (P. 2019-044) disclosed in "China Securities Journal", "Shanghai Securities News", "Securities Times", and on www.sse.com.cn on 29 October 2019 and disclosed on www.hkexnews.hk on 28 October 2019.

Sinopec Oileld Service Corporation Interim Report 2020	22

Section V Signicant Events

10. Information on connected transactions

The Company's material connected transactions for the six months ended 30 June 2020 are as follows:

(1) The material connected transactions relating to daily operation during the reporting period are as follows:

			Proportion
		Amount of	of the same
The nature of the		transaction	type of transaction
transaction classification	Connected parties	RMB' 000	(%)
Purchase of materials and equipment	China Petrochemical Corporation and its associates	4,739,705	27.8
Rendering engineering services	China Petrochemical Corporation and its associates	18,393,440	59.1
Comprehensive service expenditure	China Petrochemical Corporation and its subsidiaries	218,937	100
Other comprehensive service	China Petrochemical Corporation and its subsidiaries	86,542	100
expenditure
Technology R&D Income	China Petrochemical Corporation and its subsidiaries	43,936	97.1
Land and property rental expenses	China Petrochemical Corporation and its subsidiaries	90,292	45.3
Loan interest expense	China Petrochemical Corporation and its associates	420,527	88.2
Borrowings obtained	China Petrochemical Corporation and its subsidiaries	26,309,046	98.0
Borrowings repaid	China Petrochemical Corporation and its subsidiaries	25,660,652	100
Safety and insurance fund expenses	China Petrochemical Corporation	38,080	100
Safety and insurance fund return	China Petrochemical Corporation	61,178	100

The Company considers that it is necessary to enter into the above connected transactions with the selected connected parties and it would continue to occur. The agreements of connected transactions were based on the needs of the Group's operations and actual market situation. Purchasing materials and equipment from China Petrochemical Corporation and its subsidiaries will ensure the stable and safe supply of the Group's materials. The fact of providing engineering service to China Petrochemical Corporation and its subsidiaries is decided by the history of the operating system of China's petroleum development and by the history of China Petrochemical Corporation's development, which also constitute the Company's main business income source, and the borrowed funds from China Petrochemical Corporation can satisfy the Group's capital needs under the situation of the fund shortage, so it is benecial to the Company. The above transactions were mainly based on the market price or the price decided by open bidding or negotiation, reecting the principles of fairness, justice and openness, which is benecial to the development of the Company's main business, and ensure the maximization of the shareholders' interests. The above connected transactions have no adverse effects on the prots of the Company or the independence of the Company.

23	Sinopec Oileld Service Corporation Interim Report 2020

Section V Signicant Events

1. During the reporting period, there were no material connected transactions related to the transfer of assets or equity of the Company.
2. During the reporting period, no material connected transactions of joint external investment of the Company occurred.
3. The following is connected obligatory rights and debts during the reporting period:

								Unit: RMB' 000
		Funds provided to connected party	Funds provided to the Company
		by connected party
		Opening	Occurrence	Closing	Opening		Occurrence	Closing
Connected parties	Connected relation	balance	amount	balance	balance		amount	balance
China Petrochemical	Controlling shareholders	9,798,884	2,395,144	12,194,028	10,168,257	2,764,320	12,932,577
Corporation and its	and its subsidiaries
subsidiaries
Sinopec Finance Company	Subsidiary companies of	-	-	-	12,080,000	-1,440,000	10,640,000
Limited	the controlling shareholders
Sinopec Century Bright	Subsidiary companies of	-	-	-	2,797,457	-871,833	1,925,624
Capital Investment Limited	the controlling shareholders
Total		9,798,884	2,395,144	12,194,028	25,045,714	452,487	25,498,201
Causes of related claims and debts				Normal production and operation
Influence of connected claims and debts on the					No material adverse effects
Company's performance and financial situation

During the reporting period, there were no occupancy of fund for non-operating purpose by the controlling shareholders and its subsidiaries.

The Board believed that the above connected transactions were entered into in the ordinary course of business and in normal commercial terms and in accordance with the terms of agreements governing these transactions. The terms are fair, reasonable and in accordance with the interests of shareholders of the Company as a whole. The above connected transactions are fully in compliance with the relevant rules and regulations of HKSE and the SSE.

For details of connected transactions during the reporting period, please refer to note 10 of the interim nancial report prepared in accordance with PRC ASBE.

11. Material contracts and performance

(1) Trusteeship, sub-contracting and leasing

1. Trusteeship, sub-contracting matters

• Applicable √ Not applicable

1. Leasing Matters

√  Applicable □ Not applicable

										Unit: RMB
								The impact
				Lease			The basis for	of leasing	Is it a
			The amount of	commencement	Lease		determining the	proceeds on	connected	Connected
Lessor	Lessee	Leased assets	money involved	date	termination date	Rental Income	rental income	the company	transaction	relation
TSFL	Shengli Petroleum	machines and	RMB1 billion	8 February 2018	8 February 2026	RMB-174 million	Calculated based	No significant	Yes	TSFL is a joint
	Engineering	equipment					on a fixed	impact		venture company
	Company	used for drilling					annual interest			of the controlling
		and downhole					rate of 4%			shareholder of the
		operations								Company.
Shanghai	Sinopec Shanghai	Semi submersible	RMB38.47 million	6 November 2019	5 November 2022	RMB-5.65	Calculated	No significant	Yes	Shanghai
Offshore	Offshore Oil	rig (Exploration IV)				million (before	based on a fixed	impact		Offshore
Petroleum	Engineering					renovation)	daily rental of			Petroleum Bureau
Bureau	Company Limited*						RMB15,500 per			is a wholly-owned
							day			subsidiary of
										the controlling
										shareholder of the
										Company.

Sinopec Oileld Service Corporation Interim Report 2020	24

Section V Signicant Events

(2)	Guarantee
√	Applicable □ Not applicable
			Unit: RMB' 000
		External Guarantee of the Company (excluding Guarantees for Subsidiaries)
Total Amount of Guarantees during the Reporting Period (excluding Guarantees for Subsidiaries)	0
Total Balance of Guarantees at the end of the Reporting Period (A) (excluding Guarantees for Subsidiaries)	0
		The Guarantee of the Company and its Subsidiaries to the Subsidiaries
Total Amount of Guarantees paid to Subsidiaries during the Reporting Period	-235,180
Total Balance of Guarantees to Subsidiaries at the end of the Reporting Period (B)	13,217,206
		Total Company Guarantee (including Guarantee for Subsidiaries)
Total Guarantees(A+B)		13,217,206
Total Amount of Guarantees as a Percentage of the Company's Net Asset (%)	179.2
Among them:
Amount of Guarantees provided to Shareholders, Actual Controllers and their related Parties (C)	0
Debt Guarantees Amount directly or indirectly for the guaranteed Object whose asset-liability Ratio exceeds 70% (D)	13,217,206
The Amount of the total Guarantee exceeds 50% of the Net Assets (E)	9,529,843
Sum of the three Guarantees above (C+D+E)	22,747,049
Statement of Unexpired Guarantees as potential subject to Joint Liability	None
Guarantee Statement	The guarantees provided by the Company are all provided for the performance of the
		performance guarantee letters issued by the subsidiaries in the domestic and foreign
		contracts. The guarantee amount is within the amount approved by the annual general
		meeting for 2019 of the Company.

(3) Other material contracts

Save as disclosed in the report, during the reporting period, the Company did not enter into any material contract which requires disclosure.

12. Information on corporate governance

During the reporting period, the Company was able to regulate its operations in accordance with domestic and overseas regulatory requirements. During the reporting period, there was a clear division of rights and responsibilities among the general meeting, the Board and the management of the Company, with specic duties and responsibilities and standard operation. The special committees of the Board carried out their work in accordance with their duties and responsibilities, and the independent directors played an active role in connected transactions and nancial auditing, etc. The Company continued to improve the quality of information disclosure and investor relations management, and the information has been disclosed in a true, accurate, complete and timely manner. The Company also meticulously organized performance training for directors, supervisors and senior management and continues to improve the awareness of law-abiding and compliance of directors, supervisors and senior management.

During the reporting period, the Company convened three general meetings of shareholders (including two class meetings), two meetings of the board of directors, and two meetings of the supervisory committee. A total of 8 resolutions of the shareholders meeting, 16 resolutions of the meetings of the board of directors and 8 resolutions of the meetings of the supervisory committee were formed. The preparation and convening of various meetings comply with laws and regulations, and the resolutions formed are legal and effective.

During the reporting period, there was no difference between the actual situation of corporate governance and the requirements of the regulatory documents on the governance of listed companies issued by the China Securities Regulatory Commission, and no insider information was found to illegally buy or sell the Company's stocks. During the reporting period, the board of directors of the company re-adjusted the members of the special committees of the board of directors based on the professional knowledge and experience of directors.

25	Sinopec Oileld Service Corporation Interim Report 2020

Section V Signicant Events

13. Poverty alleviation program launched by the Company

• Applicable √ Not applicable

14. Convertible Bonds

• Applicable √ Not applicable

15. Environmental Protection

(1) Description of the environmental protection of listed companies and their subsidiaries that belong to heavily polluting industries stipulated by the national environmental protection department

• Applicable √ Not applicable

1. Description of the environmental protection situation of companies other than heavily polluting Industries
   √ Applicable □ Not applicable

The Company adheres to the development philosophy of safety, environmental protection and green and low-carbon, and has formulated relevant systems such as the Environmental Protection Management Regulations, the Pollution Prevention Management Regulations, the Clean Production Management Regulations and the Energy Saving Management Regulations. The Company strictly complies with environmental protection regulations and requirements of the emission standards and international conventions in the countries where it operates. For hazardous waste, the Company conducts recycling and treatment by delivering the waste to the entities with treatment qualications.

Currently, the pollutants discharged by the Company mainly include exhaust gas, domestic sewage, solid waste and oil-based rock chip, etc. Exhaust gas includes diesel engine exhaust and gas fuel exhaust, the emission indicators have met the local standards and requirements; domestic sewage includes the domestic sewage from xed places and the domestic sewage from mobile construction sites, the domestic sewage from xed production sites is transferred to municipal pipeline network for centralized treatment, the domestic sewage from mobile construction sites is recycled after on-sitepre-treatment; solid wastes are mainly drilling waste mud and rock chip, and are organized and treated by the owners or through landll after harmless treatment and comprehensive utilization after harmless treatment in accordance with the requirements of the owners, domestic wastes are treated by professional institutions; oil-based rock chip, which, according to the requirements of the owner, is delivered to the owner for organization and disposal, or is comprehensively utilized after harmless treatment by pyrolysis. In the rst half of 2020, the Company disposed of 782,000 tons of general solid waste (including drilling water-based waste mud), 63,200 tons of hazardous waste (including oil-based rock chip and oil bearing waste), 195,000 cubic meters of domestic sewage and 272,000 cubic meters of drilling operation waste water according to laws and regulations.

The Company strengthened on-site energy efficiency management, implemented energy conservation and clean production technical measures, and vigorously implemented energy efficiency improvement projects. In the rst half of the year, the comprehensive energy consumption for RMB10,000 industrial output value was 0.232 tons of standard coal, representing a year-on-year decrease of 4.9%. At the same time, the Company actively organized the establishment of green project companies and the creating activities of green grassroots, formulated and implemented the "Notice on Key Work in Action of Green Enterprises in 2020" and the "Guidance on Field Construction Sites Equipping with Environmental Toilets" and amended four professional indicators for creating green grassroots such as drilling, downhole operation, geophysical and oil project construction sites. 778 teams initiated the creating activities of green grassroots, 61 teams passed the acceptance on green grassroots and 313 environmental toilets were equipped on construction sites with the creating of construction teams for green enterprises and green grassroots under orderly progress.

The Company has established an environmental emergency management system, improved the environmental emergency network, prepared and timely revised the environmental emergency plans according to the risk assessment results, and filed the environmental emergency plan according to the requirements. The Company has also established emergency rescue teams and conduct regular emergency plan training and drills.

1. Explanation of the follow-up progress or changes in the disclosure of information during the reporting period
   □ Applicable √ Not applicable

Sinopec Oileld Service Corporation Interim Report 2020	26

Section V Signicant Events

16. Compliance with the Corporate Governance Code

For the six months ended 30 June 2020, the Company has complied with all the code provisions of the Corporate Governance Code set out in Appendix

14 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, except that:

Code provision A.5.1 provides that listed issuers should establish a nomination committee. As at the end of reporting period, the Company has not set up a nomination committee. Nonetheless, the requirements for nomination of directors are set out in detail in the Articles of Association of the Company. Pursuant to the Articles of Association, the candidates for independent directors may be nominated by the Board, the Supervisory Committee, or shareholders holding individually or collectively more than one percent of the issued shares of the Company. The candidates for the remaining directorship shall be nominated by the Board, the Supervisory Committee, or shareholders holding individually or collectively more than three percent of the issued shares of the Company. Directors of the Company shall be elected at general meeting of the Company for a term of office of not more than three years. Upon expiration of his term, each Director shall be entitled to be re-elected.

17. Compliance with the Mode Code

The Company has adopted the Model Code as contained in Appendix 10 to the Listing Rules. After having specically inquired from all the Directors, Supervisors and Senior Management, the Company confirms that its Directors, Supervisors and Senior Management have fully complied with the standards as set out in the Model Code as contained in Appendix 10 to the Listing Rules.

18. Other signicant events

(1) Analysis and explanation of the Board on the reasons and impact of the change in accounting policy, accounting estimation and verication method

• Applicable √ Not Applicable

1. Analysis and explanation of the Board on the reasons and impact of the correction to material errors for last period
   □ Applicable √ Not Applicable

27	Sinopec Oileld Service Corporation Interim Report 2020

Section VI Changes in Ordinary Shares and Information on Shareholders

1. Changes in share capital

(1) Changes in share capital

During the reporting period, there was no change in the total number of shares and the share capital structure of the Company.

1. Changes in Shares with Selling Restrictions
   □ Applicable √ Not Applicable

2. Information of Shareholders

(1) Number of shareholders

As at 30 June 2020, the number of shareholders of the Company was 129,023, including 128,676 holders of A shares and 347 registered holders of H shares. The minimum public oat of the Company satised the requirements of the Listing Rules on the HKSE.

1. The shareholdings of the top ten shareholders and the shareholdings of the top ten shareholders of shares without selling restrictions of the Company

Shareholdings of the top ten shareholders
			Number of
			shares held		Number
			at the end of		of shares	Number of
		Changes of	the reporting	Percentage	with selling	shares
	Nature of	shareholdings1	period	to total share	restrictions	pledged or
Names of shareholders	shareholders	(shares)	(shares)	capital (%)	(shares)	frozen
China Petrochemical Corporation2	State-owned legal	0	10,727,896,364	56.51	1,503,568,702	0
	person
Hong Kong Securities Clearing Company	Overseas legal	90,950	5,402,034,694	28.46	2,595,786,987	0
(Nominees) Limited ("HKSCC (Nominees)	person
Limited")3
CITIC Limited	State-owned legal	0	1,035,000,000	5.45	0	0
	person
Donghai Fund-XingyeBank-Huaxin Trust-	Others	0	66,666,666	0.35	0	0
Huizhi Investment No. 49 Trust Plan
Donghai Fund-XingyeBank-Huaxin Trust-	Others	0	66,666,666	0.35	0	0
Huizhi Investment No. 47 Trust Plan
China Minsheng Banking Corporation	Domestic non-state	-87,301,501	40,145,899	0.21	0	0
Limited, Hohhot Branch	legal person
Changjiang Pension Insurance Co.,Ltd.-	Others	0	23,148,854	0.12	23,148,854	0
Changjiang Shengshi Huazhang No. 2
Community Pension Management Fund4
Huaan Fund-IndustrialBank-China Foreign	Others	0	13,333,300	0.07	0	0
Economy & Trade Co. Ltd
Hong Kong Securities Clearing Company	Others	-7,047,853	12,759,299	0.07	0	0
Limited5
China Merchants Bank Co., Ltd.-Bosera	Others	-4,155,500	10,499,400	0.06	0	0
China Securities Central Enterprise
Innovation-Driven Exchange Open Index
Securities Investment Fund

Sinopec Oileld Service Corporation Interim Report 2020	28

Section VI Changes in Ordinary Shares and Information on Shareholders

Shareholdings of top ten shareholders of shares without selling restrictions	Number of shares
	without selling
	restrictions held
	at the end of
	the reporting
Name of shareholders	period (shares)	Types of shares
China Petrochemical Corporation	9,224,327,662	A Share
Hong Kong Securities Clearing Company (Nominees) Limited ("HKSCC (Nominees) Limited")	2,806,247,707	H Share
CITIC Limited	1,035,000,000	A Share
Donghai Fund-XingyeBank-HuaxinTrust-Huizhi Investment No. 49 Trust Plan	66,666,666	A Share
Donghai Fund-XingyeBank-HuaxinTrust-Huizhi Investment No. 47 Trust Plan	66,666,666	A Share
China Minsheng Banking Corporation Limited, Hohhot Branch	40,145,899	A Share
Huaan Fund-IndustrialBank-China Foreign Economy & Trade Co. Ltd	13,333,300	A Share
Hong Kong Securities Clearing Company Limited	12,759,299	A Share
China Merchants Bank Co., Ltd.-Bosera China Securities Central Enterprise Innovation-Driven Exchange Open Index Securities
Investment Fund	10,499,400	A Share
Linghang Investment Australia Limited-Linghang Emerging Market Stock Index Fund (Exchange)	9,301,900	A Share
Statement on the connected relationship or activities in concert among the above-mentioned shareholders	Except that Donghai Fund-Xingye Bank-
	Huaxin Trust-Huizhi Investment No. 49
	Trust Plan and Donghai Fund-Xingye
	Bank-HuaxinTrust-Huizhi Investment
	No. 47 Trust Plan belong to Donghai
	Fund Management Limited Company, the
	Company is not aware of any connected
	relationship or acting in concert among
	the above-mentioned shareholders.

Notes:

1. As compared with the number of shares held as of 31 December 2019.
2. Apart from directly holding 10,727,896,364 A-shares of the Company, China Petrochemical Corporation also held 2,595,786,987 H-shares through its wholly- owned subsidiary, Sinopec Century Bright Capital Investment Limited. Therefore, China Petrochemical Corporation directly and indirectly holds 13,323,683,351 shares of the Company, which represents 70.18% of the total shares of the Company.
3. HKSCC (Nominees) Limited is a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited, acts as an agent to hold H shares of the company on behalf of other companies or individual shareholders.
4. Changjiang Pension Insurance Co., Ltd held it on behalf of Qi Xin Gong Ying Scheme.
5. Hong Kong Securities Clearing Company Limited is a wholly-owned subsidiary of the Hong Kong Exchanges and Clearing Limited, acts as a nominal holder to hold A shares of the Company in the Shanghai Stock Exchange on behalf of the investors of the Hong Kong Stock Exchange.

(3) Number of shares held by the top ten holders of shares with selling restrictions and conditions for sale

				Unit: shares
			Number of
	Number of	Date when the	additional
	shares	shares could	shares could
Names of shareholders with	with selling	be traded	be traded
selling restrictions	restrictions	through listing	through listing	Selling restriction
China Petrochemical Corporation	1,503,568,702	24 January 2021	1,503,568,702	3 years
Hong Kong Securities Clearing Company
(Nominees) Limited	2,595,786,987	23 January 2021	2,595,786,987	3 years
Changjiang Pension Insurance Co., Ltd.-
Changjiang Shengshi Huazhang No. 2
Community Pension Management Fund	23,148,854	24 January 2021	23,148,854	3 years
Statement on the connected relationship or	Hong Kong Securities Clearing Company (Nominees) Limited holds 2,595,786,987 shares of H
activities in concert among the above-mentioned	share with selling restrictions on behalf of Sinopec Century Bright, Sinopec Century Bright Capital
shareholders	Investment, Ltd. is a company incorporated in Hong Kong with limited liability, a wholly-owned
	subsidiary of China Petrochemical Corporation.

29	Sinopec Oileld Service Corporation Interim Report 2020

Section VI Changes in Ordinary Shares and Information on Shareholders

3. The interest or short position held by the substantial shareholders and other persons in the Company's shares or underlying shares

As far as known to the directors, as at 30 June 2020, the following persons, not being a director, supervisor or senior management of the Company, had an interest or short positions in the shares and underlying shares of the Company which shall be disclosed under Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance ("SFO") were as follows:

		Per cent of	Per cent of	Per cent of
		shareholding in	shareholding in	shareholding in
		the Company's	the Company's	the Company's
	Number of	total issued	total issued	total issued
	share held	share capital	domestic shares	H shares	Short position
Name of shareholder	(shares)	(%)	(%)	(%)	(shares)
China Petrochemical Corporation	10,727,896,364	56.51	79.06	Not Applicable	-
	(A share)
	2,595,786,987	13.67	Not Applicable	47.94	-
	(H share)1
CITIC Limited	1,035,000,000	5.45	7.63	Not Applicable	-
	(A share)

Note: 1. China Petrochemical Corporation held 2,595,786,987 H shares of the Company through its overseas wholly-owned subsidiary, Sinopec Century Bright Capital Investment, Ltd.. China Petrochemical Corporation is deemed to have H shares held by Sinopec Century Bright Capital Investment, Ltd..

Save as disclosed above, as at 30 June 2020, as far as known to the directors, no other person (other than director, supervisor or senior management of the Company) had an interest or short position in the shares and underlying shares of the Company which would as recorded in the register kept by the Company under Section 336 of the SFO.

4. Information on changes of controlling shareholder and the ultimate controller

There was no change in the controlling shareholder or the ultimate controller of the Company during the reporting period.

5. Purchase, sale or redemption of the Company's listed securities

During the reporting period, the Company had not purchased, sold or redeemed any of the Company's listed securities.

Sinopec Oileld Service Corporation Interim Report 2020	30

Section VII Directors, Supervisors and Senior Management

1. The Change of equity interests in the Company

(1) Shareholdings of the current directors, supervisors and senior Management and those resigned during the reporting period

The actual number of shares in the issued share capital of the Company held by the directors, supervisors and senior Management as at the end of the reporting period are as follows:

		Number of	Number of
		shares held	shares held
		at the beginning	at the end of	Changes during
		of the reporting	the reporting	the reporting	Reason for
Name	Title	period	period	period	change
Chen Xikun	Chairman, Secretary of Party Committee	0	0	0	No Change
Yuan Jianqiang	Director, General Manager	0	0	0	No Change
Lu Baoping	Director	0	0	0	No Change
Fan Zhonghai	Director	0	0	0	No Change
Wei Ran	Director	0	0	0	No Change
Jiang Bo	Independent Non-Executive Director	0	0	0	No Change
Chen Weidong	Independent Non-Executive Director	0	0	0	No Change
Dong Xiucheng	Independent Non-Executive Director	0	0	0	No Change
Ma Xiang	Chairman of Supervisory Committee	0	0	0	No Change
Du Jiangbo	Supervisor	0	0	0	No Change
Zhai Yalin	Supervisor	0	0	0	No Change
Zhang Qin	Supervisor	0	0	0	No Change
Zhang Jianbo	Supervisor	0	0	0	No Change
Zhang Hongshan	Supervisor	0	0	0	No Change
Zhang Yongjie	Deputy General Manager	0	0	0	No Change
Zuo Yaojiu	Deputy General Manager	0	0	0	No Change
Zhang Jinhong	Deputy General Manager	0	0	0	No Change
Xiao Yi	Chief Financial Manager	0	0	0	No Change
Li Honghai	Secretary to the Board	0	0	0	No Change
Pan Ying	Former Independent Non-Executive Director	0	0	0	No Change
Chen Weiguo	Former Supervisor	0	0	0	No Change

31	Sinopec Oileld Service Corporation Interim Report 2020

Section VII Directors, Supervisors and Senior Management

Directors', Supervisors' and Senior Management's rights to acquire interest or short position in shares or debentures

At 30 June, 2020, except the stock option incentive and Qi Xin Gong Ying Scheme disclosed below, none of the directors,supervisors or senior management of the Company had any interest or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), as recorded in the registry by the Company pursuant to Section 352 of the SFO or as otherwise notified to the Company and the HKSE pursuant to the Model Code for Securities Transactions by Directors of Listed Companies ("Model Code") contained in Appendix 10 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("Listing Rules").

(2) Stock option incentive awarded for Directors, Supervisors and Senior Management

						Unit: Share
		Number of	Number of
		share options	share options	Exercisible	Share options	Number of
		held at the	newly granted	share options	exercised	share options
		beginning of	during the	during the	during the	by the end
		the reporting	reporting	reporting	reporting	of reporting
Name	Position	period	period	period	period	period
Zhang Yongjie	Deputy General Manager	76,000	0	0	0	76,000
Liu Rushan	Deputy Secretary of Party Committee	76,000	0	0	0	76,000
Zuo Yaojiu	Deputy General Manager	72,000	0	0	0	72,000
Zhang Jinhong	Deputy General Manager	72,000	0	0	0	72,000
Li Honghai	Secretary to the Board	56,000	0	0	0	56,000
Total	/	352,000	0	0	0	352,000

(3) Directors, Supervisors and Senior Management Participate in Qi Xin Gong Ying Scheme

On 25 January 2018, the Company non-publicly issued 1,503,568,702 and 23,148,854 share of restricted-sale A shares in private to the China Petrochemical Corporation and the Qi Xin Gong Ying Scheme respectively. Qi Xin Gong Ying Scheme is managed by Changjiang Pension, and its shares shall be subscribed by the certain directors, supervisors, senior management and other core management personnel of the Company. The number of subscribers is 198, and the subscription amount is RMB60.65 million. The subscription price for each scheme share under Qi Xin Gong Ying Scheme is RMB1.00. The duration of Qi Xin Gong Ying Scheme is 48 months commencing from 25 January 2018. The rst 36 months shall be the lock-up period and the last 12 months shall be the unlocking period.

In Qi Xin Gong Ying Scheme, directors, supervisors and senior management of the Company have subscribed 3.55 million scheme shares in total, accounting for approximately 5.9% of the total scheme shares of Qi Xin Gong Ying Scheme. There are 10 directors, supervisors and senior management of the Company in total who have subscribed for Qi Xin Gong Ying Scheme, the subscription by the directors, supervisors and senior management of the Company under Qi Xin Gong Ying Scheme are as follows:

			Subscription
		Subscription	scheme shares
		amount under Qi	under Qi Xin
		Xin Gong Ying	Gong Ying	Subscription	Subscription of
		Scheme	Scheme	Price	A share
Name	Position	(RMB)	(shares)	(RMB/A Share)	(shares)
Chen Xikun	Chairman, Secretary of Party Committee	400,000	400,000	2.62	152,671
Zhang Hongshan	Supervisor	350,000	350,000	2.62	133,587
Zhang Yongjie	Deputy General Manager	350,000	350,000	2.62	133,587
Zuo Yaojiu	Deputy General Manager	350,000	350,000	2.62	133,587
Zhang Jinhong	Deputy General Manager	350,000	350,000	2.62	133,587
Li Honghai	Secretary to the Board	300,000	300,000	2.62	114,503
Sun Qingde	Former Vice Chairman, General Manager	400,000	400,000	2.62	152,671
Li Wei	Former Chairman of Supervisory Committee	350,000	350,000	2.62	133,587
Huang Songwei	Former Supervisor	350,000	350,000	2.62	133,587
Li Tian	Former Chief Financial Manager	350,000	350,000	2.62	133,587
Total	/	3,550,000	3,550,000	-	1,354,954

Sinopec Oileld Service Corporation Interim Report 2020	32

Section VII Directors, Supervisors and Senior Management

2. Changes in Directors, Supervisors and Senior Management

Name	Position held	Change	Reason for change
Pan Ying	Independent Non-Executive Director	Resigned	Personal health reasons
Chen Weiguo	Employee representative supervisor	Resigned	Personal reasons

Mr. Pan Ying, an independent non-executive director of the Company, was unable to perform his duties normally due to his physical health and ceased to serve as an independent non-executive director, chief officer of the Remuneration Committee, and member of the Audit Committee of the ninth session of the board of directors of the Company from 2 April 2020. The Company expresses heartfelt thanks to Mr. Pan Ying for his hard work and important contribution to the Company.

Due to personal reasons, Mr. Chen Weiguo ceased to serve as the employee representative supervisor of the Company from 6 August 2020.

3. Independent Non-executive Director and Audit Committee

As at 30 June 2020, the Company has three Independent Non-executive Directors, one of whom is professional in the accounting eld and has experience in nancial management.

The Audit Committee of the Board of the Company has been founded. The members of the Audit Committee include Ms. Jiang Bo, Mr. Chen Weidong and Mr. Dong Xiucheng. The main responsibilities of the Audit Committee are to review and supervise the Company's nancial reporting procedures and internal control system, and to provide advice to the Board. The Audit Committee has reviewed and conrmed the interim results for the six-months ended 30 June 2020.

33	Sinopec Oileld Service Corporation Interim Report 2020

		Section VIII	Financial Reports
Prepared in accordance with PRC Accounting Standards for Business Enterprises
CONSOLIDATED AND COMPANY BALANCE SHEET
As at 30 June 2020
Prepared by：Sinopec Oileld Service Corporation						Expressed in RMB thousand
		As at 30/6/2020			As at 31/12/2019
Item	Note	Consolidated	Company		Consolidated	Company
Current assets:
Cash at bank and on hand	V.1	2,039,924		164		1,668,837	170
Financial assets held for trading		-		-		-	-
Bills receivable	V.2	-		-		500	-
Accounts receivable	V.3	11,162,893		-		11,996,355	-
Accounts receivable financing	V.4	1,753,783		-		1,446,389	-
Prepayments	V.5	793,408		-		553,726	-
Other receivables	V.6, XV.1	2,829,147	4,399,050		2,365,418	4,399,759
Including: Interest receivables		-		-		-	-
Dividend receivables		-		-		-	-
Inventories	V.7	1,389,044		-		1,185,504	-
Contract assets	V.8	13,849,140		-		9,570,249	-
Assets classified as held for sale		-		-		-	-
Non-current assets due within one year		-		-		-	-
Other current assets	V.9	1,805,477		83		1,742,338	83
Total current assets		35,622,816	4,399,297		30,529,316	4,400,012
Non-current assets:
Debt investments		-		-		-	-
Other debt investments		-		-		-	-
Long-term receivables		-		-		-	-
Long-term equity investments	V.10, XV.2	41,100	27,891,662		39,718	27,891,662
Other equity instrument investments	V.11	32,847		-		32,847	-
Other non-current financial assets		-		-		-	-
Investment property		-		-		-	-
Fixed assets	V.12	22,210,373		-		23,516,427	-
Construction in progress	V.13	506,523		-		213,819	-
Right-of-use assets	V.14	1,422,614		-		1,547,822	-
Intangible assets	V.15	340,129		-		392,947	-
Research and development expenditure		-		-		-	-
Long-term deferred expenses	V.16	4,945,530		-		5,379,478	-
Deferred income tax assets	V.17	417,877		-		417,004	-
Other non-current assets		-		-		-	-
Total non-current assets		29,916,993	27,891,662		31,540,062	27,891,662
Total assets		65,539,809	32,290,959		62,069,378	32,291,674

Sinopec Oileld Service Corporation Interim Report 2020	34

Section VIII	Financial Reports
CONSOLIDATED AND COMPANY BALANCE SHEET (continued)
As at 30 June 2020
Prepared by：Sinopec Oileld Service Corporation			Expressed in RMB thousand
			As at 30/6/2020	As at 31/12/2019
Item		Note	Consolidated	Company	Consolidated	Company
Current liabilities:
Short-term loans		V.18	21,565,624	-	20,403,075	-
Financial liabilities at fair value through
profit or loss			-	-	-	-
Bills payable		V.19	7,028,358	-	4,733,932	-
Accounts payable		V.20	20,246,217	23,770	20,068,294	11,800
Advances from customers			-	-	-	-
Contract liabilities		V.21	2,523,545	-	3,575,654	-
Employee benefits payable		V.22	752,034	-	421,938	-
Taxes payable		V.23	717,339	26,601	843,715	26,531
Other payables		V.24	1,949,557	8	1,770,597	8
Including: Interest payable			-	-	-	-
Dividend payable			-	-	-	-
Non-current liabilities due within one year	V.25	519,018	-	535,475	-
Other current liabilities			-	-	-	-
Total current liabilities			55,301,692	50,379	52,352,680	38,339
Non-current liabilities:
Long-term loans		V.26	530,963	-	474,382	-
Bonds payables			-	-	-	-
Lease liabilities		V.27	1,049,718	-	1,134,746	-
Long-term payables		V.28	764,525	-	784,377	-
Provisions		V.29	426,987	-	449,256	-
Deferred income		V.30	74,341	-	92,211	-
Deferred income tax liabilities		V.17	16,857	-	17,854	-
Other non-current liabilities			-	-	-	-
Total non-current liabilities			2,863,391	-	2,952,826	-
Total liabilities			58,165,083	50,379	55,305,506	38,339
Equity:
Share capital		V.31	18,984,340	18,984,340	18,984,340	18,984,340
Capital reserve		V.32	11,716,880	14,567,123	11,714,581	14,564,824
Other comprehensive income		V.33	6,447	-	6,447	-
Special reserve		V.34	683,516	-	373,238	-
Surplus reserve		V.35	200,383	200,383	200,383	200,383
Retained earnings		V.36	-24,216,840	-1,511,266	-24,515,117	-1,496,212
Equity attributable to the parent company		7,374,726	32,240,580	6,763,872	32,253,335
Non-controlling interests			-	-	-	-
Total equity			7,374,726	32,240,580	6,763,872	32,253,335
Total liabilities and equity			65,539,809	32,290,959	62,069,378	32,291,674
Chairman:		General Manager:	Chief Financial Officer:	Manager of accounting department:
Chen Xikun		Yuan Jianqiang	Xiao Yi		Pei Defang

35	Sinopec Oileld Service Corporation Interim Report 2020

			Section VIII	Financial Reports
CONSOLIDATED AND COMPANY INCOME STATEMENT
For the six months ended 30 June 2020
Prepared by：Sinopec Oileld Service Corporation			Expressed in RMB thousand
			For the six months ended 30 June 2020	For the six months ended 30 June 2019
Item	Note		Consolidated	Company	Consolidated	Company
I. Revenue	V.37		31,432,437	-	30,256,030	-
Less: Cost of sales	V.37		28,654,955	-	27,487,631	-
Taxes and surcharges	V.38		104,874	-	125,352	-
Selling and distribution expenses	V.39		28,878	-	25,300	-
General and administrative expenses	V.40		1,150,692	15,053	1,060,520	17,371
Research and development expenses	V.41		619,803	-	479,782	-
Finance costs	V.42		487,147	1	455,088	-4,211
Including: Interest expenses			476,850	-	488,160	-
Interest income			19,405	-	79,224	4,211
Add: Other income	V.43		102,783	-	26,527	-
Investment income ("-" for losses)	V.44		40,318	-	84,919	-
Including: Income from investment in associates
and joint ventures	V.44		3,020	-	9,410	-
Gains from changes in fair value ("-" for losses)			-	-	-	-
Credit impairment losses ("-" for losses)	V.45		-78,454	-	4,188	-
Impairment of assets ("-" for losses)			-	-	-	-
Gains from assets disposal ("-" for losses)	V.46		3,839	-	-1,437	-
II. Operating profit ("-" for losses)			454,574	-15,054	736,554	-13,160
Add: Non-operating income	V.47		18,226	-	24,355	-
Less: Non-operating expenses	V.48		19,930	-	18,132	-
III. Profit before income tax ("-" for losses)			452,870	-15,054	742,777	-13,160
Less: Income tax expenses	V.49		154,593	-	233,349	-
IV. Net profit for the year ("-" for losses)			298,277	-15,054	509,428	-13,160
(1) Classification according to operation continuity
Including: Net profit from continuing operations
("-" for net loss)			298,277	-15,054	509,428	-13,160
Net profit from discontinued operations
("-" for net loss)			-	-	-	-
(2) Classification according to attribute
Including: Shareholders of the company			298,277	-15,054	509,428	-13,160
Non-controlling interests			-	-	-	-
V. Other comprehensive income, net of tax			-	-	-	-
Other comprehensive income (net of tax) attributable
to shareholders of the company			-	-	-	-
A. Items that will not be reclassified to profit or loss			-	-	-	-
a. Changes in fair value of other equity instruments			-	-	-	-
B. Items that may be reclassified to profit or loss			-	-	-	-
Other comprehensive income (net of tax) attributable
to non-controlling interests			-	-	-	-
VI. Total comprehensive income for the year			298,277	-15,054	509,428	-13,160
Attributable to: Shareholders of the company			298,277	-15,054	509,428	-13,160
Non-controlling interests			-	-	-	-
VII. Earnings per share:
(1)Basic earnings per share	XVI.2		0.016	-	0.027	-
(2)Diluted earnings per share	XVI.2		0.016	-	0.027	-
Chairman:	General Manager:	Chief Financial Officer:	Manager of accounting department:
Chen Xikun	Yuan Jianqiang		Xiao Yi	Pei Defang

Sinopec Oileld Service Corporation Interim Report 2020	36

Section VIII	Financial Reports
CONSOLIDATED AND COMPANY CASH FLOW STATEMENT
For the six months ended 30 June 2020
Prepared by：Sinopec Oileld Service Corporation			Expressed in RMB thousand
			For the six months ended 30 June 2020	For the six months ended 30 June 2019
Item		Note	Consolidated	Company	Consolidated	Company
I. Cash flows from operating activities:
Cash received from the sales of goods and
rendering of services			24,396,686	-	24,882,423	-
Refunds of tax			123,463	-	124,854	-
Cash received from other operating activities	V.50	1,188,900	301	1,274,279	1,005,906
Subtotal of cash inflow from operating activities		25,709,049	301	26,281,556	1,005,906
Cash paid for goods and services			16,720,151	-	17,744,728	-
Cash paid to employees and on behalf
of employees			6,375,609	-	6,534,925	-
Taxes paid			581,865	-	811,637	-
Cash paid for other operating activities	V.50	1,750,166	307	1,899,425	1,064,415
Subtotal of cash outflow from operating activities		25,427,791	307	26,990,715	1,064,415
Net cash flow from operating activities			281,258	-6	-709,159	-58,509
II. Cash flows from investing activities:
Cash received from disposal of investments		-	-	-	-
Cash received from the investment income		1,646	-	1,296	-
Net cash received from disposal of fixed assets,
intangible assets and other long-term assets		17,152	-	19,230	-
Cash received from other investing activities		-	-	-	-
Subtotal of cash inflow from investing activities		18,798	-	20,526	-
Cash paid for acquisition of fixed assets,
intangible assets and other long-term assets		458,057	-	717,935	-
Cash paid for acquisition of investments		8	-	-	-
Net cash paid for acquisition of subsidiaries and
other business units			-	-	-	-
Cash paid for other investing activities		-	-	-	-
Subtotal of cash outflow from investing activities		458,065	-	717,935	-
Net cash flow from investing activities			-439,267	-	-697,409	-

37	Sinopec Oileld Service Corporation Interim Report 2020

			Section VIII	Financial Reports
CONSOLIDATED AND COMPANY CASH FLOW STATEMENT (Continued)
For the six months ended 30 June 2020
Prepared by：Sinopec Oileld Service Corporation			Expressed in RMB thousand
			For the six months ended 30 June 2020	For the six months ended 30 June 2019
Item	Note		Consolidated	Company	Consolidated	Company
III. Cash flows from financing activities:
Cash received from the acquisition of investments			-	-	-	-
Cash received from borrowings			26,840,429	-	16,917,831	-
Cash received for other financing activities			-	-	-	-
Subtotal of cash inflow from financing activities			26,840,429	-	16,917,831	-
Cash paid for repayments of borrowings			25,660,652	-	15,224,918	-
Cash paid for distribution of dividend, profit or
payments of interests			456,468	-	394,391	-
Cash paid for other financing activities	V.50		199,755	-	181,983	-
Subtotal of cash outflow from financing activities			26,316,875	-	15,801,292	-
Net cash flow from financing activities			523,554	-	1,116,539	-
IV. Effect of exchange rate changes on cash and
cash equivalents			-18,107	-	2,323	-
V. Net decrease in cash and cash equivalents	V.51		347,438	-6	-287,706	-58,509
Add: Cash and cash equivalents at beginning of
the year	V.51		1,650,732	170	2,173,580	58,679
VI. Cash and cash equivalents at the end of the
year	V.51		1,998,170	164	1,885,874	170
Chairman:	General Manager:	Chief Financial Officer:	Manager of accounting department:
Chen Xikun	Yuan Jianqiang		Xiao Yi	Pei Defang

Sinopec Oileld Service Corporation Interim Report 2020	38

Section VIII	Financial Reports
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the six months ended 30 June 2020
Prepared by: Sinopec Oileld Service Corporation								Expressed in RMB thousand
						Amount of this period
					Equity attributable to the parent company
					Less:		Other
					Treasury		comprehensive					Retained	Minority
Items	Share capital		Capital reserve	stock		income		Special reserve	Surplus reserve		earnings	interests	Total equity
I. Balance at 31/12/2019	18,984,340	11,714,581	-	6,447	373,238	200,383	-24,515,117	-	6,763,872
Add: Changes in accounting policies	-		-	-		-		-	-		-	-	-
Correction of prior period errors	-		-	-		-		-	-		-	-	-
Business combination under common control	-		-	-		-		-	-		-	-	-
II. Balance at 01/01/2020	18,984,340	11,714,581	-	6,447	373,238	200,383	-24,515,117	-	6,763,872
III. Changes in equity during the year
("-" for decrease)	-	2,299	-		-	310,278	-	298,277	-	610,854
(I) Total comprehensive income	-		-	-		-		-	-	298,277	-	298,277
(II) Shareholders' contributions and
	decrease of capital	-	2,299	-		-		-	-		-	-	2,299
1.	Contribution by ordinary shareholders	-		-	-		-		-	-		-	-	-
2.	Share payments recognised in equity	-	2,299	-		-		-	-		-	-	2,299
3.	Others	-		-	-		-		-	-		-	-	-
(III) Appropriation of profits	-		-	-		-		-	-		-	-	-
1.	Appropriation for surplus reserves	-		-	-		-		-	-		-	-	-
2.	Distributions to shareholders	-		-	-		-		-	-		-	-	-
(IV) Transfer within equity	-		-	-		-		-	-		-	-	-
(V) Specific Reserve	-		-	-		-	310,278	-		-	-	310,278
1.	Appropriation during the year	-		-	-		-	551,604	-		-	-	551,604
2.	Utilisation during the year (expressed in "-")	-		-	-		-	-241,326	-		-	-	-241,326
(VI) Others	-		-	-		-		-	-		-	-	-
IV. Balance at 30/6/2020	18,984,340	11,716,880	-	6,447	683,516	200,383	-24,216,840	-	7,374,726
	Chairman:		General Manager:			Chief Financial Officer:	Manager of accounting department:
	Chen Xikun			Yuan Jianqiang				Xiao Yi			Pei Defang

39	Sinopec Oileld Service Corporation Interim Report 2020

				Section VIII	Financial Reports
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
For the six months ended 30 June 2020
Prepared by: Sinopec Oileld Service Corporation							Expressed in RMB thousand
					Amount of previous period
			Equity attributable to the parent company
			Less:	Other
Items			Treasury	comprehensive				Retained		Minority
Share capital	Capital reserve	stock	income		Special reserve Surplus reserve	earnings		interests	Total equity
I. Balance at 31/12/2018	18,984,340	11,710,763	-	11,676	300,609	200,383	-25,429,361		-	5,778,410
Add: Changes in accounting policies	-	-	-	-		-	-	-		-	-
Correction of prior period errors	-	-	-	-		-	-	-		-	-
Business combination under common
control	-	-	-	-		-	-	-		-	-
II. Balance at 01/01/2019	18,984,340	11,710,763	-	11,676	300,609	200,383	-25,429,361		-	5,778,410
III. Changes in equity during the year
("-" for decrease)	-	2,531	-	-	294,485	-	509,428		-	806,444
(I) Total comprehensive income	-	-	-	-		-	-	509,428		-	509,428
(II) Shareholders' contributions and
decrease of capital	-	2,531	-	-		-	-	-		-	2,531
1. Contribution by ordinary shareholders	-	-	-	-		-	-	-		-	-
2. Share payments recognised in equity	-	2,531	-	-		-	-	-		-	2,531
3. Others	-	-	-	-		-	-	-		-	-
(III) Appropriation of profits	-	-	-	-		-	-	-		-	-
1. Appropriation for surplus reserves	-	-	-	-		-	-	-		-	-
2. Distributions to shareholders	-	-	-	-		-	-	-		-	-
(IV) Transfer within equity	-	-	-	-		-	-	-		-	-
(V) Specific Reserve	-	-	-	-	294,485	-	-		-	294,485
1. Appropriation during the year	-	-	-	-	501,235	-	-		-	501,235
2. Utilisation during the year
(expressed in "-")	-	-	-	-	-206,750	-	-		-	-206,750
(VI) Others	-	-	-	-		-	-	-		-	-
IV. Balance at 30/6/2019	18,984,340	11,713,294	-	11,676	595,094	200,383	-24,919,933		-	6,584,854
Chairman:		General Manager:	Chief Financial Officer:		Manager of accounting department:
Chen Xikun		Yuan Jianqiang				Xiao Yi			Pei Defang

Sinopec Oileld Service Corporation Interim Report 2020	40

Section VIII	Financial Reports
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the six months ended 30 June 2020
Prepared by: Sinopec Oileld Service Corporation						Expressed in RMB thousand
						Amount of this period
					Less:	Other
					Treasury	comprehensive			Retained
Items		Share capital	Capital reserve	stock	income	Special reserve	Surplus reserve	earnings	Total equity
I. Balance at 31/12/2019		18,984,340	14,564,824	-	-	-	200,383	-1,496,212	32,253,335
Add: Changes in accounting policies		-	-	-	-	-	-	-	-
Correction of prior period errors		-	-	-	-	-	-	-	-
Others		-	-	-	-	-	-	-	-
II. Balance at 01/01/2020		18,984,340	14,564,824	-	-	-	200,383	-1,496,212	32,253,335
III. Changes in equity during the year
("-" for decrease)		-	2,299	-	-	-	-	-15,054	-12,755
(I) Total comprehensive income		-	-	-	-	-	-	-15,054	-15,054
(II) Shareholders' contributions and decrease
	of capital		-	2,299	-	-	-	-	-	2,299
1.	Contribution by ordinary shareholders		-	-	-	-	-	-	-	-
2.	Share payments recognised in equity		-	2,299	-	-	-	-	-	2,299
3.	Others		-	-	-	-	-	-	-	-
(III) Appropriation of profits		-	-	-	-	-	-	-	-
1.	Appropriation for surplus reserves		-	-	-	-	-	-	-	-
2.	Distributions to shareholders		-	-	-	-	-	-	-	-
(IV) Transfer within equity		-	-	-	-	-	-	-	-
(V) Specific Reserve		-	-	-	-	-	-	-	-
1.	Appropriation during the year		-	-	-	-	-	-	-	-
2.	Utilisation during the year (expressed in "-")	-	-	-	-	-	-	-	-
(VI) Others		-	-	-	-	-	-	-	-
IV. Balance at 30/6/2020		18,984,340	14,567,123	-	-	-	200,383	-1,511,266	32,240,580
	Chairman:		General Manager:	Chief Financial Officer:	Manager of accounting department:
	Chen Xikun		Yuan Jianqiang		Xiao Yi			Pei Defang

41	Sinopec Oileld Service Corporation Interim Report 2020

				Section VIII	Financial Reports
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
For the six months ended 30 June 2020
Prepared by: Sinopec Oileld Service Corporation							Expressed in RMB thousand
					Amount of previous period
				Less:	Other
Items			Treasury	comprehensive				Retained
Share capital	Capital reserve	stock	income	Special reserve	Surplus reserve	earnings	Total equity
I. Balance at 31/12/2018	18,984,340	14,561,006	-	-		-	200,383	-1,466,064	32,279,665
Add: Changes in accounting policies	-	-	-	-		-	-	-	-
Correction of prior period errors	-	-	-	-		-	-	-	-
Others	-	-	-	-		-	-	-	-
II. Balance at 01/01/2019	18,984,340	14,561,006	-	-		-	200,383	-1,466,064	32,279,665
III. Changes in equity during the year
("-" for decrease)	-	2,531	-	-		-	-	-13,160	-10,629
(I) Total comprehensive income	-	-	-	-		-	-	-13,160	-13,160
(II) Shareholders' contributions and decrease
	of capital	-	2,531	-	-		-	-	-	2,531
1.	Contribution by ordinary shareholders	-	-	-	-		-	-	-	-
2.	Share payments recognised in equity	-	2,531	-	-		-	-	-	2,531
3.	Others	-	-	-	-		-	-	-	-
(III) Appropriation of profits	-	-	-	-		-	-	-	-
1.	Appropriation for surplus reserves	-	-	-	-		-	-	-	-
2.	Distributions to shareholders	-	-	-	-		-	-	-	-
(IV) Transfer within equity	-	-	-	-		-	-	-	-
(V) Specific Reserve	-	-	-	-		-	-	-	-
1.	Appropriation during the year	-	-	-	-		-	-	-	-
2.	Utilisation during the year (expressed in "-")	-	-	-	-		-	-	-	-
(VI) Others	-	-	-	-		-	-	-	-
IV. Balance at 30/6/2019	18,984,340	14,563,537	-	-		-	200,383	-1,479,224	32,269,036
	Chairman:	General Manager:	Chief Financial Officer:		Manager of accounting department:
	Chen Xikun	Yuan Jianqiang		Xiao Yi				Pei Defang

Sinopec Oileld Service Corporation Interim Report 2020	42

Section VIII Financial Reports

NOTES TO THE FINANCIAL INFORMATION

I. COMPANY GENERAL INFORMATION

1. Company Prole

Sinopec Oileld Service Corporation (hereinafter referred to as the Company, including its subsidiaries referred to as the Group), formerly known as Sinopec Yizheng Chemical Fibre Company Limited, which was registered in the People's Republic of China ("PRC") and exclusively established by Yihua Group Corporation (hereinafter referred to as "Yihua") on 31 December 1993. The Company's headquarter is located in the 22nd North Street, Chaoyang District, Beijing.

The Company issued 1 billion H shares in March 1994, 200 million A shares in January 1995 and a further 400 million new H shares in April 1995. The Company's H shares and new H shares were listed and commenced trading on the HKSE on 29 March 1994 and 26 April 1995 respectively. The Company's A shares were listed and commenced trading on the SSE on 11 April 1995.

Pursuant to the directives on the reorganisation of certain companies involving the Company and Yihua as issued by the State Council and other government authorities of the PRC, China Eastern United Petrochemical (Group) Company Limited ("CEUPEC") became the largest shareholder of the Company on 19 November 1997, holding the 1,680,000,000 A shares (representing 42% of the Company's issued share capital) previously held by Yihua. CITIC Group Corporation ("CITIC", formerly "CITIC Group") continues to hold 720,000,000 A shares (representing 18% of the Company's issued share capital) that it held prior to the reorganisation, and the balance of 40% remains in public hands in the form of A shares and H shares, in total 1,600,000,000 shares.

Following the State Council's approval of the reorganisation of China Petrochemical Corporation (hereinafter referred to as "Sinopec Group") on 21 July 1998, CEUPEC joined Sinopec Group. As a result of the reorganisation, Yihua replaced CEUPEC as the holder of the 42% of the Company's issued share capital.

The reorganisation of Sinopec Group was completed on 25 February 2000 and Sinopec Group set up a joint stock limited company, China Petroleum &Chemical Corporation (hereinafter referred to as "Sinopec Corp."), in the PRC. From that date, the 1,680,000,000 A shares (representing 42% of the issued share capital of the Company), which were previously held by Yihua, were transferred to Sinopec Corp. and Sinopec Corp. became the largest shareholder of the Company.

On 27 December 2011, CITIC established CITIC Limited in PRC and a restructuring agreement was signed. Whereby 720,000,000 of the Company's non-public shares held by CITIC have been transferred to CITIC Limited as part of its capital contributions on 25 February 2013 and CITIC Limited thus holds 18% of the Company's share capital.

Pursuant to "the Approval for A Share Reform Scheme of Sinopec Yizheng Chemical Fibre Company Limited" (SASAC Property Right [2013] No. 442) issued by the State-owned Assets Supervision and Administration Commission and "the Approval for A Share Reform Scheme of Sinopec Yizheng Chemical Fibre Company Limited" (Cai Jin Han [2013] No. 61) issued by Ministry of Finance of the PRC, the Company implemented the A Share Reform in 2013 under which the non-circulating shareholders of the Company paid 5 shares for each 10 circulating A shares that were registered on 16 August 2013 (the date of registration as agreed in the reform plan). As a result, 100,000,000 shares were paid in total. After the payment, the shares held by Sinopec Corp. And CITIC Limited in the Company decreased from 42% and 18% to 40.25% and 17.25%, respectively. From 22 August 2013, all non-circulating shares obtained circulating rights in the Shanghai Stock Exchange. However, in accordance with the agreed terms of restriction on tradability, as at 22 August 2016, 1,035,000,000 shares held by CITIC Limited has been available for trading. Pursuant to the resolutions of general meeting of shareholders of the Company, the Company converted 5 shares for each 10 H shares and A shares that were registered on 13 November 2013 and 20 November 2013, respectively from share premium into share capital. Additional 700,000,000 H shares and additional 1,300,000,000 A shares were thus issued and the transaction was completed on 22 November 2013.

Pursuant to "the Approval to matters in relation to the Material Asset Reorganisation of Sinopec Yizheng Chemical Fibre Company Limited and Subsequent A Share Placement" (SASAC Property Right [2014] No. 1015) issued by the State-owned Assets Supervision and Administration Commission and "the Approval to the Material Asset Reorganisation of Sinopec Yizheng Chemical Fibre Company Limited and Issuance of Shares to China Petrochemical Corporation for Asset Acquisition and Subsequent A Share Placement"(CSRC Permit [2014] No. 1370) issued by China Securities Regulatory Committee, the Company implemented the material asset reorganization in 2014. The Company sold all of its assets and liabilities (hereinafter referred to as the "Outgoing Business") to Sinopec Corp., in exchange, would repurchase A shares of the Company held by Sinopec Corp. for cancellation, and issue shares to Sinopec Group in order to acquire 100% equity interest of Sinopec Oileld Service Corporation(hereinafter referred to as "SOSC") held by Sinopec Group (hereinafter referred to as the "Incoming Equities" or "SOSC", hereinafter collectively referred to as the "Reorganisation"). The Company executed the Conrmation on Completion of Outgoing Business with Sinopec Corp., executed the Conrmation on Completion of Incoming Equities with Sinopec Group on 22 December 2014.According to the Conrmations, the Company transferred Outgoing Business to Sinopec Corp., Sinopec Group transferred Incoming Equities to the Company. On 30 December 2014, the Company repurchased the Repurchased Shares (a total of 2,415,000,000 A Shares) from Sinopec Corp. for cancellation. On the even date, the Company issued the Consideration Shares (a total of 9,224,327,662 A Shares) to Sinopec Group, on 13 February 2015, the Company issued 1,333,333,333 A Shares to seven specific investors such as Darry Asset Management (Hangzhou) Co., Ltd.

Approved by China Securities Regulatory Commission's license [2018] No. 142, "The Approval of Sinopec Oileld Service Corporation issuing non-public shares", the company had issues 1,526,717,556 shares to China Petrochemical Corporation and the Changjiang Pension Insurance Co., Ltd.-Changjiang Shengshihuazhang No. 2 Community Pension Management Fund. The non-public issuance of ordinary shares (A shares) was issued at RMB2.62 per share. Approved by China Securities Regulatory Commission's license [2018] No. 130, "The Approval of Sinopec Oileld Service Corporation issuing overseas-listed foreign shares", the company had issued 3,314,961,482 H shares to Sinopec Century Bright Capital Investment Limited and China Structural Reform Fund.

43	Sinopec Oileld Service Corporation Interim Report 2020

Section VIII Financial Reports

I. COMPANY GENERAL INFORMATION (Continued)

1. Company Prole (Continued)

The business scope of the Group includes provision of oileld service, such as geophysics, drilling, logging and mud logging, special downhole operations, for production of onshore and offshore oil and natural gas and contracting overseas petroleum, natural gas, chemical, bridge, road, housing construction, water resources and hydropower, municipal utility, steel structure, electricity, re-ghting equipment industrial plant projects.

These nancial statements and nancial information notes have been approved for issue by the 21st meeting of the ninth term Board of Directors of the Company on 25 August 2020.

2. The Scope of Consolidated Financial Statements

The scope of the Group's consolidated nancial statements includes the Company and all its subsidiaries. Compared with the previous year, the scope has no change, the details refer to Note VI. Changes in scope of consolidation and Note VII. Interests in other entities.

II. BASIS OF PREPARATION

The financial statements are prepared in accordance with the latest "China Accounting Standards for Business Enterprises" and their application guidelines, interpretations and other relevant requirements (collectively, CASBE) issued by the Ministry of Finance of the PRC ("MOF").In addition, the Group discloses relevant nancial information in accordance with requirements in the Preparation Convention of Information Disclosure by Companies Offering Securities to the Public No. 15 - General Rules on Financial Reporting(2014 revised) issued by the China Securities Regulatory Commission.

The nancial statements are prepared on a going concern basis.

The Group's accumulated loss is RMB24,216,840 thousand, current liabilities exceed current assets of approximately RMB19,678,876 thousand as at 30 June 2020(Current liabilities exceed current assets of RMB21,823,364 thousand in 2019), committed capital expenditures are approximately RMB515,558 thousand. The directors of the Company has assessed that the Group is expected to be continued during the next twelve months. As the Group's borrowings are mainly from Sinopec Group and its subsidiaries which have maintained its long-term good relations with the Group, the Group can obtain adequate nancial supports from those institutions. In December 2019, the company obtained a credit line of RMB17 billion and an equivalent value of USD0.60 billion from subsidiaries of Sinopec Group, and line of credit promissory note of RMB7 billion. After the reorganization, the Company will further broaden the nancing channel, develop good relations with the public and state-owned nancial institutions in order to obtain a more adequate line of credit. The directors of the Company consider the measures sufficient to meet the Group's debt repayment and capital commitment required. Consequently, the Company prepared the nancial statements on a going concern basis.

The Group follows the accrual basis of accounting. The nancial statements are prepared under the historical cost convention except for certain nancial instruments and otherwise described below. If assets are impaired, provision for impairment shall be made in accordance with the relevant policies.

III.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

The Group's accounting policies for depreciation of xed assets, amortization of intangible assets and long-term deferred expense and revenue are recognized on the basis of its production and management characteristics, the specic accounting policies are set out in Note III, 15, Note III, 18, Notes III, 21, Notes III, 19 and Notes III, 25.

1. Declaration of compliance with the CASBE

The nancial statements are in compliance with the requirement of CASBE, which gives a true view of the entire company's and consolidated nancial position at 30 June 2020 and the Company's and the consolidated operating results during at 30 June 2020.

2. Accounting period

The accounting period of the Group is from 1 January to 31 December.

The reporting period is from January to June 2020.

3. Operating cycle

The operating cycle of the Group is 12 months.

Sinopec Oileld Service Corporation Interim Report 2020	44

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

4. Functional currency

The Group uses RMB as its functional currency. All amounts in this report are expressed in RMB unless otherwise stated.

The Group's subsidiaries, joint ventures and associates' recording currency is determined on the basis of the currencies in which major income and costs are denominated and settled and translated into RMB for the preparation of the nancial statements.

5. Business combinations

(1) Business combination involving entities under common control

For the business combination involving entities under common control, the assets and liabilities that are obtained in the business combination shall be measured at their original carrying amounts at the combination date as recorded by the party being combined, except for the adjustments of different accounting policies. The difference between the carrying amount of the net assets obtained and the carrying amount of assets paid shall be adjusted to capital reserve, if the capital reserve is not sufficient to absorb the difference, any excess difference shall be adjusted to the retained earnings.

Business combinations involving enterprises under common control and achieved in stages

In the separate nancial statements, the initial investment cost is calculated based on the shareholding portion of the assets and liabilities obtained and are measured at the carrying amounts as recorded by the enterprise being combined at the combination date. The difference between the initial investment cost and the sum of the carrying amount of the original investment cost and the carrying amount of consideration paid for the combination is adjusted to the capital reserve, if the capital reserve is not sufficient to absorb the difference, the excess difference shall be adjusted to retained earning.

In the consolidated nancial statements, the assets and liabilities obtained at the combination shall be measured at the carrying value as recorded by the enterprise at combination date, except for adjustments of different accounting policies. The difference between the sum of the carrying value from original shareholding portion and the new investment cost incurred at combination date and the carrying value of net assets obtained at combination date shall be adjusted to capital reserve, if the balance of capital reserve is not sufficient to absorb the differences, any excess is adjusted to retained earnings. The long-term investment held by the combination party, the recognized prot or loss, comprehensive income and other change of shareholding's equity at the closer date of the acquisition date and combination date under common control shall separately offset the opening balance of retained earnings and prot or loss during comparative statements.

(2) Business combination involving entities not under common control

For business combinations involving entities not under common control, the consideration for each combination is measured at the aggregate fair value at acquisition date, of assets given, liabilities incurred or assumed, and equity securities issued by the acquirer in exchange for control of the acquiree. At acquisition date, the acquired assets, liabilities or contingent liabilities of acquiree are measured at their fair value.

Where the cost of combination exceeds the acquirer's interest in the fair value of the acquiree's identiable net assets, the difference is recognised as goodwill, and measured on the basis of its cost minus accumulative impairment provision; Where the cost of combination is less than the acquirer's interest in the fair value of the acquiree's identiable net assets, the difference is recognised in prot or loss for the current period after reassessment.

Business combinations involving enterprises not under common control and achieved in stages

In the separate nancial statements, the initial investment cost of the investment is the sum of the carrying amount of the equity investment held by the entity prior to the acquisition date and the additional investment cost at the acquisition date. The disposal accounting policy of other comprehensive income related with equity investment prior to the purchase date recognized under equity method shall be compliance with the method when the acquiree disposes the related assets or liabilities. Shareholder's equity due to the changes of other shareholder's equity other than the changes of net prot, other comprehensive income and prot distribution shall be transferred to prot or lose for current period when disposed. If the equity investment held by the entity prior to the acquisition date is measured at fair value, the cumulative changes in fair value recognized in other comprehensive income shall be transferred to prot or loss for current period when accounted for using cost method.

In the consolidation financial statements, the combination cost is the sum of consideration paid at acquisition date and fair value of the acquiree's equity investment held prior to acquisition date; the cost of equity of the acquiree held prior to acquisition date shall be re-measured at the fair value at acquisition date, the difference between the fair value and book value shall be recognized as investment income or loss for the current period. Other comprehensive income and changes of investment equity related with acquiree's equity held prior to acquisition date shall be transferred to investment prot or loss for current period at acquisition date, besides there is other comprehensive income incurred by the changes of net assets or net liabilities due to the re-measurement of dened benet plan.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

5. Business combinations (Continued)

(3) Transaction fees attribution during the combination

The intermediary and other relevant administrative expenses such as audit, legal and valuation advisory for business combinations are recognised in prot or loss when incurred. Transaction costs of equity or debt securities issued as the considerations of business combination are included in the initial recognition amounts.

6. Method of preparing consolidated nancial statements

(1) Scope of consolidation

The scope of consolidation nancial statements is on the basis of control. Control refers to the power over investee of the Group, exposure or rights to variable returns in participating in the investee's related activities and the ability to use the power to affect those variable returns. A subsidiary is the entity controlled by the Group (including severable part of the investee and the enterprise, structured body controlled by the enterprise, etc).

(2) Method of preparing of consolidated nancial statements

The consolidated nancial statements are based on the nancial statements of the Company and its subsidiaries, and are prepared by the Company in accordance with other relevant information. In preparing the consolidation nancial statements, the Company and its subsidiaries are required to apply consistent accounting policy and accounting period, intra-group transactions and balances shall be offset.

A subsidiary acquired through a business combination involving entities under common control in the reporting period shall be included in the scope of the consolidation from the beginning of the combination date, the subsidiary's income, expenses and prots are included in the consolidated results of operations, and cash ows are included in the consolidated cash ow statement from the acquisition date.

A subsidiary acquired through a business combination involving entities not under common control in the reporting period, the subsidiary's income, expenses and prots are included in the consolidated results of operations, and cash ows are included in the consolidated cash ow statement from the acquisition date to the end of the reporting date.

The portion of a subsidiary's equity that is not attributable to the parent is treated as non-controlling interests and presented in the consolidated balance sheet within shareholders' equity. The portion of a subsidiary's prot or loss that is attributable to the non-controlling interests presented in the consolidated statement of comprehensive income as "minority interests". The portion of a subsidiary's losses that exceeds to the beginning non-controlling interests in the shareholders' equity, the remaining balance still reduces the non-controlling interests.

(3) Purchase of the minority stake in the subsidiary

The difference between the long-term equity investments costs acquired by the purchase of minority interests and the share of the net assets that the subsidiaries have to continue to calculate from the date of purchase or the date of consolidation in proportion to the new shareholding ratio is adjusted to the capital reserve, if the capital reserve is not sufficient, any excess is adjusted to retained earning. The difference between the disposal of the equity investment without losing control over its subsidiary and the disposal of the long-term equity investment corresponding to the share of the net assets of the subsidiaries from the date of purchase or the date of consolidation is as well.

(4) Treatment of loss of control of subsidiaries

When an enterprise loses control over investee because of disposing part of equity investment or other reasons, the remaining part of the equity investment should be re-measured at fair value at the date when losing control over the investee; the cash received in disposal of the equity investment and the fair value of remaining part of the equity investment, deducting net assets proportion calculated by original share percentage since the acquisition date and goodwill should be recorded in prot or loss for current period of disposal.

Other comprehensive income related with acquiree's equity held prior to acquisition date shall be transferred to investment income or loss for current period at acquisition date, besides there is other comprehensive income incurred by the changes of net assets or net liabilities due to the re-measurement of dened benet plan.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

6. Method of preparing consolidated nancial statements (Continued)

(5) Special treatment of step disposal until the loss of control of subsidiaries

The clauses, conditions and economic impact of step disposal until the loss of control of subsidiaries satises one or more criteria, the Group will consider these transactions as package transactions for the accounting treatment:

These transactions are entered simultaneously or in consideration of the mutual inuence;

These transactions can only achieve one complete business results;

The occurrence of a transaction is depending at least one of other transactions;

A transaction alone is not the economical; however, it becomes economical to consider together with other transactions.

In the separate nancial statements, the difference between the related long term equity investment for each disposal of equity interest and received consideration are recognized in the prot or loss in the current period.The difference between the disposal before the loss of control and the carrying amount of the long-term equity investment is recognized as other comprehensive income, and shall be transferred to the prot or loss for the current period when the entity loses the control.

In the consolidated nancial statements, the measurement of the remaining equity interest and treatment of the loss of disposal is in accordance to "Treatment of loss of control of subsidiaries as described above". The difference between the disposal consideration and the related share of net assets of the subsidiaries for each step disposal:

Related to a package transaction: Recognized as other comprehensive income. It is recognized in the prot or loss in the current period when the entity loses the control.

Not related to a package transaction: Recognized in capital reserve as equity. It shouldn't be recognized in the prot or loss in the current period when the entity loses the control.

7. Classication of joint arrangement and accounting treatment for joint operation

A joint arrangement is an arrangement of which two or more parties have joint control. The group's joint arrangement is divided into joint operation and joint venture.

(1) Joint operation

A joint operation is a joint arrangement whereby the group that have joint control of the arrangement have rights to the assets, and obligations for the liabilities.

A joint operator shall recognise in relation to its interest in a joint operation:

1. its assets, including its share of any assets held jointly;
2. its liabilities, including its share of any liabilities incurred jointly;
3. its revenue from the sale of its share of the output arising from the joint operation;
4. its share of the revenue from the sale of the output by the joint operation;
5. its expenses, including its share of any expenses incurred jointly.

(2) Joint ventures

A joint venture is a joint arrangement whereby the group that have joint control of the arrangement have rights to the net assets of the arrangement.

The accounting treatment is in accordance with the provisions of long-term investment under equity method.

8. Standard of determining cash and cash equivalents

Cash comprises cash on hand and deposits that can be readily drawn on demand. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignicant risk of change in value.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

9. Foreign currency transactions and translation of foreign currency statement

(1) Foreign currency transactions

If foreign currency transactions occur, they are translated into the amount of functional currency by applying the spot exchange rate at the dates of the transactions.

At the end of the period, foreign currency monetary items are translated using the spot exchange rate at the balance sheet date. Exchange differences arising from the differences between the spot exchange rate prevailing at the balance sheet date and those spot rates used on initial recognition or at the previous balance sheet date are recognised in prot or loss for the current period; foreign currency non-monetary items carried at historical cost continue to be measured at the amounts in functional currency translated using the spot exchange rates at the dates of the transactions; foreign currency non-monetary items carried at fair value are translated using the spot exchange rates at the date when the fair value was determined. Differences between the translated amount and the original amount of functional currency are included in prot or loss for the current period.

(2) Translation of foreign currency information

At the balance sheet date, when translating the foreign currency nancial statements of overseas subsidiaries, the assets and liabilities of the balance sheet are translated using the spot exchange rate at the balance sheet date; all items except for "undistributed prots" of the shareholders' equity are translated at the spot exchange rate.

The revenue and expenses in prot or loss are translated using at rates with reasonable approximation of the rates prevailing on the transaction dates.

All items of the statement of cash ows are translated using at rates with reasonable approximation of the rates prevailing on the transaction dates. As an adjustment item, the impact of exchange rate changes on cash amount is reected separately in the cash ow as "Effect of exchange rate changes on cash and cash equivalents".

Differences arising from the translation of nancial statements are separately presented as the "other comprehensive income" in the shareholders' equity of the balance sheet.

When disposing overseas operations and losing control, the "Translation reserve" related to the overseas operation presented in the shareholders' equity in the balance sheet shall be transferred together or as the percentage of disposing the overseas operation to prot or loss for the current period of disposal.

10. Financial instruments

Financial instruments refer to the contracts of forming enterprise nancial assets and other entities' nancial liabilities or equity instruments.

(1) Recognition and Derecognition of nancial instruments

A nancial asset or nancial liability is recognised when the Group becomes one party of nancial instrument contracts.

If one of the following conditions is met, the nancial assets are terminated:

• The right of the contract to receive the cash ows of nancial assets terminates;

• The nancial asset has been transferred, and is in accordance with the following conditions for derecognition.

If the obligations of nancial liability have been discharged in total or in part, derecognize all or part of it. If the Group (debtor) makes an agreement with the creditor to replace the current nancial liability of assuming new nancial liability which contract provisions are different in substance, derecognize the current nancial liability and meanwhile recognize as the new nancial liability.

If the nancial assets are traded routinely, they are recognised and derecognised at the transaction date.

(2) Classication and measurement of nancial assets

Financial assets are classied into the following three categories depends on the Group's business mode of managing nancial assets and cash ow characteristics of nancial assets: nancial assets measured at amortized cost, nancial assets at fair value through other comprehensive income and nancial assets at fair value through prot or loss.

Financial assets measured at amortised cost

The Group shall classify nancial assets that meet the following conditions and are not designated as nancial assets at fair value through prot or loss as nancial assets measured at amortized cost:

• The Group's business model for managing the nancial assets is to collect contractual cash ows;
• The terms of the nancial asset contract stipulate that cash ows generated on a specic date are only payments of principal and interest based on the amount of outstanding principal.

After initial conrmation, the real interest rate method is used to measure the amortized cost of such nancial assets. Prots or losses arising from nancial assets measured at amortized costs and not part of any hedging relationship are included in current prots and losses when the recognition is terminated, amortized or impaired according to the Actual Interest Rate Law.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

10. Financial instruments (Continued)

(2) Classication and measurement of nancial assets (Continued)

Financial assets at fair value through other comprehensive income

The Group shall classify nancial assets that meet the following conditions and are not designated as nancial assets measured at fair value and whose changes are recorded in current prots and losses as nancial assets measured at fair value through other comprehensive income:

• The Group's business model for managing the nancial assets is both to collect contractual cash ows and to sell the nancial assets;
• The terms of the nancial asset contract stipulate that cash ows generated on a specic date are only payments of principal and interest based on the amount of outstanding principal.

After initial recognition, nancial assets are subsequently measured at fair value. Interest, impairment losses or gains and exchange gains calculated by the effective interest rate method are recognised in prot or loss, while other gains or losses are recognised in other comprehensive gains. When derecognized, the accumulated gains or losses previously recognised in other comprehensive gains are transferred from other comprehensive gains and recorded in current prots and losses.

Financial assets at fair value through prot or loss

In addition to the above financial assets which are measured at amortized cost or at fair value a through other comprehensive income, the Group classifies all other financial assets as financial assets measured at fair value through profit or loss.When initial recognition, in order to eliminate or signicantly reduce accounting mismatches, the Group irrevocably designates some nancial assets that should have been measured at amortized cost or at fair value through other comprehensive gains as nancial assets at fair value through prot or loss.

After initial recognition, the nancial assets are subsequently measured at fair value, and the prots or losses (including interest and dividend income) generated from which are recognised in prot or loss, unless the nancial assets are part of the hedging relationship.

However, for non-tradable equity instrument investment, when initially recognized, the Group irrevocably designates them as nancial assets at fair value through other comprehensive gains. The designation is made on the basis of individual investment, and the relevant investment conforms to the denition of equity instruments from the issuer's point of view.

After initial conrmation, nancial assets are subsequently measured at fair value. Dividend income that meets the requirements is recognised in prot and loss, and other gains or losses and changes in fair value are recognised in other comprehensive gains. When derecognized, the accumulated gains or losses previously recognised in other comprehensive gains are transferred from other comprehensive gains to retained earnings.

The business model of managing nancial assets refers to how the group manages nancial assets to generate cash ow. The business model decides whether the source of cash ow of nancial assets managed by the Group is to collect contract cash ow, sell nancial assets or both of them. Based on objective facts and the specic business objectives of nancial assets management decided by key managers, the Group determines the business model of nancial assets management.

The Group evaluates the characteristics of the contract cash ow of nancial assets to determine whether the contract cash ow generated by the relevant nancial assets on a specic date is only to pay principal and interest based on the amount of unpaid principal. Among them, principal refers to the fair value of nancial assets at the time of initial conrmation; interest includes the consideration of time value of money, credit risk related to the amount of unpaid principal in a specic period, and other basic borrowing risks, costs and prots. In addition, the Group evaluates the terms and conditions of the contracts that may lead to changes in the time distribution or amount of cash ow in nancial asset contracts to determine whether they meet the requirements of the above contract cash ow's characteristics.

Only when the Group changes its business model of managing nancial assets, all the nancial assets affected shall be reclassied on the rst day of the rst reporting period after the business model changes, otherwise, nancial assets shall not be reclassied after initial conrmation.

In addition to accounts receivable without signicant nancing elements, nancial assets are measured at fair value when initially recognized. For nancial assets at fair value through prots and losses, the related transaction costs are directly recognized through prots and losses, and the related transaction costs of other types of nancial assets are included in the initial recognition amounts. For accounts receivable without signicant nancing elements, the Group shall initially measure with the transaction price according to the accounting policies in Note III, 25.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

10. Financial instruments (Continued)

(3) Classication and Measurement of nancial liabilities

On initial recognition, nancial liabilities are classied as: nancial liabilities at fair value through prot or loss (FVTPL), and nancial liabilities measured at amortized cost. For nancial liabilities not classied as at fair value through prot or loss, the transaction costs are recognised in the initially recognised amount.

Financial liabilities at fair value through prots and losses

Financial liabilities at FVTPL include transaction nancial liabilities and nancial liabilities designated as at fair value through prot or loss in the initial recognition. Such nancial liabilities are subsequently measured at fair value, all gains and losses arising from changes in fair value and dividend and interest expense relative to the nancial liabilities are recognised in prot or loss for the current period.

Financial liabilities measured at amortized cost

Other nancial liabilities are subsequently measured at amortized cost using the effective interest method; gains and losses arising from derecognition or amortization is recognised in prot or loss for the current period.

Financial guarantee contract

Financial guarantee contract are not related to nancial liabilities measured at fair value through prots and losses. They are measured at fair value on initial recognition, subsequently measured by the higher amount of the loss reserve of provisions determined by the expected credit losses model and the initial conrmation amount deducting the accumulated amortization.

Distinction between nancial liabilities and equity instruments

The nancial liability is the liability that meets one of following criteria:

• Contractual obligation to deliver cash or other nancial instruments to another entity.

• Under potential adverse condition, contractual obligation to exchange nancial assets or nancial liabilities with other parties.

• A contract that will or may be settled in the entity's own equity instruments and is a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity's own equity instruments.

• A derivative that will or may be settled other than by the exchange of a xed amount of cash or another nancial asset for a xed number of the entity's own equity instruments.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

If the group cannot unconditionally avoid fullling a contractual obligation by delivering cash or other nancial assets, the contractual obligation meets the denition of nancial liability.

If a financial instrument must or are able to be settled by the group's own equity instrument, the group should consider whether the group's equity instrument as the settlement instrument is a substitute of cash or other nancial assets or the residual interest in the assets of an entity after deducting all of its liabilities. If the former, the tool is the group's nancial liability; if the latter, the tool is the equity instrument of the group.

(4) Derivative nancial instruments and embedded derivatives

The Group's derivative nancial instruments include forward foreign exchange contracts, currency exchange rate contracts, interest rate swap contracts, foreign exchange option contracts, etc. Initially measured at fair value on the date of the derivative contract signed and are subsequently measured at fair value. A derivative with positive fair value shall be recognized as an asset, otherwise that with negative fair value shall be recognized as a liability. Any prot or loss arising from changes of fair value and not compliance with the accounting provision of hedge shall be recognized as prot or loss for current period.

The hybrid instrument contains an embedded derivative, if the main contract belongs to nancial asset, the hybrid instrument as a whole shall apply to the regulations of nancial assets. If the main contract is not belongs to nancial asset and the mixed instrument is not measured at fair value through profits and losses, the economic characteristics and risks of the embedded derivative and the main contract are not closely related, and under the same conditions with embedded derivative, the individual instrument as dened in line with derivatives, embedded derivatives are separated from the hybrid instrument as a separate derivative instrument. If the embedded derivative cannot be separately measured at the date of acquisition or the date subsequent to the nancial reporting date, then the hybrid instrument accounted for nancial assets or nancial liabilities at fair value through prot and loss.

(5) Fair value of nancial instruments

The recognization of fair value of nancial assets and nancial liability is stated as note III. 11.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

10. Financial instruments (Continued)

(6) Impairment of nancial assets

On the basis of expected credit losses, the Group performs impairment assessment on the following items and conrms the loss provision.

• nancial assets measured at amortized cost;
• debt investments at fair value through other comprehensive income;
• contract assets dened in Accounting Standards for Business Enterprises No. 14 - Revenue;
• lease receivables;
• Financial guarantee contract(except measured at fair value through prot or loss or formed by continuing involvement of transferred nancial assets or the transfer does not qualify for derecognition).

Measurement of expected credit losses

The expected credit losses refers to the weighted average of the credit losses of nancial instruments that are weighted by the risk of default. Credit loss refers to the difference between all contractual cash ows receivable from the contract and all cash ows expected to be received by the Group at the original effective interest rate, that is, the present value of all cash shortages.

The Group considers reasonable and basis information about past events, current situation and forecast of future economic situation to calculate expected credit losses. Expected credit losses are a probability-weighted estimate of the difference between the cash ows in accordance with the contract and the cash ows expect to receive by the risk of default. The Group separately measures the expected credit losses of nancial instruments at different stages. The credit risk on a nancial instrument has not increased signicantly since initial recognition, which is in the rst stage. The Group shall measure the loss allowance for that nancial instrument at an amount equal to 12-month expected credit losses. If the credit risk of nancial instruments has increased signicantly since the initial recognition, but no credit impairment has occurred, which is in the second stage. The Group shall measure the loss allowance for a nancial instrument at an amount equal to the lifetime expected credit losses. If the nancial instrument has occurred credit impairment since initial recognition, which is in the third stage, and the Group shall measure the loss allowance for a nancial instrument at an amount equal to the lifetime expected credit losses.

For nancial instruments with lower credit risk at the balance sheet date, the Group assumes that their credit risk has not increased signicantly since the initial recognition, and shall measure the loss allowance for that nancial instrument at an amount equal to 12-month expected credit losses.

The lifetime expected credit losses, refer to the expected credit losses caused by all possible defaults during the whole expected lifetime. The 12-month expected credit losses, refer to the expected credit losses caused by all possible defaults during the 12-month after balance sheet date(if the expected duration of nancial instrument is less than 12 months, then for the expected duration), which is part of the lifetime expected credit losses.

When measure the expected credit loss, the longest contract period (including the option of renewal) that the group needs to consider is the longest contract period the enterprise facing credit risk.

For nancial instruments in the rst stages, second stages and with lower credit risk, the Group calculates interest income on the basis of their book balances without deduction of impairment provisions and actual interest rates. For nancial instruments in the third stage, the Group calculates interest income according to their book balance minus the impairment provision and the actual interest rate.

For bills receivable, accounts receivable and contract assets, whether or not there are signicant nancing elements, the Group shall always measure the loss allowance for them at an amount equal to the lifetime expected credit losses.

According to the characteristics of credit risk, the group divides and combines bills receivable and accounts receivable, contract assets and leased receivables when a single nancial asset cannot assess the expected credit losses information at a reasonable cost. On the basis of the combination, the group calculates the expected credit losses. The basis of determining the combination is as follows:

1. Bills receivable

• Bill receivable group 1: Bank acceptance bills
• Bill receivable group 2: Trade acceptance bills

1. Accounts receivable

• Accounts receivable group 1: Amount receivables of related parties
• Accounts receivable group 2: Amount receivables of other customers

1. Contract assets

• Contract assets group 1: Engineering services
• Contract assets group 2: Others

For the accounts receivable divided into group, the group refers to the historical credit losses, combines the current situation with the forecast of future economic situation, compiles a comparison table between the age of accounts receivable and the lifetime expected credit losses rate to calculate the expected credit losses.

For the bills receivables and contract assets divided into group, the Group refers to historical credit losses, with the current situation and the forecast of future economic situation, calculates the expected credit losses through the exposure on default and the lifetime expected credit losses rate.

51	Sinopec Oileld Service Corporation Interim Report 2020

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

10. Financial instruments (Continued)

(6) Impairment of nancial assets (Continued)

Other receivables

According to the characteristics of credit risk, the group divides other receivables into group. On the basis of the combination, the group calculates the expected credit losses. The basis of determining the combination is as follows:

• Other receivables group 1: Amount receivables of imprest
• Other receivables group 2: Amount receivables of guarantee and deposits
• Other receivables group 3: Amount receivables of other customers

For other receivables a divided into group, the Group calculates the expected credit losses through the exposure on default and the lifetime expected credit losses rate.

Long-term receivables

Long-term receivables includes receivables for construction, installation receivables for providing services.

According to the characteristics of credit risk, the group divides receivables for construction, installation receivables for providing services into group. On the basis of the group, the group calculates the expected credit losses. The basis of determining the combination is as follows:

1. Long-termreceivables

• Long-termreceivables group 1：Receivables for construction
• Long-termreceivables group 2：Installation receivables for providing services
• Long-termreceivables group 3：Amount receivables of other customers

For receivables for construction and installation receivables for providing services, the Group refers to historical credit losses, with the current situation and the forecast of future economic situation, calculates the expected credit losses through the exposure on default and the lifetime expected credit losses rate.

For other receivables and long-term receivables divided into group expect receivables for construction and installation receivables for providing services, the Group calculates the expected credit losses through the exposure on default and the future 12-month or lifetime expected credit losses rate.

Debt investments, Other debt investments

For debt investments and other debt investments, the group calculates the expected credit losses through the exposure on default and the future 12-month or lifetime expected credit losses rate, according to the nature of the investment, the types of counterparty and risk exposure.

Assessment of Signicant Increase in Credit Risk

By comparing the default risk of nancial instruments on balance sheet day with that on initial recognition day, the Group determines the relative change of default risk of nancial instruments during the expected life of nancial instruments, to evaluate whether the credit risk of nancial instruments has increased signicantly since the initial recognition.

To determine whether credit risk has increased signicantly since the initial recognition, the Group considers reasonable and valid information, including forward-looking information, that can be obtained without unnecessary additional costs or efforts. Information considered by the Group includes:

• The debtor can't pay principal and interest on the expiration date of the contract;
• Serious deterioration of external or internal credit ratings (if any) of nancial instruments that have occurred or are expected to occur;
• Serious deterioration of the debtor's operating results that have occurred or are expected to occur;
• Changes in the existing or anticipated technological, market, economic or legal environment will have a signicant negative impact on the debtor's repayment capacity.

According to the nature of nancial instruments, the Group evaluates whether credit risk has increased signicantly on the basis of a single nancial instrument or a combination of nancial instruments. When assessing on the basis of the combination of nancial instruments, the Group can classify nancial instruments based on common credit risk characteristics, such as overdue information and credit risk rating.

If the delay exceeds 30 days, the Group determines that the credit risk of nancial instruments has increased signicantly.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

10. Financial instruments (Continued)

(6) Impairment of nancial assets (Continued)

The Group considers that nancial assets default in the following circumstances

• The debtor is unlikely to full pay its arrears to the group, and the assessment does not take into account recourse actions taken by the group, such as liquidation of collateral (if held); or
• Financial assets have delay more than 90 days.

Financial assets that have occurred credit impairment

On the balance sheet date, the Group assesses whether credit impairment has occurred in financial assets measured at amortized cost and debt investments measured at fair value through other comprehensive income. When one or more events adversely affect the expected future cash ow of a nancial asset occur, the nancial asset becomes a nancial asset with credit impairment. Evidence of credit impairment of nancial assets includes the following observable information:

• Signicant nancial difficulties occurs to the issuer or debtor;
• The debtor breaches any of the contractual stipulations, for example, fails to pay or delays the payment of interests or the principal, etc.;
• For economic or contractual considerations related to the nancial difficulties of the debtor, the Group grants concessions to the debtor that will not be made under any other circumstances;
• The debtor is probable to go bankrupt or undergo other nancial restructuring;
• Financial difficulties of issuer or debtor lead to the disappearance of nancial assets active market.

Presentation of expected credit losses reserve

In order to reect the changes happened to the credit risk of nancial instruments since the initial recognition, the Group recalculates the expected credit losses on each balance sheet day. The increase or reversal of the loss provision resulting therefrom is recognised as an impairment loss or gain in the current prot or loss. For nancial assets measured at amortized cost, loss provision offsets the carrying amount of the nancial assets shown on the balance sheet; for debt investments measured at fair value through other comprehensive income, the Group recognizes its loss provision through other comprehensive income and does not offset the nancial assets' carrying amount.

Write off

If the Group no longer reasonably expects that the nancial assets contract cash ow can be recovered fully or partially, the nancial assets book balance will be reduced directly. Such reduction constitute the derecognition of the nancial assets. What usually occurs when the Group determines that the debtor has no assets or sources of income to generate sufficient cash ows to pay the amount to be reduced. However, in accordance with the Group's procedures for recovering due payment, the nancial assets reduced may still be affected by enforcement activities.

(7) Transfer of nancial assets

Transfer of nancial assets refers to the transference or deliverance of nancial assets to the other party (the transferee) other than the issuer of nancial assets.

The Group derecognizes a nancial asset only if it transfers substantially all the risks and rewards of ownership of the nancial asset to the transferee; the Group should not derecognize a nancial asset if it retains substantially all the risks and rewards of ownership of the nancial asset.

The Group neither transfers nor retains substantially all the risks and rewards of ownership, shows as the following circumstances: if the Group has forgone control over the financial assets, derecognize the financial assets and verify the assets and liabilities; if the Group retains its control of the nancial asset, the nancial asset is recognized to the extent of its continuing involvement in the transferred nancial asset and recognize an associated liability is recognized.

53	Sinopec Oileld Service Corporation Interim Report 2020

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

10. Financial instruments (Continued)

(8) Offsetting nancial assets and nancial liabilities

When the Group has the legal rights to offset the recognized nancial assets and nancial liabilities and is capable to carry it out, the Group plans to net settlement or realize the nancial assets and pay off the nancial liabilities, the nancial assets and nancial liabilities shall be listed separately with the neutralized amount in balance sheet and are not allowed to be offset.

11. Fair value measurement

The fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Group measures the relevant assets or liability at fair value supposing the orderly transaction of asset selling or liability transferring incurring in a principal market of relevant assets or liabilities. In the absence of a principal market for the asset or liability, the group assumes that the transaction take place at the most advantageous market of relevant asset or liability. A principal market (or the most advantageous market) is the transaction market that the group can enter into at measurement date. The Group implements the hypothesis used by the market participants to realize the maximum economic benet in assets or liabilities pricing.

If there exists an active market for the nancial assets or nancial liabilities, the Group uses the quotation on the active market as its fair value. For those in the absence of active market, the Group uses valuation technique to recognize its fair value.

For non-nancial assets measured at fair value, the Group should consider the capacity of the market participants to put the assets into optimal use thus generating the economic benet, or the capacity to sell assets to other market participants who can put the assets into optimal use and generate economic benet.

The Group implements the valuation technique suitable for the current condition and supported by enough available data and other information, gives priority in use of relevant observable inputs, only the observable inputs cannot be obtained or impracticable before using unobservable inputs.

For the assets and liabilities measured at fair value or disclosure at nancial statements, fair value hierarchies are categorized into three levels as the lowest level input that is signicant to the entire fair value measurement. Level 1: inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities. Level 2: inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: inputs are unobservable inputs for the asset or liability.

At each balance sheet date, the group reviews the assets and liabilities recognized to be measured at fair value on the nancial statements to make sure whether conversion occurs between fair value hierarchies.

12. Inventories

(1) Category of inventory

Inventories include raw materials, work in progress, nished goods, turnover materials, costs to full a contract, etc.

(2) Determination of cost

Inventories are determined at the actual cost when acquired. Costs of raw materials, work in progress, nished goods, issuing goods are calculated in weighted average method when issued.

(3) Recognition of the net realizable value and provision for decline in value of inventories

Net realizable value is based on the estimated selling price deducting the estimated costs to be incurred when completed, the estimated selling expenses and related taxes amount. Recognition of the net realizable value is based on the veried evidences and considers the purpose of holding inventories and the effect of post balance sheet events.

At the balance sheet date, if the cost of closing inventory of the Group exceeds its net realizable value, provision for impairment of inventories is recognised. The Group usually recognises provision for impairment of inventories on individual inventory basis, if the factors caused the inventory previously written-down have disappeared, provision for impairment of inventories in the amount originally made is reversed.

(4) Inventory system

The Group adopts perpetual inventory system.

(5) Amortization methods of low-value consumables

Low-value consumables are charged to prot or loss when they are used.

Sinopec Oileld Service Corporation Interim Report 2020	54

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

13. Assets Held for sale and discontinued operations

(1) Category and measurement of non-current assets or the disposal group

Non-current assets and disposal groups are classified as held for sale if the Group recovers its book value by selling (including the exchange of non-monetary assets) rather than continuing to use it.

The aforesaid non-current assets do not include investment property measured with the basis of fair value; the biological assets measured with the basis of fair value less selling costs; the assets formed by employee benets; nancial assets and the right arising from deferred income tax assets and rights from insurance contracts.

Disposal groups refer to a set of assets disposed as a whole through selling and liabilities which are transferred by the transaction that directly related to those assets. In certain circumstance, disposal groups include the goodwill obtained through business combination.

Non-current assets and disposal groups that meet the following conditions are classied as held for sale: (1) The non-current assets or disposal groups are sold immediately under the current conditions. (2) The sale is likely to occur, that is, a decision has been made on a sale plan and a determined purchase commitment is made, and the sale is expected to be completed within one year. The loss of control over the subsidiaries due to the sales of investment in subsidiaries, no matter whether the Group retains part of the equity investment after selling investment in subsidiaries and losing control over the subsidiaries or not, the investment in subsidiaries shall be classied as held for sale in the separate nancial statements when it satises the conditions for category of held for sale; assets and liabilities shall be classied as held for sale in the consolidated nancial statements.

Disposal groups refer to a set of assets disposed as a whole through selling and liabilities which are transferred by the transaction that directly related to those assets. In certain circumstance, disposal groups include the goodwill obtained through business combination.

Non-current assets and disposal groups that meet the following conditions are classied as held for sale: (1) The non-current assets or disposal groups are sold immediately under the current conditions. (2) The sale is likely to occur, that is, a decision has been made on a sale plan and a determined purchase commitment is made, and the sale is expected to be completed within one year. The loss of control over the subsidiaries due to the sales of investment in subsidiaries, no matter whether the Group retains part of the equity investment after selling investment in subsidiaries and losing control over the subsidiaries or not, the investment in subsidiaries shall be classied as held for sale in the separate nancial statements when it satises the conditions for category of held for sale; assets and liabilities shall be classied as held for sale in the consolidated nancial statements.

If an entity has classied an asset (or disposal group) as held for sale, but the criteria of non-current assets held for sale no longer met, the Group shall cease to classify the asset (or disposal group) as held for sale and measure at the lower of:

1. its carrying amount before the asset (or disposal group) was classied as held for sale, adjusted for any depreciation, amortization or revaluations that would have been recognized had the asset (or disposal group) not been classied as held for sale, and
2. its recoverable amount

(2) Discontinued operation

A discontinued operation is a component of an entity that either has been disposed of, or is classied as held for sale and can be separately distinguished in operation and preparation of nancial statements, and

Represents a separate major line of business or geographical area of operations,

is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or

is a subsidiary acquired exclusively with a view to resale.

(3) Disclosure

In the balance sheet, the non-current assets classied as held for sale and the part of disposal group classied as held for sale should be presented as "held for sale assets", liabilities in disposal group classied as held for sale shall be presented as "held for sale liabilities".

Profit and loss from continuing operations and profit and loss from discontinued operations are separately presented in the income statement. For non-current assets or disposal groups held for sale that do not meet the denition of discontinued operations, the impairment loss, reversal amount, and disposal prot or loss are presented as continuing prots and losses. The operating prot or loss and disposal prot and loss such as impairment loss and reversal of discontinued operations are reported as operating prot and loss.

Disposal group that intends to end the use but not for sale and meet the conditions relating to discontinued operations, should be presented as discontinued operations from the date of its cessation of use.

55	Sinopec Oileld Service Corporation Interim Report 2020

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

14. Long-term equity investment

The group's long-term equity investments include equity investments in subsidiaries, joint ventures and associates. Joint ventures are the investees over which the Company is able to exercise joint control together with other venturers.

(1) Recognition of initial investment cost

For the long-term investment acquired from the business combination: the cost of the long-term investment acquired from the business combination under common control is recognized as the carrying amount of combined party's equity recorded in the ultimate controlling party's consolidated nancial statements at the combination date. For the long-term investment acquired from business combination not under common control, the cost of investment is equal to the combination cost.

For the long-term equity investment acquired in a manner other than business combination: the initial investment cost of the long-term equity investment acquired by payment in cash is recognized as the actual payment of the purchase price; the initial investment cost of the long-term equity investment acquired by issuing equity securities is recognized as the fair value of the equity securities issued.

(2) Subsequent measurement and recognition of related prot and loss

For the investment in subsidiaries, the long-term equity investment is accounted for using the cost method unless the investment meets the conditions for holding for sale; where the Group has joint control or signicant inuence over the investee, the long-term equity investment is accounted for using the equity method.

For long-term equity investment which is accounted for using the cost method, investment income is recognized in prot or loss for the current period as the cash dividend or prot announced and distributed, except for those cash dividend or prot which have already included in the actual payment or consideration of offer when the investment was made.

Under the equity method, where the initial investment cost of a long-term equity investment exceeds the Group's interest in the fair values of the investee's identiable net assets, no adjustment is made to the initial investment cost; where the initial investment cost is less than the Group's interest in the fair values of the investee's identiable net assets, the difference is charged to prot or loss for the current period, and the carrying amount of the long-term equity investment is adjusted accordingly.

For long-term equity investments accounted for using the equity method, the Company recognizes the investment income according to its share of net prot or loss of the investee, and the carrying amount of the long-term equity investments shall be adjusted accordingly; The carrying amount of the investment is reduced by the Company's share of the prot distribution or cash dividends declared by an investee; for changes in owners' equity of the investee other than those arising from its net prot or loss, other comprehensive income and prot distribution, the carrying amount of the long-term equity investment shall be adjusted and recognized to capital reserve.

If an entity has signicant inuences or can implement joint control over investees due to additional investment, the initial investment cost is recognized as the sum of the fair value of the original portion of equity investment and the additional investment cost under equity method. The difference between the fair value and carrying amount and cumulative changes in fair value recognized as other comprehensive income shall be recognized as current prot of loss under equity method.

If an entity loses joint control or has no signicant inuence over investees due to the elimination of parts of the equity investment, the surplus equity after disposal shall be recognized in accordance with "CASBE 22-Recognition and Measurement of Financial Instruments", and the difference between fair value and carrying amount should be recognized as prot or loss for current period. Other comprehensive income of original equity investment recognized under equity method shall be recognized in accordance with the same foundation used by the investees when dispose the relevant assets or liabilities directly in the termination of equity method. Other changes of owners' equity related to the original equity investment shall be transferred into prot or loss for current period.

If an entity loses control over investees due to the elimination of parts of the equity investment, the surplus owners' equity that are able to implement joint control or have signicant inuence over investees shall be measured at equity method and are deemed to be recognized under equity method since the acquisition date. The surplus owners' equity that are unable to implement joint control or have no signicant inuence over investees shall be processed in accordance with "CASBE 22-Recognition and Measurement of nancial instruments", and the difference between fair value and carrying amount at the day of loss of control shall be recognized as prot or loss for current period.

If the shareholding ratio of the Company is reduced due to the increase of capital of other investors, and thus the control is lost, but the joint control or signicant inuence can be exerted on the invested entity, the company should recognize net asset according to the new shareholding ratio. The difference between the original book value of the long-term equity investment corresponding to the decrease in the shareholding ratio should be included in the current prot and loss; then, according to the new shareholding ratio, the equity method is used to adjust the investment.

The group recognizes the unrealized prot or loss of intra-transaction between the joint ventures or associates that belongs to itself according to the proportion of the shares and recognizes the investment income or loss after offset. But the loss arising from the unrealized intra-transaction between the group and investees, which belongs to the impairment loss of assets transferred, cannot be offset.

(3) Basis for recognition of joint control or signicant inuence over an investee

Joint control refers to any joint venture party alone cannot control the production and operation activities of the joint venture, decisions related to the basic operating activities of joint venture should require the unanimous consent of the parties sharing control. In determining whether there is a joint control, the rst judge is to determine whether the relevant arrangement is controlled collectively by all the parties involved or the group of the parties involved. Secondly, and then determine whether the decisions related to the basic operating activities should require the unanimous consent of the parties involved. If the parties involved or the group of the parties involved must act consistently to determine the relevant arrangement, it is considered that the parties involved or the group of the parties involved control the arrangement. If two or more parties involve in the collectively control of certain arrangement, it shall not be considered as joint control. Protection of rights shall not be considered in determining whether there is joint control.

Signicant inuence is the power to participate in the nancial and operating policy decisions of the investee but is not control or joint control over those policies. When determining whether an investing enterprise is able to exercise control or signicant inuence over an investee, the effect of potential voting rights of the investee (for example, warrants and convertible debts) held by the investing enterprises or other parties that are currently exercisable or convertible shall be considered.

Sinopec Oileld Service Corporation Interim Report 2020	56

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

14. Long-term equity investment (Continued)

(3) Basis for recognition of joint control or signicant inuence over an investee (Continued)

When the Group, directly or indirectly through subsidiaries, owns 20% of the investee (including 20%) or more but less than 50% of the voting shares, it has signicant impact on the investee unless there is clear evidence to show that in this case the Group cannot participate in the production and business decisions of the investee, and cannot form a signicant inuence; when the Group owns 20% (excluding) or less of the voting shares, generally it is not considered to have a signicant impact on the investee, unless there is clear evidence to show that in this case the Group can participate in the production and business decisions of the investee so as to form a signicant inuence.

(4) Held-for-sale equity investment

Refer to note III, 13 for the relevant accounting treatment of the equity investment to joint ventures or associates all or partially classied as assets held for sale.

The surplus equity investments that are not classied as assets held for sale shall be accounted for using equity method.

The equity investment to joint ventures or associates already classied as held for sale no longer meets the conditions of assets held for sale shall be adjusted retroactively using equity method from the date of being classied as assets held for sale.

(5) Impairment test and Impairment provision

Refer to note III.20 for investment and the impairment provision of assets.

15. Fixed asset

(1) Conditions for conrmation of xed assets

Fixed assets represent the tangible assets held by the Group using in the production of goods, rendering of services and for operation and administrative purposes with useful life over one year.

Fixed assets are recognized when it is probable that the related economic benets will ow to the Company and the costs can be reliably measured.

The Group's xed assets are initially measured at the actual cost at the time of acquisition.

(2) Depreciation methods of xed assets

Fixed assets are depreciated using the straight-line method to allocate the cost of the assets to their estimated residual values over their estimated useful lives. Fixed assets start to be depreciated from the day the assets to the expected conditions for use and stop to be depreciated when the assets are derecognized and are divided into hold-for-sale as non-current assets. For those property, plant and equipment without considering impairment provision, the Group's annual depreciation rates are shown as follows according to the category, expected useful lives and estimated net residual values rates.

			Annual
Category	Useful years (year)	Residual rate %	depreciation rate %
Buildings	12-50	3	8.08-1.94
Oil engineering equipment and others	4-30	3	24.3-3.2

The xed assets that have been withdrawn for impairment provision shall also be deducted from the accumulative amount of the provision for impairment of xed assets that have been accrued.

(3) Refer to note III, 20 for the impairment testing and the impairment provision of xed assets.

57	Sinopec Oileld Service Corporation Interim Report 2020

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

15. Fixed asset (Continued)

(4) The Group reviews the useful life and estimated net residual value of a property, plant and equipment and the depreciation method applied annually at each of the period end.

The useful lives of property, plant and equipment are adjusted if their expected useful lives are different from the original estimates; the estimated net residual values are adjusted if they are different from the original estimates.

(5) Overhaul costs

The overhaul costs occurred in regular inspection of property, plant and equipment are recognised in the cost of property, plant and equipment if there is undoubted evidence to conrm that they meet the recognition criteria of xed assets, otherwise, the overhaul costs are recognised in prot or loss for the current period. Property, plant and equipment are depreciated during the intervals of the regular overhaul.

16. Construction in progress

Construction in progress is measured at actual cost. Actual cost comprises necessary project expenditure incurred during construction, borrowing cost that are eligible for capitalization and other necessary cost incurred to bring the xed assets ready for their intended use.

Construction in progress is transferred to xed assets when the assets are ready for their intended use.

For provision for impairment of construction in progress, refer to note III, 20.

17. Borrowing costs

(1) Recognition principle of capitalization of borrowing costs

For borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, they shall be capitalized and included in the cost of related assets; other borrowing costs are recognized as expenses and included in prot or loss when incurred. Capitalization of such borrowing costs can commence only when all of the following conditions are satised:

1. Expenditures for the asset incurred, capital expenditure includes the expenditure in the form of cash payment, transfer of non-cash assets or the interest bearing liabilities for the purpose of acquiring or constructing assets eligible for capitalization;
2. Borrowing costs incurred;
3. Activities relating to the acquisition, construction or production of the asset that are necessary to prepare the asset for its intended use or sale have commenced.

(2) Capitalization period of borrowing costs

Capitalization of such borrowing costs ceases when the qualifying assets being acquired, constructed or produced become ready for their intended use or sale. The borrowing cost incurred after that is recognised as an expense in the period in which they are incurred and included in prot or loss for the current period.

Capitalization of borrowing costs is suspended during periods in which the acquisition, construction or production of a qualifying asset is interrupted abnormally and when the interruption is for a continuous period of more than 3 months; the borrowing costs in the normally interrupted period continue to capitalize.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

17. Borrowing costs (Continued)

(3) Calculation of the capitalization rate and amount of borrowing costs.

The interest expense of the specic borrowings incurred at the current period, deducting any interest income earned from depositing the unused specic borrowings in bank or the investment income arising from temporary investment, shall be capitalized. The capitalization rate of the general borrowing is determined by applying the weighted average effective interest rate of general borrowings, to the weighted average of the excess amount of cumulative expenditures on the asset over the amount of specic borrowings.on the asset over the amount of specic borrowings.

During the capitalization period, exchange differences on foreign currency special borrowings shall be capitalized; exchange differences on foreign currency special borrowings shall be recognized as current prots or losses.

18. Intangible assets

Intangible assets include land use rights, patent rights, technology rights and contract revenue right and are measured at cost.

Intangible assets initially measured at cost. The intangible assets contributed by the State shareholders at the reorganization of the Company into a corporation are recognized based on the revaluated amounts as approved by the state-owned assets administration department. The group analyzes and judges the service life of intangible assets when obtained. An intangible asset with nite useful life shall be amortized over the expected useful life using method which can reect the expected realization of the economic benets related to the assets from when the intangible asset is available for use. An intangible asset whose expected realization can't be reliably determined is amortized using straight-line amortization; an intangible asset with indenite useful life shall not be amortized.

Amortization of an intangible asset with nite useful life is as follows:

Category	Useful life	Amortization	Notes
Land use rights	50	years	straight-line basis
software	5	years	straight-line basis
Patent rights	10	years	straight-line basis
Technology rights	10	years	straight-line basis
Contract revenue right		/	units of production basis

For an intangible asset with a nite useful life, the Group reviews the useful life and amortization method at the end of each nancial year, if it is different from the previous estimates, adjust the previous estimates and deal with it according to changes in accounting estimates.

The Group estimates an intangible asset can no longer bring future economic benets to the Group at the end of a period, the carrying amount of which should be reversed to prot or loss for the current period.

For the impairment method of intangible assets, refer to Note III, 20.

19. Research and development expenditure

Expenditure on an internal research and development project is classied into expenditure on the research phase and expenditure on the development phase.

Expenditure on the research phase is recognised in prot or loss when incurred.

Expenditure on the development phase is capitalized only when the Group can satisfy all of the following conditions: the technical feasibility of completing the intangible asset so that it will be available for use or sale; its intention to complete the intangible asset is to use or sell it; how the intangible asset will generate economic benets. Among other things, the Group can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; the availability of adequate technical, nancial and other resources to complete the development and the ability to use or sell the intangible asset; its ability to measure reliably the expenditure attributable to the intangible asset during its development phase. Otherwise, it is charged to prot or loss.

The research and development projects of the Group will enter into the development stage after meeting the above conditions and passing through the technical feasibility and economic feasibility studies and the formation of the project.

Capitalized expenditure on the development phase is presented as "development costs" in the balance sheet and shall be transferred to intangible assets when the project is completed to its intended use state.

59	Sinopec Oileld Service Corporation Interim Report 2020

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

20. Impairment of assets

The impairment of subsidiaries, associates and joint ventures in the long-term equity investments, xed assets, construction in progress, intangible assets, etc. (Excluding inventories, deferred income tax assets and nancial assets) are determined as follows:

At the balance sheet date, the Group determines whether there may be evidence of impairment, if there is any, the Group will estimate the recoverable amount for impairment, and then test for impairment. For goodwill arising from a business combination, intangible assets with indenite useful life and the intangible assets that have not yet ready for use are tested for impairment annually regardless of whether such evidence exists.

The recoverable amount of an asset is determined by the higher amount of fair value deducting disposal costs and net present value of future cash ows expected from the assets. The Group estimates the recoverable amount based on individual asset; for individual asset which is difficult to estimate the recoverable amount, the recoverable amount of the asset group is determined based on the asset group involving the asset. The identication of the asset group is based on whether the cash ow generated from the asset group is independent of the major cash inows from other assets or asset groups.

When the asset or asset group's recoverable amount is lower than its carrying amount, the Group reduces its carrying amount to its recoverable amount, the reduced amount is included in prot or loss, while the provision for impairment of assets is recognised.

In terms of impairment test of the goodwill, the carrying amount of the goodwill, arising from business combination, shall be allocated to the related asset group in accordance with a reasonable basis at acquisition date. Those that are difficult to be allocated to related assets shall be allocated to related asset group. Related assets or assets group refer to those that can benet from the synergies of business combination and are not larger than the group's recognized reporting segment.

When there is an indication that the asset and asset group are prone to impair, the group should test for impairment for asset and asset group excluding goodwill and calculate the recoverable amount and recognize the impairment loss accordingly. The group should test for impairment for asset or the asset group including goodwill and compare the asset or asset group's recoverable amount with its carrying amount, provision for impairment of assets shall be recognized when the recoverable amount of assets is lower than its carrying amount.

Once impairment loss is recognized, it cannot be reversed in subsequent accounting periods.

21. Long-term deferred expenses

The Group's long-term deferred expenses mainly include oil construction specic drilling equipment, logging equipment, cables and catalyst and evenly amortized on straight-line basis over the expected benecial period or over operation capacity. For the long-term deferred expense items that cannot benet in the accounting period, their amortized value is recognized through prot or loss.

22. Employee benets

(1) The scope of employee benets

Employee benets are all forms of consideration and compensation given by the Group in exchange for service rendered by employees or the termination of employment. Employee benets include short term employee benets, post-employment benets, termination benets and other long-term employee benets. Employee benets include benets provided to employees' spouses, children, other dependants, survivors of the deceased employees or to other beneciaries.

According to liquidity, employment benets are presented separately as "accrued payroll" and "long-term employment benets payable" in the balance sheet.

(2) Short-term employee benets

During the accounting period in which the employee render the related services, wages, bonuses, social security contributions(including medical insurance, injury insurance, maternity insurance, etc.) and house funding are recognized as liability and recognized as current prot of loss or assets related costs. If the short-term employee benets are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service and have signicant nancial impact, the liability shall be measured as the discounted amounts.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

22. Employee benets (Continued)

(3) Post-employment benets

Post-employment benet plans includes dened contribution plans or dened benet plans. Among them dened contribution plans, an entity pays xed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benets relating to employee service in the current and prior periods. Dened benet plans refers to post-employment benet expect dened contribution plans.Post-employment benet of outgoing business includes the basic pension insurance, unemployment insurance and annuity, which belongs to the dened contribution plans.

The basic pension insurance

The employees of the Group participate in the social basic pension insurance operated by the local labor and social security department. The group provides a monthly payment of pension insurance to the local community in basic pension insurance agency according to the local basic pension insurance base and rate. The local labor and social department are responsible for the payment of social pension to the retired employees after the employees retire.

Pension plan

In addition to the basic social pension insurance, the Group sets up annuity scheme according to the relevant policies of annuity system, employees may voluntarily participate in the annuity scheme. The Group accrues annuity at a certain percentage of the total wages, and the corresponding expense is recognized in prot or loss. In addition to this, the Group has no other signicant commitments of social security of employees.

During the accounting period in which the employees render services, the group should recognize the amount of pension insurance calculated with dened contribution plans as a liability, and prot or loss or assets associated costs.

(4) Termination benets

The Group recognises termination benets liabilities and prot or loss in the period in the earlier date of the followings: (i) The Group cannot unilaterally withdraws the termination plan or reduce the termination benets under the proposal, or (ii) The Group recognises the payment of the termination benets costs and expenses.

For the implementation of the internal retirement plan for employees, the economic compensation before the official retirement date is a termination benet. From the date when the employee stops providing the service to the normal retirement date, the wages of the internally retired employees and the social insurance premiums to be paid are included in the current period's prot or loss. Economic compensation after the official retirement date (such as normal pension) should be treated as post-employment benets.

(5) Other long-term employee benets

Other long-term employee benefits provided by employees of the Group to meet the conditions of a defined contribution plan, shall be treated in accordance with the relevant provisions of the above dened contribution plans.

23. Provisions

An obligation for additional losses of investees related to a contingency is recognised as a provision when all of the following conditions are satised:

1. The obligation is a present obligation of the Group;
2. It is probable that an outow of economic benets will be required to settle the obligation;
3. The amount of the obligation can be measured reliably.

Provisions are initially measured at the best estimate of the payment to settle the associated obligations and consider the relevant risk, uncertainty and time value of money. If the impact of time value of money is signicant, the best estimate is determined as its present value of future cash outow. The Group reviews the carrying amount of provisions at the balance sheet date and adjusts the carrying amount to reect the best estimate.

If the expenses for clearing of provisions is fully or partially compensated by a third party, and the compensated amount can be denitely received, it is recognised separated as asset. The compensated amount shall not be greater than the carrying amount of the predictive liability.

61	Sinopec Oileld Service Corporation Interim Report 2020

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

24. Share-based payment and equity instruments

(1) Category of share-based payment

Share-based payment is classied into cash-settledshare-based payment and equity-basedshare-based payment.

(2) Fair value of equity instrument

For the existence of an active market for options and other equity instruments granted by the group, the fair value is determined at the active market quotations. For options and other equity instruments with no active market, option pricing model shall be used to estimate the fair value of the equity instruments. Factors as follows shall be taken into account using option pricing models: A、the exercise price of the option B、the validity of the option C、 the current market price of the share D、the expected volatility of the share price E、predicted dividend of the share F、risk-free rate of the option within the validity period.

(3) Recognition of vesting of equity instrument based on the best estimate

During the waiting period at each balance sheet date, the Group shall make the best available estimate of the number of equity instruments expected to vest and shall revise that estimate, if necessary, if subsequent information indicates that the number of equity instruments expected to vest differs from previous estimates. On vesting date, the entity shall revise the estimate to equal the number of equity instruments that ultimately vested.

(4) Accounting treatment of implementation, modication and termination of share-based payment

Equity-settledshare-based payment is measured at the fair value of the equity instruments granted to employees. For the shares exercise immediately after the grant, the fair value of equity instrument at the grant date included in the relevant costs or expenses and increase in capital reserve accordingly. Within the vesting period, it will recognize the received service-related costs or expense and capital reserves for each reporting date based on the best estimate of the number of vested equity instruments on the grant date of the equity instruments value. After the vesting period, relevant costs or expenses and total shareholders' equity has been conrmed and will not be adjusted.

Cash-settledshare-based payment is calculated by the fair value of liabilities assumed in accordance with the Group's shares or other equity instruments. For those exercised immediately after the grant, the fair value of the liability included in the relevant costs or expenses cause a corresponding increase in liabilities. For each reporting date in the vesting period, the best estimate of the vesting conditions in accordance with the Group is committed to the fair value of the amount of debt service will recognize the received costs or expenses and the corresponding liabilities. At each reporting date and the settlement date prior to the settlement of liabilities, the fair value of the liability is re-measured through prot or loss.

When there is changes in Group's share-based payment plans, if the modication increases the fair value of the equity instruments granted, corresponding recognition of service increase in accordance with the increase in the fair value of the equity instruments; if the modication increases the number of equity instruments granted, the increase in fair value of the equity instruments is recognized as a corresponding increase in service achieved. Increase in the fair value of equity instruments refer to the difference between the fair values of the modied date. If the modication reduces the total fair value of shares paid or not conductive to the use of other employees share-based payment plans to modify the terms and conditions of service, it will continue to be accounted for in the accounting treatment, as if the change had not occurred, unless the Group cancelled some or all of the equity instruments granted.

During the vesting period, if the cancelled equity instruments (except for failure to meet the conditions of the non-market vesting conditions) granted by the Group to cancel the equity instruments granted amount treated as accelerated vesting of the remaining period should be recognized immediately in prot or loss, while recognizing the capital reserve. Employees or other parties can choose to meet non-vesting conditions but are not met in the vesting period, the Group will treat it as canceled equity instruments granted.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

25. Revenue

(1) General principle

The Group recognize revenue when the contract performance obligations have been fullled, the customer has gained control of the relevant goods and services.

If two or more performance obligations are included in the contract, the Group shall, on the commencement date of the contract, apportion the transaction price to the individual performance obligations according to the relative proportion of the individual selling prices of the commodities or services promised by the individual performance obligations, and measure the income according to the transaction price apportioned to the individual performance obligations.

If one of the following conditions is met, the Group shall be obliged to full its performance obligations within a certain period; otherwise, it shall be obliged to full its performance obligations at a certain point:

• The customer simultaneously receives and consumes the benets provided by the Group's performance as the Group performs; or

• The Group's performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or

• The commodities produced by the Group in the course of its performance are irreplaceable and the Group has the right to collect payments for the part of performance that has been completed so far during the entire contract period.

If the control of the relevant goods and services is transferred over time, the Group recognises revenue based on the progress of the performance obligations that have been fullled throughout the contract period.When the progress of the performance obligation cannot be reasonably measured, if the cost incurred is expected to be recovered, the revenue shall be recognized according to the amount of cost incurred, until the progress can be reasonably determined.

For obligations performed at certain point, the Group recognize revenue when the customer gains control of the relevant goods and services. When judging whether customers have gained control of the relevant goods and services, the Group will consider the following signs:

• The group has obtained the current collection rights, the customer has obtained the current payment obligation.

• The Group have transferred the legal ownership of the commodity to the customer, the customer has obtained the legal ownership of the commodity.

• The Group has transferred the physical commodity to the customer, the customer has possessed the commodity in kind.

• The Group has transferred the ownership and accompanying risk and payment of goods to the customer, the customer has obtained the ownership and accompanying risk and payment of goods.

• The customer has accepted the goods or services.

• Other signs that customers have acquired the control of goods

The Group has transferred goods or services to its customers and has the right to receive consideration (which depends on factors other than the passage of time) as its contract assets, which are deducted on the basis of expected credit losses (refer to Note III. 10 (6)). The unconditional (time-dependent) right to collect consideration from customers is shown as accounts receivable. The obligation to transfer goods or services to the customer after consideration received or receivable is shown as contract liabilities.

Contract assets and contract liabilities under the same contract shall be shown in net amount, if the net amount is debit balance, according to their liquidity, which shall be listed in the "contract assets" or "other non-current assets" project; if the net amount is credit balance, according to its liquidity, which shall be listed in the "contract liabilities" or "other non-current liabilities" project.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

25. Revenue (Continued)

(2) The specic methods

The specic methods for the Group's revenue recognition are as follows:

Provide drilling engineering, geophysical exploration services and construction services

The Group recognizes revenue during the progress of providing the services of drilling, geophysical exploration and construction, and the progress of fullling its obligations is determined by the proportion of executed projects to the total contract value. If two or more performance obligations are included in the contract, the Group shall, on the commencement date of the contract, apportion the transaction price to the individual performance according to the relative proportion of the individual selling prices of the services. The individual selling prices of the services according to the price sold by the Group for each service separately.

Revenue associated with daily rate contract is recognized when the services are provided.

Revenue from engineering services such as special down-hole operations and logging, cementing, etc. shall be recognized during the accounting period in which the services are provided and the related receivables are settled.

Provide construction services

The Group recognizes revenue during the progress of providing the services of construction. The progress of completed performance obligations of construction services is determined by input method and based on the proportion of incurred construction costs to the estimated total contract costs. If two or more performance obligations are included in the contract, the Group shall, on the commencement date of the contract, apportion the transaction price to the individual performance obligations according to the relative proportion of the individual selling prices of the commodities or services promised by the individual performance obligations, and measure the income according to the transaction price apportioned to the individual performance obligations.

When the progress of the performance obligation cannot be reasonably measured, if the cost incurred is expected to be recovered, the revenue shall be recognized according to the amount of cost incurred, until the progress can be reasonably determined.

Sale of goods

Revenue should be recognized at the point that the commodity is delivered to the customer and the customer has accepted the commodity, the customer gains control of the commodity.

or sales of goods with sales return clauses, the revenue recognized is limited to the amount of accumulated recognized revenue which is unlikely to result in signicant return, the Group recognizes the liabilities according to the expected amount of refund, at the same time, recognizes the carrying amount of the goods returned at the time of transfer deducting the estimated cost of recovering the goods as an asset(including the loss of the value of the returned commodity).

26. Contract cost

Contract costs include incremental costs incurred to obtain a contract and costs to full a contract.

Incremental costs incurred to obtain a contract refer to the costs (such as sales commissions) that the Group will not incur without obtaining contracts. If the cost is expected to be recovered, the Group shall recognizes it as an asset as contract acquisition cost. Expenditures incurred by the Group for the purpose of obtaining contracts, other than incremental costs expected to be recovered, are recorded in current prots and losses when incurred.

The costs to full a contract, which does not fall within the scope of other CASBE such as inventory and meets the following conditions at the same time, the Group recognizes it as an asset for the costs to full a contract:

• This cost is directly related to a current or expected contract, including direct labor cost, direct materials cost, manufacturing costs (or similar costs), costs clearly borne by the customer, and other costs incurred solely for the contract;

• This cost increases the group's future resources for fullling its performance obligations;

• The cost is expected to be recovered.

Assets recognized from contract acquisition cost and contract performance cost (hereinafter referred to as "assets related to contract cost") are amortized on the same basis as revenue recognition of goods or services related to the assets and are recorded in current prots and losses. If the amortization period does not exceed one year, the prots and losses of the current period shall be included when it occurs.

When the carrying amount of the assets related to contract cost is higher than the difference between the following two items, the Group shall make provision for impairment in excess of the assets and shall consider the impairment loss of the assets as follows:

• The residual consideration that the Group expect to obtain for transferring goods or services related to the asset;

• The cost estimated to be incurred for transferring the relevant goods or services.

The contract performance cost recognized as assets shall be listed in the "inventory" project, if the amortization period is not exceeding one year or a normal business cycle at initial recognition, and shall be listed in the "other non-current assets" project, if the amortization period exceeding one year or a normal business cycle at initial recognition.

The contract acquisition cost recognized as assets shall be listed in the "other current assets" project, if the amortization period is not exceeding one year or a normal business cycle at initial recognition, and shall be listed in the "other non-current assets" project, if the amortization period exceeding one year or a normal business cycle at initial recognition.

Sinopec Oileld Service Corporation Interim Report 2020	64

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

27. Government grants

A government grant shall be recognised only when the enterprise can comply with the conditions attaching to the grant and the enterprise can receive the grant.

If a government grant is in the form of a transfer of a monetary asset, the item is measured at the amount received or receivable. If a government grant is in the form of a transfer of a non-monetary asset, the item is measured at fair value, when fair value is not reliably determinable, the item is measured at RMB1 of nominal amount.

Government grant related to assets represents the government grant received for acquisition, construction and other ways of form of long term assets. Except for these, all are government grant related to income.

Regarding to the government grant not clearly dened in the official documents and can form long term assets, the part of government grant which can be referred to the value of the assets is classied as government grant related to assets and the remaining part is government grant related to income. For the government grant that is difficult to distinguish, the entire government grant is classied as government grant related to income.

The government grant related to assets reduce the book value of related assets, or recognized as deferred income and evenly amortised to prot or loss over the useful life of the related asset. For a government grant related to income, if the grant is a compensation for related expenses or losses already incurred, the grant is recognized immediately in prot or loss for the current period; if the grant is a compensation for related expenses or losses to be incurred in subsequent periods, the grant is recognized as deferred income, and then recognized in prot or loss over the periods in which the costs are recognized. Government grants measured at nominal amounts are directly recognized in through prot or loss. The Group adopts a consistent approach to the same or similar government grants' operations.

The government grants related to daily activities are recognized as other income or offset against relevant costs in accordance with the substance of economic business. Government grants that are not related to daily activities are recognized as non-operating income and expenses.

When recognized government grants need to be returned, the book value of the relevant assets should be adjusted if the assets' book value is written off at the initial recognition.If there is a balance of related deferred income, the book value of deferred income should be offset rst and the excess is recognized in prot or loss for the current period. In other cases, it is directly recognized in prot or loss for the current period.

28. Deferred tax assets and deferred tax liabilities

Tax expense comprises current tax expense and deferred tax expense. Current tax and deferred tax are included in prot or loss for the current period as tax expense, except for deferred tax related to transactions or events that are directly recognised in shareholders' equity which are recognised directly in shareholders' equity, and deferred tax arising from a business combination, which is adjusted against the carrying amount of goodwill.

Temporary differences arising from the difference between the carrying amount of an asset or liability and its tax base are recognised as deferred tax using the balance sheet liability method.

All the taxable temporary differences are recognised as deferred tax liabilities except for those incurred in the following transactions:

1. The initial recognition of goodwill, and the initial recognition of an asset or liability in a transaction which is neither a business combination nor affects accounting prot or taxable prot (or deductible loss) when the transaction occurs;
2. The taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, and the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The Group recognizes a deferred tax asset for the carry forward of deductible temporary differences, deductible losses and tax credits to subsequent periods, to the extent that it is probable that future taxable prots will be available against which the deductible temporary differences, deductible losses and tax credits can be utilized, except for those incurred in the following transactions:

1. The transaction is neither a business combination nor affects accounting prot or taxable prot (or deductible loss) when the transaction occurs;
2. The deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, the corresponding deferred tax asset is recognized when both of the following conditions are satised: it is probable that the temporary difference will reverse in the foreseeable future, it is probable that taxable prots will be available in the future, against which the temporary difference can be utilized.

At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, and their tax effect is reected.

At the balance sheet date, the Group reviews the carrying amount of a deferred tax asset. If it is probable that sufficient taxable prots will not be available in future periods to allow the benet of the deferred tax asset to be utilized, the carrying amount of the deferred tax asset is reduced. Any such reduction in amount is reversed when it becomes probable that sufficient taxable prots will be available.

65	Sinopec Oileld Service Corporation Interim Report 2020

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

29. Leases

(1) Identication of leases

On the contract start date, the Group, as the lessee or lessor, evaluates whether the client in the contract is entitled to obtain almost all the economic benets arising from the use of the identied assets during the period of use, and has the right to dominate the identied asset. If one of the parties in the contract surrenders the right to control the use of one or more identied assets within a certain period in exchange for consideration, the Group considers the contract to be a lease or includes a lease.

(2) As a lessee

At the commencement date, the Group shall recognize its right to use the leased asset over the lease term as the right-of-use asset, and shall recognize the present value of the lease payments that have not been paid as lease liabilities, except for short-term leases and leases for which the underlying asset is of low value.

For the accounting policies of Right-of-use assets, refer to note III, 30.

At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments included in the measurement of the lease liability are made up of xed payments and in-substance xed payments less any lease incentives receivable, variable payments based on an index or rate, and amounts expected to be payable under a residual value guarantee. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payment of penalties for terminating a lease, if the lease term reects the Group exercising the option to terminate. The Group calculates the interest expense of the lease liability for each period of the lease term based on the constant periodic interest rate and recognizes it in prot or loss for the current period. The variable lease payments that are not included in the measurement of the lease liabilities are recognized in prot or loss when incurred.

Short-term leases

The Group dening a short-term lease as a lease that, at the commencement date, has a maximum possible term of 12 months or less without purchase option.

During the lease term, the relevant cost shall be included in asset cost or current prot and loss on straight-line basis. The contingent rents shall be recognized in prot or loss when occurred.

For short-term leases, the Group adopted a simplied method for the types of leased assets which are meet the short-term lease conditions.

Leases of low-value assets

The Group recognizes a lease with a low value when the individual leased assets are new assets as lease of low-value assets.

For leasing of low-value assets, the Group adopted a simplied method according to the specic conditions of each lease.

During the lease term, the relevant cost shall be included in asset cost or current prot and loss on straight-line basis. The contingent rents shall be recognized in prot or loss when occurred.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

29. Leases (Continued)

(3) As a lessor

A lease is classied as a nance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classied as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset.

Finance leases

In nance leases, at the beginning date of lease period, the Group will recognize the net lease investment as the recorded value of the nance lease receivables. The net lease investment is the sum of unguaranteed residual value and the present value of the lease receipts that have not been received at the commencement date are discounted according to the interest rate embedded in the lease. As a lessor, the Group calculates and recognizes interest income for each period of the lease at a xed periodic interest rate. The variable lease payments obtained by the Group as the lessor that are not included in the measurement of the net lease investment are counted in the current prot and loss when they actually occur.

The derecognition and impairment of nancial lease receivables shall be recognized in accordance with "CASBE 22-Recognition and Measurement of Financial Instruments" and "Accounting Standards for Business Enterprises No. 23 - Finance Asset Transfer".

Finance leases

In nance leases, at the beginning date of lease period, the Group will recognize the net lease investment as the recorded value of the nance lease receivables. The net lease investment is the sum of unguaranteed residual value and the present value of the lease receipts that have not been received at the commencement date are discounted according to the interest rate embedded in the lease. As a lessor, the Group calculates and recognizes interest income for each period of the lease at a xed periodic interest rate. The variable lease payments obtained by the Group as the lessor that are not included in the measurement of the net lease investment are counted in the current prot and loss when they actually occur.

The derecognition and impairment of nancial lease receivables shall be recognized in accordance with "CASBE 22-Recognition and Measurement of Financial Instruments" and "Accounting Standards for Business Enterprises No. 23 - Finance Asset Transfer".

(4) Sublease

When the Group is a sub-lessor, it classies the sublease based on the right-of-use assets generated by the original lease. If the original lease was a short-term lease and the Group simplied the original lease, the sublease is classied as an operating lease.

(5) Sale and leaseback transactions

The Group shall apply the requirements for determining when a performance obligation is satised in Accounting Standards for Business Enterprises No. 14 - Revenue to determine whether the transfer of an asset is accounted for as a sale of that asset.

If the transfer of assets in the sale and leaseback transactions is a sale, the Group, as the lessee, shall measure the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained by the seller-lessee. Accordingly, the Group shall recognize only the amount of any gain or loss that relates to the rights transferred to the lessor.. The lessor accounts for asset purchases in accordance with other applicable CASBE and performs accounting for asset leases in accordance with this standard.

If the transfer of assets in the sale and leaseback transactions is not a sale, the Group, as the lessee, shall continue to recognize the transferred asset and shall recognize a nancial liability equal to the transfer proceeds in accordance with CASBE 22-Recognition and Measurement of Financial Instruments. If the Group as the lessor, not continue to recognize the transferred asset, then will recognize a nancial asset equal to the transfer proceeds in accordance with "CASBE 22-Recognition and Measurement of Financial Instruments".

67	Sinopec Oileld Service Corporation Interim Report 2020

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

30. Right-of-use assets

(1) Conditions for conrmation of right-of-use assets

The right-of-use asset refers to the right of the Group as a lessee to use the leased asset over the lease term.

At the commencement date, the right-of-use asset is initially measured at cost. The cost includes: the initial measurement amount of the lease liability; the lease payment paid on or before the start of the lease period, if there is a lease incentive, deduct the relevant amount of the lease incentive that has been enjoyed; the initial direct expenses; the costs of demolishing and removing leased assets as a lessee, restoring the site where the leased assets are located, or restoring the leased assets to the state agreed in the lease terms. As a lessee, the Group recognizes and measures the costs of demolition and restoration in accordance with Accounting Standards for Business Enterprises No. 13-Contingencies. Subsequent adjustments to any remeasurement of lease liabilities.

(2) Depreciation methods of right-of-use assets

The Group uses the straight-line method to depreciate the right-of-use assets. If it is reasonable to determine the ownership of the leased asset by the end of the lease term, the Group shall depreciate the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise, the Group shall depreciate the right-of-use asset during the shorter period between the lease term and the remaining useful life of the leased asset.

(3) Refer to note III, 20 for the impairment testing and the impairment provision of right-of-use assets.

31. Safety costs

The Group accrued production safety fund according to the national regulations for high-risk industry. The production safety fund accrued is charged to the cost of related products, and recorded in the specic reserve. As production safety fund is utilised, if it is of expenditure nature, the cost is directly charged against the specic reserves. If it is used for construction, the cost being used is recorded in construction in progress, and transferred to xed assets when it is ready for its intended use. Meanwhile, the cost of xed asset is offset against the specic reserves and accumulated depreciation of the same amount is recognised, then the xed asset is no longer depreciated in its useful life.

32. Repurchase of shares

The repurchased shares prior to cancellation or transfer of shares are managed as treasury stocks, all costs incurred from repurchase of shares are recognized as the costs of treasury stocks. Considerations and transaction fee incurred from the repurchase of shares shall lead to the elimination of shareholders' equity and does not recognize prot or loss when shares of the company are repurchased, transferred or cancelled.

The difference between the actual amount received and the carrying amount of the treasury stock are recognized as capital reserve when the treasury stocks are transferred, if the capital reserve is not sufficient to be offset, the excess amount shall be recognized to offset surplus reserve and redistributed prot. When the treasury stocks are cancelled, the capital shall be eliminated according to the number of shares and par value of cancellation shares, the difference between the actual amount received and the carrying amount of the treasury stock are recognized as capital reserve, if the capital reserve is not sufficient to be offset, the excess amount shall be recognized to offset surplus reserve and redistributed prot.

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Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

33. Signicant accounting judgments and estimates

Estimates as well as underlying assumptions involved are reviewed on an ongoing basis, based on historical experience and other factors, including reasonableness of estimation about future events.

The signicant accounting estimates and key assumptions that have a signicant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next nancial year are listed as follows:

(1) Classication of nancial assets

The Group's major judgments in determining the classication of nancial assets include the analysis of business models and the characteristics of contract cash ows.

At the level of nancial asset group, the Group determines the business model for managing nancial assets, taking into account factors such as the way to evaluate and report nancial assets performance to key managers, the risks affecting nancial assets performance and their management methods, and the way in which relevant business managers are paid.

In assessing whether the contract cash ow of nancial assets is consistent with the basic lending arrangements, the Group has the following judgments: whether the principal's time distribution or amount may change during the lifetime for early repayment and other reasons; whether the interest only includes the time value of money, credit risk, other basic lending risks and the consideration of cost and prot. For example, does the amount of advance payment only reect the unpaid principal and interest based on the unpaid principal, and reasonable compensation paid for the early termination of the contract.

(2) Measurement of Expected Credit Loss of Receivables

The Group calculates the expected credit losses of accounts receivable by default risk exposure and expected credit losses rate of accounts receivable, and determines the expected credit losses rate based on default probability and default loss rate. In determining the expected credit losses rate, the Group uses internal historical credit loss and other data, and adjusts the historical data with current situation and forward-looking information. In considering forward-looking information, the indicators used by the Group include the risks of economic downturn, external market environment, technological environment and changes in customer conditions. The Group regularly monitors and reviews assumptions related to the calculation of expected credit losses.

(3) Provision for diminution in value of inventories

The net realisable value of inventories is under management's regular review, and as a result, provision for diminution in value of inventories is recognised for the excess of inventories' carrying amounts over their net realisable value. When making estimates of net realisable value, the Company takes into consideration the use of inventories held on hand and other information available to form the underlying assumptions, including the inventories' market prices and the Company's historical operating costs. The actual selling price, the costs of completion and the costs necessary to make the sale and relevant taxes may vary based on the changes in market conditions and product sale ability, manufacturing technology and the actual use of the inventories, resulting in the changes in provision for diminution in value of inventories. The net prot or loss may then be affected in the period when the provision for diminution in value of inventories is adjusted.

(4) Depreciation and amortisation of assets such as xed assets, intangible assets and long-term prepaid expenses

Fixed assets, intangible assets and long-term prepaid expenses are depreciated and amortised over their useful lives after taking into account residual value. The estimated useful lives of the assets are regularly reviewed to determine the depreciation and amortisation costs charged in each reporting period. The useful lives of the assets are determined based on historical experiences of similar assets and the estimated technical changes, the amortisation periods for the long-term prepaid expenses are determined by the Company in accordance with the expected benet period of each expense. If there have been signicant changes in the factors used to determine the depreciation or amortisation, the rate of depreciation or amortisation is revised.

69	Sinopec Oileld Service Corporation Interim Report 2020

Section VIII Financial Reports

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

33. Signicant accounting judgments and estimates (Continued)

(5) development costs

When determining the amount of capitalization, management must make assumptions about the expected cash ow of assets in the future, the discount rate to be applied and the expected benet period.

(6) Revenue recognition

The Group recognize the revenue related to the provision of oileld service over a period of time. The recognition of the relevant revenue and prots depends on the Group's estimates of the contract results and the performance progress. The Group uses the expected value method or the most likely amount to estimate the total revenue of the contract, and evaluates the estimated total cost of the contract based on historical experience and construction plan. In view of the construction service contract cycle may span multiple accounting periods, the Group will review and revise the contract revenue and contract cost estimation in the budget periodically as the contract's completion schedule. If the total revenue and total cost actually incurred are higher or lower than the estimated value of management, it will affect the revenue and prot recognition amount of the Group in the future.

(7) Pending claims

For the legal proceedings and claims, the Group derive the best estimate of committed losses to the related current obligations based on legal advices consulted and according to the process and solutions of the legal proceedings and claims. The estimated losses will change during the development of the legal proceedings and claims.

(8) Deferred income tax assets

Deferred tax assets relating to certain temporary differences and tax losses are recognised as management considers it is probable that future taxable prot will be available against which the temporary differences or tax losses can be utilised. The management needs signicant judgment to estimate the time and extent of the future taxable prots and tax planning strategy to recognise the appropriate amount of deferred income tax assets. Where the expectation is different from the original estimate of the future taxable prots, such differences will impact the recognition of deferred tax assets and taxation in the years when the estimates are changed.

(9) Taxation

There are various uncertainties on interpretation of the complicated tax jurisdictions (including related tax incentive regulations) and time and extent of the future taxable revenue. Regarding to various international business relationship and current contract complication, there may be adjustment to the recognized taxable income and expenses in the future due to the differences arising from actual operating results and its assumptions or estimated changes in the future. The Group has reasonably estimated the provision of taxation from the possible results of the tax authorities where the Group operates. Such provision of taxation is based on different factors, such as previous tax audit experience and the tax jurisdiction interpretation from taxable entity and related tax authorities. Since the Group operates in different tax regions, different interpretation may be resulted from various events.

34. Changes in signicant accounting policies and accounting estimates

(1) Changes in signicant accounting policies

The group has no signicant changes in accounting policies this year.

(2) Changes in accounting estimates

The group has no signicant changes in accounting estimates this year.

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Section VIII	Financial Reports
IV. TYPES OF TAXES AND TAX RATES
1. Major taxes and tax rate
Type of taxes		Tax base	Tax rate%
Value added tax		Taxable value added(for the calculation of the output VAT and	3, 6, 9 or 13
		deducted by the input VAT)
Urban maintenance and construction tax	Turnover tax payable	1, 5, 7
Educational surtax		Turnover tax payable	5
Income tax		Tax payable	25
Corporate income tax:
Taxpayer			Tax rate%
Sinopec Shengli Petroleum Engineering Company Limited	15
Sinopec Zhongyuan Petroleum Engineering Company Limited	15
Sinopec Jianghan Petroleum Engineering Company Limited	15
Sinopec North China Petroleum Engineering Corporation	15
Sinopec South West Petroleum Engineering Company Limited	15
Sinopec Zhongyuan Oil Engineering Design Company Limited	15
Sinopec Jianghan Oil Engineering Design Company Limited	15
Sinopec Oil Engineering Design Company Limited		15
Sinopec Henan Oil Engineering Design Company Limited	15
Sinopec Oil Engineering geophysical Company Limited	15

2. Tax incentives and approval documents

(1) Consumption tax refund of self-used rened oil

In accordance to "Notication of refund of consumption tax for own use rened oil during oil (gas) eld production" (Cai Shui [2011] No. 7)) issued by MOF and State Taxation Administration, from 1 January 2009, the oil (gas) eld enterprises will be refunded the consumption tax after the actual payment of temporary consumption tax paid for the purchases of rened oil used in the exploitation of crude oil.

(2) Corporate income tax

In accordance to "Notication of tax policy issues on thorough implementation of western development strategy issued by MOF and State Taxation Administration"(Cai Shui[2011]No. 58) and "Proclamation of corporate income tax issues on thorough implementation of western development strategy issued by State Taxation Administration"([2012]No. 12), a subsidiary of the Group, Sinopec Southwest Oil Engineering Company Limited has enjoyed a preferential western development corporate income tax rate at 15% conrmed by "Permission of agreement that Sinopec Southwest Oil Engineering Company Limited enjoys preferential western development corporate income tax rate" (Cuan Guo Shui Zhi Fa[2014]No. 8) issued by SiChuan province state taxation bureau directly-managed branch bureau.

In accordance to "PRC Enterprise Income Tax Law"and "Notice on Implementing Income Tax Preferences for High-tech Enterprises"(Circular〔2009〕No.

1. issued by State Taxation Administration, Sinopec Shengli Petroleum Engineering Company Limited, Sinopec Zhongyuan Petroleum Engineering Company Limited, Sinopec Jianghan Petroleum Engineering Company Limited, Sinopec North China Petroleum Engineering Corporation, Sinopec Oil Engineering geophysical Company Limited, Sinopec Zhongyuan Oil Engineering Design Company Limited, Sinopec Oil Engineering Design Company Limited, Sinopec Jianghan Oil Engineering Design Company Limited and Sinopec Henan Oil Engineering Design Company Limited have obtained High-tech enterprise accreditation and enjoy a preferential income tax rate at 15%.

71	Sinopec Oileld Service Corporation Interim Report 2020

Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Cash at bank and on hand

		As at 30 June 2020		As at 31 December 2019
	Original		Exchange	Amount	Original	Exchange	Amount
Items	currency		rate	(RMB)	currency	rate	(RMB)
Cash on hand:	-		-	11,861	-	-	6,792
RMB	-		-	173	-	-	13
USD	484	7.0795	3,425	417	6.9762	2,908
EUR	12	7.9610	95	33	7.8155	257
BRL	28	1.2893	36	48	1.7280	83
DZD	22,669	0.0549	1,245	9,553	0.0585	559
SAR	157	1.8874	297	123	1.8597	228
KWD	85	22.9705	1,963	6	22.9820	139
KZT	35,130	0.0174	612	41,192	0.0183	754
XAF	-		-	-	19,558	0.0119	233
BOB	118	1.0245	121	538	1.0096	544
Others	-		-	3,894	-	-	1,074
Cash at banks:	-		-	2,024,268	-	-	1,659,092
RMB	-		-	303,485	-	-	279,378
USD	130,365	7.0795	922,921	103,250	6.9762	720,291
EUR	210	7.9610	1,670	210	7.8155	1,640
BRL	209	1.2893	269	100	1.7280	173
DZD	671,981	0.0549	36,892	1,010,253	0.0585	59,116
SAR	96,400	1.8874	181,942	44,748	1.8597	83,218
KWD	14,561	22.9705	334,470	11,583	22.9820	266,192
KZT	595,923	0.0174	10,387	1,641,129	0.0183	30,049
XAF	-		-	-	1,454,689	0.0119	17,353
BOB	30,729	1.0245	31,483	14,968	1.0096	15,112
KES	130,519	0.0665	8,680	108,152	0.0688	7,445
Others	-		-	192,069	-	-	179,125
Among cash at bank：Related party	-		-	901,733	-	-	805,461
Including: RMB	-		-	77,023	-	-	55,388
USD	73,207	7.0795	518,272	73,351	6.9762	511,713
SAR	24	1.8874	45	24	1.8597	44
KWD	13,209	22.9705	303,423	10,110	22.9820	232,341
EUR	178	7.9610	1,414	178	7.8155	1,388
Others	-		-	1,556	-	-	4,587
Other monetary funds:	-		-	3,795	-	-	2,953
RMB	-		-	892	-	-	50
AED	131	1.9275	253	131	1.9003	250
DZD	8,444	0.0549	463	8,444	0.0585	494
Others	-		-	2,187	-	-	2,159
Total:	-		-	2,039,924	-	-	1,668,837
Amount deposited abroad:	-		-	1,746,680	-	-	1,379,650

At 30 June 2020, the Group's restricted cash such as margin deposit is RMB41,754 thousand (At 31 December 2019: RMB18,105 thousand), including

frozen deposit is RMB8,244 thousand (At 31 December 2019: RMB15,267 thousand), there is no deposits pledged to banks for issuing bankers' acceptances.

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Bills receivable

		As at 30 June 2020		As at 31 December 2019
		Provision			Provision
	Ending	for diminution	Carrying	Ending	for diminution	Carrying
Type	balance	in value	amount	balance	in value	amount
Bank acceptance bills	-	-	-	500	-	500
Trade acceptance bills	-	-	-	-	-	-
Total	-	-	-	500	-	500

Notes：Management does not expect that the bills receivable will be any signicant losses from default by banks or other drawers.

3. Accounts receivable

(1) The details of accounts receivable is as follows:

Category	As at 30 June 2020	As at 31 December 2019
Within 1 year	9,905,170	10,645,810
Including: No overdue	7,271,259	9,386,890
Overdue within 1 year	2,633,911	1,258,920
Subtotal of within 1 year	9,905,170	10,645,810
1 - 2 years	1,291,197	1,416,599
2 - 3 years	550,143	563,666
3 - 4 years	316,480	736,767
4 - 5 years	1,117,882	716,238
Over 5 years	385,630	431,265
Subtotal:	13,566,502	14,510,345
Less: provision for bad debts	2,403,609	2,513,990
Total:	11,162,893	11,996,355

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Accounts receivable (Continued)

(2) Accounts receivable disclosed by bad debt provision:

			As at 30 June 2020									As at 31 December 2019
	Cost			Bad debt provision					Cost			Bad debt provision
						Expected										Expected
		Proportion					credit	Net carrying					Proportion			credit	Net carrying
Type	Amount	(%)		Amount		loss (%)	amount			Amount		(%)		Amount	loss (%)	amount
Provision made on
an individual basis	991,577	7.31	991,577		100.00		-		1,082,918		7.46	1,082,918	100.00	-
Provision for bad and
doubtful debts
collectively:	12,574,925	92.69	1,412,032		11.23	11,162,893		13,427,427		92.54	1,431,072	10.66	11,996,355
Including:
Related party
grouping	4,110,069	30.30	71,575		1.74	4,038,494		4,885,648		33.67	99,509	2.04	4,786,140
Third party
grouping	8,464,856	62.39	1,340,457		15.84	7,124,399		8,541,779		58.87	1,331,563	15.59	7,210,215
Total	13,566,502	100.00	2,403,609		17.72	11,162,893		14,510,345		100.00	2,513,990	17.33	11,996,355
Provision made on an individual basis
							As at 30 June 2020
														Expected
Name				Amount		Bad debt provision	credit loss(%)		Provision reason
Entity A			970,310			970,310			100.00 The debtor is short of funds
																and the funds have not been
																recovered for a long time.
Entity B			16,879			16,879			100.00 The debtor is short of funds
																and the funds have not been
																recovered for a long time.
Entity C			403			403			100.00 The debtor is short of funds
																and the funds have not been
																recovered for a long time.
Entity D			3,985			3,985			100.00 The debtor is short of funds
																and the funds have not been
																recovered for a long time.
Total			991,577			991,577			100.00	/
Provision for bad and doubtful debts collectively:
Provision for bad debt as at 30 June 2020
					Related party grouping					Third party grouping
As at 30 June 2020							Bad debt	Expected				Bad debt	Expected
			Amount		provision credit loss(%)	Amount		provision credit loss(%)
Within 1 year				3,501,726			15,263			0.44		6,371,866			109,488	1.72
Including:
No overdue				2,822,053			8,466			0.30		4,449,030			13,346	0.30
Overdue within 1 year			679,673			6,797			1.00		1,922,836			96,142	5.00
1 - 2 years				447,363			16,965			3.79		743,039			188,425	25.36
2 - 3 years				89,322			7,216			8.08		411,438			204,802	49.78
3 - 4 years				27,793			5,705			20.53		252,765			201,224	79.61
4 - 5 years				23,017			9,748			42.35		320,966			271,736	84.66
Over 5 years				20,848			16,678			80.00		364,782			364,782	100.00
Total				4,110,069			71,575			1.74		8,464,856	1,340,457	15.84

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Accounts receivable (Continued)

1. Accounts receivable disclosed by bad debt provision: (Continued)
   Provision for bad debt as at 31 December 2019

	Related party grouping		Third party grouping
		Bad debt	Expected		Bad debt	Expected
As at 31 December 2019	Amount	provision	credit loss(%)	Amount	provision	credit loss(%)
Within 1 year	4,232,756	15,005	0.35	6,357,594	85,950	0.95
Including:
No overdue	3,903,164	11,709	0.30	5,483,724	16,452	0.30
Overdue within 1 year	329,592	3,296	1.00	873,870	43,693	5.00
1 - 2 years	416,992	21,308	5.11	814,767	207,480	25.46
2 - 3 years	121,794	12,507	10.27	435,209	221,626	50.92
3 - 4 years	58,920	14,491	24.59	232,752	186,583	80.16
4 - 5 years	27,248	13,848	50.82	298,129	252,401	84.66
Over 5 years	27,938	22,350	80.00	403,328	403,328	100.00
Total	4,885,648	99,509	2.04	8,541,779	1,331,563	15.59

(3) Provision, recovery or reversal of bad debt

	Bad debt provision
As at 31 December 2019	2,513,990
Provision	213,945
Other increase or other decrease	5,373
Recovery or reversal	175,799
Written-off	153,900
As at 30 June 2020	2,403,609

(4) Accounts receivable written off during this year

Name	Reasons for written off	Amount
Entity A	Unable to receive	38,104
Entity B	Unable to receive	47,782
Entity C	Unable to receive	41,755
Entity D	Unable to receive	25,217
Others	Unable to receive	1,042
Total	/	153,900

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Accounts receivable (Continued)

(5) The ve largest accounts receivable are analyzed as follows:

		Percentage of total	Ending balance of
Company Name	Amount	accounts receivable %	bad debt provision
Entity A	3,558,162	26.23	43,708
Entity B	1,108,260	8.17	41,969
Entity C	970,310	7.15	970,310
Entity D	483,819	3.57	24,702
Entity E	480,633	3.54	1,740
Total	6,601,184	48.66	1,082,429

4. Accounts receivable nancing

Item	As at 30 June 2020	As at 31 December 2019
Bills receivable	1,753,783	1,446,389
Accounts receivable	-	-
Subtotal:	1,753,783	1,446,389
Less: Other comprehensive income from changes in fair values	-	-
Total	1,753,783	1,446,389

Some subsidiaries of the Group discount and endorse part of bank acceptance bills and trade acceptance bills according to their daily fund management needs, and derecognize the discounted or endorsed bills receivable based on the fact that almost all risks and rewards have been transferred to the relevant counterparty. As at 30 June 2020, the bills receivables that had been endorsed or discounted but not yet due were RMB5,577,669 thousand. The business model of the relevant subsidiary's management of bills receivable is to both collect contractual cash ows and sell the nancial asset. Therefore, the bank acceptance bills and trade acceptance bills of this subsidiary are classied as measured nancial assets which changes included in other comprehensive income at fair value.

The Group does not have a single bank acceptance bill or trade acceptance bill for impairment provision. As at 30 June 2020, the Group believes that the bank acceptance bills and trade acceptance bills held are accepted by banks or nance companies with higher credit ratings, there is no signicant credit risk, and no major losses will be caused by defaults. The Group did not accrue credit impairment losses for accounts receivables nancing.

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Prepayments
(1) The ageing analysis of prepayments is as follows:
		As at 30 June 2020	As at 31 December 2019
Ageing		Amount	Proportion %	Amount	Proportion %
Within 1 year		688,929	86.83	517,085	93.38
1 - 2 years		86,374	10.89	14,955	2.70
2 - 3 years		7,850	0.99	11,889	2.15
Over 3 years		10,255	1.29	9,797	1.77
Total		793,408	100.00	553,726	100.00

(2) The ve largest prepayments are analyzed as follows:

The total amount of the ve largest prepayments is 363,723 thousand, which contributed 45.84% of the total ending balance amount of prepayments.

		Percentage of
Company Name	Amount	total prepayments
Entity A	213,143	26.86
Entity B	49,534	6.24
Entity C	42,205	5.32
Entity D	33,851	4.27
Entity E	24,990	3.15
Total	363,723	45.84

6. Other receivables

Items	As at 30 June 2020	As at 31 December 2019
Dividends receivable	-	-
Other receivables	2,829,147	2,365,418
Total	2,829,147	2,365,418

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Other receivables (Continued)

1. The details of accounts receivable is as follows:

• The ageing analysis is as follows:

Category	As at 30 June 2020	As at 31 December 2019
Within 1 year	2,492,187	1,994,210
1 - 2 years	280,591	328,161
2 - 3 years	147,209	155,985
3 - 4 years	210,211	212,106
4 - 5 years	174,600	116,053
Over 5 years	269,032	269,588
Subtotal:	3,573,830	3,076,103
Less: provision for bad debts	744,683	710,685
Total:	2,829,147	2,365,418

• Other receivables disclosed by nature:

		As at 30 June 2020		As at 31 December 2019
			Provision for			Provision for
	Ending		diminution	Carrying	Ending	diminution	Carrying
Items	balance		in value	amount	balance	in value	amount
Imprest	16,610	347	16,263	12,249	838	11,411
Guarantee	1,407,749	175,353	1,232,396	1,412,018	191,575	1,220,443
Amount paid on behalf	1,059,954	175,010	884,944	732,671	140,267	592,404
Temporary payment	536,350	340,517	195,833	623,580	338,308	285,272
Escrow funds	7,159	5,394	1,765	39,529	6,502	33,027
Deposits	49,180	4,344	44,836	46,742	5,659	41,083
Export tax refund receivable	22,316	6,144	16,172	8,663	457	8,206
Others	474,512	37,574	436,938	200,651	27,079	173,572
Total	3,573,830	744,683	2,829,147	3,076,103	710,685	2,365,418

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Other receivables (Continued)

1. The details of accounts receivable is as follows: (Continued)

• Provision for bad debts

As at 30 June 2020, provision for bad and doubtful debts in the rst stage:

		Expected credit
		loss rate in the	Provision for
Category	Ending balance	next 12 months (%)	diminution in value	Carrying amount
Provision for bad and doubtful debts collectively
Imprest	16,610	2.09	347	16,263
Guarantee and deposits	1,021,612	4.36	44,568	977,044
Others	1,734,975	4.70	81,485	1,653,490
Total	2,773,197	4.56	126,400	2,646,797

As at 30 June 2020, the company did not have interests receivable, dividends receivable and other receivables in the second stage. As at 30 June 2020, provision for bad and doubtful debts in the third stage:

		Lifetime
		expected credit	Provision for
Category	Ending balance	losses rate (%)	diminution in value	Carrying amount
Provision for bad and doubtful debts collectively
Imprest	-	-	-	-
Guarantee and deposits	167,016	71.48	119,380	47,636
Others	633,617	78.74	498,903	134,714
Total	800,633	77.22	618,283	182,350

• Provision, recovery or reversal of bad debt

		In the second stage	In the third stage
	In the first stage	Lifetime ECL - not	Lifetime ECL -
Bad debt provision	12-month ECL	credit-impaired	credit-impaired	Total
As at 1 January 2020	100,831	-	609,854	710,685
Provision	65,651	-	44,726	110,377
Reversal	40,082	-	36,297	76,379
Written-off	-	-	-	-
Others	-	-	-	-
As at 30 June 2020	126,400	-	618,283	744,683

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Other receivables (Continued)

1. The details of accounts receivable is as follows: (Continued)

• The ve largest other receivable are analyzed as follows:

				Percentage of	Ending balance
				total other	of bad debt
Company Name	Nature of payment	Amount	Ageing	receivable %	provision
Entity A	Amount paid on behalf	508,689	Within 2 years	14.23	21,909
Entity B	Temporary payment	337,930	1 - 3 years	9.46	169,244
Entity C	Guarantee	231,786	Within 1 year	6.49	8,546
Entity D	Temporary payment	166,339	Over 5 years	4.65	166,339
Entity E	Temporary payment	129,408	1 - 3 years	3.62	9,466
Total	/	1,374,152	/	38.45	375,504

7.	Inventories
(1)	Inventories by categories
			As at 30 June 2020		As at 31 December 2019
			Provision for			Provision for
			diminution	Carrying		diminution	Carrying
Items	Cost	in value	amount	Cost	in value	amount
Raw materials	913,430	51,774	861,656	1,030,568	52,489	978,079
Work in progress	5,730	1,671	4,059	8,781	1,671	7,110
Finished goods	83,830	283	83,547	53,875	615	53,260
Turnover materials	9,582	-	9,582	10,016	-	10,016
Costs to fulfil a contract	430,200	-	430,200	137,039	-	137,039
Total	1,442,772	53,728	1,389,044	1,240,279	54,775	1,185,504

As at 30 June 2020 and 31 December 2019 the cost of inventories didn't include capitalized interest. In addition, the inventories haven't been used for mortgage or guarantee.

(2) Provision for diminution in value of inventories

		Increase during the period	Written back during the period
	As at			Reversal or		As at
Category	1 January 2020	Provision	Others	Write-off	Others	30 June 2020
Raw materials	52,489	-	-	715	-	51,774
Work in progress	1,671	-	-	-	-	1,671
Finished goods	615	-	-	332	-	283
Total	54,775	-	-	1,047	-	53,728

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Contract assets

Items	As at 30 June 2020	As at 31 December 2019
Contract assets	13,894,632	9,609,431
Less: Impairment of contract assets	45,492	39,182
Subtotal	13,849,140	9,570,249
Less: Contract assets listed in other non-current assets	-	-
Total	13,849,140	9,570,249

1. The petroleum engineering services provided by the Group are usually settled in installments according to the contractual completion schedule, and the Group will receive project fee in 30 to 180 days after settlement. Engineering construction business will reserve quality guarantee as 5% of progress billings, and have an unconditional right to receive the guarantee after guarantee period.
   There are no signicant changes of contract assets when the revenue has additional adjustment in the period.
2. Provision for impairment of contract assets

				As at 30 June 2020						As at 31 December 2019
		Cost	Provision for impairment			Cost		Provision for impairment
					Expected	Net carrying						Expected	Net carrying
Type	Amount		Proportion(%)	Amount	credit loss(%)	amount	Amount		Proportion(%)		Amount	credit loss(%)	amount
Provision for bad and
doubtful debts
collectively
Including：
Petroleum
Engineering	13,894,632	100.00	45,492	0.33	13,849,140	9,609,431	100.00	39,182	0.41	9,570,249
Total	13,894,632	100.00	45,492	0.33	13,849,140	9,609,431	100.00	39,182	0.41	9,570,249

9. Other current assets

Items	As at 30 June 2020	As at 31 December 2019
Prepaid VAT	656,455	571,886
Value-added tax to be certified	22,086	10,285
Excess value-added tax paid	1,104,547	1,135,967
Prepaid income tax	22,387	24,200
Others	2	-
Total	1,805,477	1,742,338

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Long-term equity investments

						The fluctuation of this period
					Investment
					gains and
					losses	Adjustment
		As at			confirmed	of other						The ending
		31 December	Additional	Reduce	by the equity	comprehensive	Changes in	The issuance			As at	balance of
Name of company	2019	investment	investment	method	income	other equity	of profit	Impairment	Others	30 June 2020	impairment
①	Joint venture
	Zhong Wei Energy Service
	Co. Ltd. (A Sinopec-
	Weatherford Joint		-	-	-656	-	-	-	-	-	7,647	-
	Venture)	8,303
	Sinopec Gulf Petroleum
	Engineering Services,
	LLC	13,383	-	-	-272	-	-	-	-	-	13,111	-
	Qianjiang HengYun
	Comprehensive Vehicle
	Performance Inspecting
	Company Limited	2,105	-	-	-88	-	-	-	-	-	2,017	-
	EBAPAN, S.A. DE C.V	-	8	-	-	-	-	-	-	-	8
	Subtotal	23,791	8	-	-1,016	-	-	-	-	-	22,783	-
②	Associates
	Hua Bei Ruida Oil Service
	Company Limited
	("Ordos North")	5,090	-	-	1,090	-	-	700	-	-	5,480	-
	Xinjiang North China
	Tianxiang Oil Service
	Company Limited
	("Xinjiang North")	2,970	-	-	1,024	-	-	700	-	-	3,294	-
	Zhenjiang Huajiang Oil
	and Gas Engineering
	Technology Service
	Co., Ltd	2,198	-	-	675	-	-	246	-	-	2,627	-
	Henan Zhongyuan Oil & Gas
	Technology Service
	Co., Ltd	2,409	-	-	568	-	-	-	-	-	2,977	-
	Henan Zhongyou Oil & Gas
	Technology Service
	Co., Ltd	3,260	-	-	679	-	-	-	-	-	3,939	-
	Subtotal	15,927	-	-	4,036	-	-	1,646	-	-	18,317	-
Total		39,718	8	-	3,020	-	-	1,646	-	-	41,100	-

Notes：There is no restriction on sale of the long-term equity investments held by the Group. The information of the Group's joint venture and associates refer to note VII.2.

11. Other equity instrument investments

Item	As at 30 June 2020	As at 31 December 2019
Sinopec&Tharwa Drilling Company	23,699	23,699
Shengli oilfield Niuzhuang Petroleum Development Co., Ltd	9,010	9,010
Dongying Kewei Intelligent Technology Co., Ltd	138	138
Total	32,847	32,847

As Sinopec&Tharwa Drilling Company and other equity instruments are planned long-term holdings for strategic purposes, thus the Group specify them as nancial assets measured at fair value through other comprehensive income.

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Fixed assets

Category	As at 30 June 2020	As at 31 December 2019
Fixed assets	22,192,749	23,502,540
Disposal of fixed assets	17,624	13,887
Total	22,210,373	23,516,427

1. Fixed assets

• Fixed assets by categories

Items		Buildings	Equipment and others	Total
Cost:
1.	At 1 January 2020	1,637,760	60,903,010	62,540,770
2.	Increase in the year	486	189,991	190,477
	(1)	Purchase	-	135,203	135,203
	(2)	Transferred from construction in progress	-	45,776	45,776
	(3)	Others	486	9,012	9,498
3.	Written back during the year	373	178,318	178,691
	(1)	Disposal or retirement	373	178,318	178,691
4.	At 30 June 2020	1,637,873	60,914,683	62,552,556
Accumulated depreciation:
1.	At 1 January 2020	545,647	37,130,827	37,676,474
2.	Increase in the year	27,767	1,463,491	1,491,258
	(1)	Depreciation	27,767	1,455,606	1,483,373
	(2)	Others	-	7,885	7,885
3.	Written back during the year	362	152,387	152,749
	(1)	Disposal or retirement	362	152,387	152,749
4.	At 30 June 2020	573,052	38,441,931	39,014,983
Provision for impairment
1.	At 1 January 2020	8,436	1,353,320	1,361,756
2.	Increase in the year	-	-	-
	(1)	Purchase from related parties	-	-	-
3.	Written back during the year	-	16,932	16,932
	(1)	Disposal or retirement	-	16,932	16,932
4.	At 30 June 2020	8,436	1,336,388	1,344,824
Net carrying amount
1.	At 30 June 2020	1,056,385	21,136,364	22,192,749
2.	At 1 January 2020	1,083,677	22,418,863	23,502,540

Notes:

1. At 30 June 2020, the net amount of the Group's xed assets were pledged is RMB821,297 thousand (At 31 December 2019: RMB880,352 thousand).

• The situation of premises without qualied ownership certicates

There had been a total amount of 27 premises without qualied ownership certicates up to 30 June 2020, totaling amount in cost of 177,062 thousand, in accumulated depreciation of 31,408 thousand and net book value of 145,654 thousand.

(2) Disposal of xed assets

Items	As at 30 June 2020	As at 31 December 2019	Reasons for moving to disposal
Equipment	17,624	13,887	Written off

As at 30 June 2020, no disposal of xed assets were turned in more than a year.

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V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Construction in progress

Category	As at 30 June 2020	As at 31 December 2019
Construction in progress	506,522	213,819
Construction materials	1	-
Total	506,523	213,819

(1) Construction in progress

① Details of construction in progress

		As at 30 June 2020		As at 31 December 2019
				Net carrying			Net carrying
Items	Cost		Impairment	amount	Cost	Impairment	amount
Infrastructure improvement expenditure	3,890	3,502	388	5,631	3,502	2,129
Major Materials and equipment procurement
projects	574,329	68,232	506,097	273,086	68,232	204,854
Other construction projects	37		-	37	6,836	-	6,836
Total	578,256	71,734	506,522	285,553	71,734	213,819

• The major construction projects in progress are set out as follows:

	As at				Accumulated	As at
	31 December		Transfer to	Other	capitalized	30 June
Project name	2019	Additions	fixed assets	deduction	interest	2020
	A	B	C	D		E=A+B-C-D
Purchase of high pressure and large displacement mud pump
set in 2020	-	8,746	-	-	-	8,746
Top drive purchase project in 2020	-	8,292	-	-	-	8,292
Purchase Project of SP261 drilling rig	-	72,984	-	-	-	72,984
Modification of ZJ90DB drilling rig in Shunbei	-	8,898	-	-	-	8,898
Purchase project of Coiled Tubing Operation Equipment	11,708	-	-	-	-	11,708
5700 Series Ultra High Temperature and High Pressure
Logging Instrument Update Project	16,400	-	-	-	-	16,400
Project of Pneumatic gun Focus Vessel in Paralic Zone	9,418	-	-	-	-	9,418
Purchase project of Wireless MWD instruments	-	39,387	-	-	-	39,387
Upgrade of Gas well workover drilling rig In Saudi Arabia	-	39,320	-	-	-	39,320
Upgrade of gas well workover drilling rig In Saudi Arabia	-	33,170	27,014	-	-	6,156
Total	37,526	210,797	27,014	-	-	221,309

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13. Construction in progress (Continued)

(1) Construction in progress (Continued)

• The major construction projects in progress are set out as follows: (Continued)

		Percentage
		of current input
Project name	Budget	over budget (%)	Progress(%)	Sources of funds
Purchase of high pressure and large displacement mud
pump set in 2020	41,039	21	21	Selfraised
Top drive purchase project in 2020	31,700	26	26	Selfraised
Purchase Project of SP261 drilling rig	77,450	94.23	94.23	Selfraised
Modification of ZJ90DB drilling rig in Shunbei	38,900	22.87	22.87	Selfraised
Purchase project of Coiled Tubing Operation Equipment	25,150	98.42	98.42	Selfraised
5700 Series Ultra High Temperature and High Pressure
Logging Instrument Update Project	21,140	77.58	77.58	Selfraised
Project of Pneumatic gun Focus Vessel in Paralic Zone	19,180	49	49	Selfraised
Purchase project of Wireless MWD instruments	39,910	99	99	Selfraised
Upgrade of Gas well workover drilling rig In Saudi
Arabia	39,730	99	99	Selfraised
Upgrade of gas well workover drilling rig In Saudi Arabia	39,730	83.49	83.49	Selfraised
Total	373,929	-	-	-

(2) Construction materials

		As at 30 June 2020		As at 31 December 2019
				Net carrying			Net carrying
Items	Cost		Impairment	amount	Cost	Impairment	amount
Special materials	1		-	1	-	-	-

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V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Right-of-use assets

					Equipment
Items		Land	Buildings	and others	Total
Cost:
1.	At 1 January 2020	211,535	772,541	944,579	1,928,655
2.	Increase in the year	12,708	100,225	52,238	165,171
	(1)	Lease	12,708	100,225	52,238	165,171
	(2)	Adjustment of lease liability	-	-	-	-
	(3)	Others	-	-	-	-
3.	Written back during the year	-	-	29,020	29,020
	(1)	Change in contract	-	-	29,020	29,020
4.	At 30 June 2020	224,243	872,766	967,797	2,064,806
Accumulated depreciation:
1.	At 1 January 2020	46,447	178,350	156,036	380,833
2.	Increase in the year	27,163	107,375	126,821	261,359
	(1)	Depreciation	27,163	107,375	126,821	261,359
	(2)	Business combination involving entities
		not under common control	-	-	-	-
	(3)	Others	-	-	-	-
3.	Written back during the year	-	-	-	-
	(1)	Disposal or retirement	-	-	-	-
	(2)	Others	-	-	-	-
4.	At 30 June 2020	73,610	285,725	282,857	642,192
Provision for impairment
1.	At 1 January 2020	-	-	-	-
2.	Increase in the year	-	-	-	-
	(1)	Depreciation	-	-	-	-
	(2)	Business combination involving entities not
		under common control	-	-	-	-
	(3)	Others	-	-	-	-
3.	Written back during the year	-	-	-	-
	(1)	Disposal or retirement	-	-	-	-
	(2)	Others	-	-	-	-
4.	At 30 June 2020	-	-	-	-
Net carrying amount
1.	At 30 June 2020	150,633	587,041	684,940	1,422,614
2.	At 1 January 2020	165,088	594,191	788,543	1,547,822

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V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Intangible assets

(1) Classication of intangible assets

				Computer	Contract
Items		Land use rights	software	revenue right	Others	Total
Cost:
1.	At 1 January 2020	136,660	170,597	399,071	76,928	783,256
2.	Increase in the year	-	-	-	-	-
	(1)	Purchase	-	-	-	-	-
	(2)	Reclassification	-	-	-	-	-
3.	Written back during the year	-	-	-	-	-
	(1)	Reclassification	-	-	-	-	-
4.	At 30 June 2020	136,660	170,597	399,071	76,928	783,256
Accumulated amortization:
1.	At 1 January 2020	25,210	131,437	210,984	22,678	390,309
2.	Increase in the year	1,547	5,888	41,065	4,318	52,818
	(1)	Provision	1,547	5,888	41,065	4,318	52,818
	(2)	Reclassification	-	-	-	-	-
3.	Written back during the year	-	-	-	-	-
	(1)	Reclassification	-	-	-	-	-
4.	At 30 June 2020	26,757	137,325	252,049	26,996	443,127
Provision for impairment
1.	At 1 January 2020	-	-	-	-	-
2.	Increase in the year	-	-	-	-	-
3.	Written back during the year	-	-	-	-	-
4.	At 30 June 2020	-	-	-	-	-
Carrying amount	-	-	-	-	-
1.	At 30 June 2020	109,903	33,272	147,022	49,932	340,129
2.	At 1 January 2020	111,450	39,160	188,087	54,250	392,947

Notes:

• At 30 June 2020, no internal research form intangible assets.
  ② At 30 June 2020, the above intangible assets were not pledged.

(2) There was no land use right without qualied ownership certicates.

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V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Long-term deferred expenses

			Decrease in the year
	As at				As at
	31 December	Increase	Amortization	Other	30 June
Items	2019	in the year	in the year	decreases	2020
Special tools of petroleum engineering	4,163,931	466,633	707,548	7,054	3,915,962
Other tools of Petroleum engineering	723,059	44,062	179,808	-	587,313
Camping house	472,621	33,994	78,467	337	427,811
Other long-term deferred expenses	19,867	4,591	7,615	2,399	14,444
Total	5,379,478	549,280	973,438	9,790	4,945,530

17. Deferred income tax assets and deferred income tax liabilities

(1) Deferred income tax assets and deferred income tax liabilities without offsetting

	As at 30 June 2020	As at 31 December 2019
	Deductible/	Deferred income	Deductible/	Deferred income
	taxable temporary	tax assets/	taxable temporary	tax assets/
Items	differences	liabilities	differences	liabilities
Deferred income tax assets
Provision for assets impairment and influence on
depreciation	1,519,779	245,249	1,466,534	245,249
Provision for bad debts	928,574	163,265	880,471	162,393
Deferred income		9,363	59,936	9,362
Subtotal	2,448,353	417,877	2,406,941	417,004
Deferred income tax liabilities
Revaluation of assets	58,650	14,362	62,810	15,359
Depreciation of fixed assets	1,937	484	1,937	484
Changes in fair value through other comprehensive
income	8,737	2,011	8,737	2,011
Subtotal	69,324	16,857	73,484	17,854

(2) Details of unrecognised deferred income tax assets of deductible temporary differences and tax losses:

The tax losses of the Group can be carried forward to subsequent 5 years for deduction of the taxable prot in accordance with the PRC tax laws. According to the accounting policy of the Group, deferred tax assets are only recognised to the extent that it is probable that taxable prot will be available in the future.

Tax losses that are not recognized as deferred tax assets are analysed as follows:

Items	As at 30 June 2020	As at 31 December 2019
Deductible temporary differences	2,193,447	2,290,907
Tax losses	17,450,570	17,746,849
Total	19,644,017	20,037,756

(3) Tax losses that are not recognized as deferred tax assets will be expired as follows:

Years	As at 30 June 2020	As at 31 December 2019
year 2020	355,057	626,781
year 2021	10,298,350	10,696,304
year 2022	6,001,109	6,017,933
year 2023	371,858	371,858
year 2024	33,973	33,973
year 2025	390,223	-
Total	17,450,570	17,746,849

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V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. Short-term loans

(1) Classication of short-term loans

		As at	As at
Items	Currency	30 June 2020	31 December 2019
Unsecured borrowings from related parties	RMB	19,640,000	18,080,000
	USD	1,925,624	2,323,075
Total	/	21,565,624	20,403,075

As at 30 June 2020, no assets of the Group were pledged.

As at 30 June 2020, the Group has no overdue short-term borrowings.

As at 30 June 2020, the interest rate range of short-term borrowings is 1.48%-3.92% (31 December 2019: 3.09%-3.92%).

19. Bills payable

Category	As at 30 June 2020	As at 31 December 2019
Trade acceptance bills		6,937,651	4,596,462
Bank acceptance bills		90,707	137,470
Total		7,028,358	4,733,932
Notes：There is no unpaid bills and bank deposit pledged for bills payable at 30 June 2020.

20. Accounts payable

Items	As at 30 June 2020	As at 31 December 2019
Payables for materials	5,546,137	5,155,319
Payables for construction	4,723,093	5,252,570
Payable for labour cost	5,848,134	5,969,634
Payables for equipment	3,094,713	2,967,070
Others	1,034,140	723,701
Total	20,246,217	20,068,294

Important accounts payable aged over one year:

Items

Entity A

Entity B

Entity C

Entity D

Entity E

Total

As at 30 June 2020 Overdue reasons

53,893 Retention money, Unsettled

41,539 Retention money, Unsettled

24,626 Retention money, Unsettled

23,312 Retention money, Unsettled

17,557 Retention money, Unsettled

160,927 /

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V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

21. Contract liabilities

Items	As at 30 June 2020	As at 31 December 2019
Petroleum Engineering	979,129	1,628,189
Construction Engineering	1,544,416	1,947,465
Total	2,523,545	3,575,654

The balance of contract liabilities as at 1 January 2020 is RMB3,575,654 thousand, in which RMB2,209,489 thousand was recognized as revenue during the period.

22. Employee benets payable

	As at
Items	31 December 2019	Increase in the year	Decrease in the year	As at 30 June 2020
Short term employee benefits	421,679	6,051,245	5,814,759	658,165
Post-employment benefits	259	700,424	606,814	93,869
Termination benefits	-	6,243	6,243	-
Total	421,938	6,757,912	6,427,816	752,034

(1) Short-term employee benets

		As at
Items		31 December 2019	Increase in the year	Decrease in the year	As at 30 June 2020
Wages or salaries, bonuses, allowances
and subsidies	262,904	4,155,266	3,976,469	441,701
Staff welfare		-	361,636	361,636	-
Social security contributions	544	366,430	341,820	25,154
Including: 1. Basic medical insurance	178	254,417	234,750	19,845
2.	Supplementary medical insurance	-	54,070	54,070	-
3.	Work-related injury insurance	22	14,620	11,013	3,629
4.	Birth insurance	13	15,638	14,394	1,257
5.	Other insurance	331	27,685	27,593	423
Housing funds	2,545	477,806	474,907	5,444
Labor union and employee education funds	147,566	89,843	72,942	164,467
Others		8,120	600,264	586,985	21,399
Total		421,679	6,051,245	5,814,759	658,165

(2) Post-employment benets

	As at
Items	31 December 2019	Increase in the year	Decrease in the year	As at 30 June 2020
Basic pension insurance	227	372,950	283,407	89,770
Unemployment insurance	13	16,053	12,090	3,976
Annuity	19	311,421	311,317	123
Total	259	700,424	606,814	93,869

The in-service employees of the Group are subject to basic pension and medical insurance, which are extracted and paid according to regulated rates and set up and governed by local government. In addition, the Company provides a supplementary dened contribution retirement plan for its employees at rates not exceeding 5% of their salaries. Employees who have served the Group for more than one year may participate in this plan. The assets of this plan are held separately from those of the Group in an independent fund administered by a committee consisting of representatives from the employees and the Group. A member of the above plans is entitled to a pension amount equal to a xed proportion of the salary prevailing at his or her retirement date. The Group has no other material obligation for the payment of pension benets associated with the basic and supplementary pension plans beyond the annual contributions described above.

(3) Termination benets

During this report, the Group paid 6,243 thousand compensation to the resigning employee for terminating labor relation.

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V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

23. Taxes payable

Items	As at 30 June 2020	As at 31 December 2019
VAT	178,062	259,488
Urban maintenance and construction tax	30,316	33,433
Education surtax	17,619	20,613
Corporate income tax	354,414	324,190
Individual income tax	43,210	89,876
Withholding tax	19,923	28,009
Others	73,795	88,106
Total	717,339	843,715

24. Other payables

Items	As at 30 June 2020	As at 31 December 2019
Interest payable	15,321	19,158
Other payables	1,934,236	1,751,439
Total	1,949,557	1,770,597

(1) Interest payable

Items

Interest payable of long term loan which interest paid by installment and principal paid at maturity date

Interest payable of short term loan

Total

As at 30 June 2020

374

14,947

15,321

As at 31 December 2019

1,849

17,309

19,158

The Group have no overdue interest to pay at 30 June 2020.

(2) Other payables

Items	As at 30 June 2020	As at 31 December 2019
Guarantee	518,746	385,596
Deposits	105,009	112,746
Amount paid on behalf	500,973	688,996
Temporary receipts	271,752	237,657
Escrow payments	49,346	51,789
Withheld payments	107,092	65,867
Others	381,318	208,788
Total	1,934,236	1,751,439

As at 30 June 2020, other payables with aging over 1 year with a carrying amount of 625,217 thousand (31 December 2019: 597,901 thousand). Those are mainly construction projects retention money, deposits, guarantee and so on. Those payables are unsettled due to the guarantee period isn't end or not yet reached the settlement period.

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V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

25. Non-current liabilities due within one year

Items	As at 30 June 2020	As at 31 December 2019
Long-term payables within one year	140,239	141,147
Lease liabilities within one year	378,779	394,328
Total	519,018	535,475

(1) Long-term payables within one year

Items

Obligations under finance leases

Other long-term payables

Total

As at 30 June 2020

140,139

100

140,239

As at 31 December 2019

141,047

100

141,147

26. Long-term loans

		Range of	As at
Items	As at 30 June 2020	interest rate	31 December 2019 Range of interest rate
Loans on credit	530,963	2.92%	474,382	7.89%-8.80%
Subtotal	530,963	-	474,382	-
Less: Long-term loans within one year	-	-	-	-
Total	530,963	-	474,382	-

Notes: The Group has no overdue long-term loans.

27. Lease liabilities

Item	As at 30 June 2020	As at 31 December 2019
Land and buildings	734,911	755,689
Equipment and others	693,586	773,385
Subtotal	1,428,497	1,529,074
Less: Lease liabilities within one year	378,779	394,328
Total	1,049,718	1,134,746

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28. Long-term payables

Items	As at 30 June 2020	As at 31 December 2019
Long-term payables	764,525	784,377
Special payables	-	-
Total	764,525	784,377

(1) Long-term payables

Items	As at 30 June 2020	As at 31 December 2019
Loans payable	773,539	839,747
Obligations under finance leases	-	-
Others	131,225	85,777
Subtotal	904,764	925,524
Less: Long-term payables within one year	140,239	141,147
Total	764,525	784,377

29. Provisions

Items	As at 30 June 2020	As at
31 December 2019	Reasons
Outstanding litigation	1,891	1,915	/
Executory onerous contracts	69,558		Expected loss of
82,736	construction contract
Expected loss of judicial restructuring	355,538		Estimated payment of
364,605	judicial restructuring
Total	426,987	449,256	/

30. Deferred income

	As at	Increase for	Decrease for
Items	31 December 2019	the period	the period	As at 30 June 2020
Government grants	92,211	84,913	102,783	74,341

Notes: The government grants which recognized as deferred income refer to Note IV.6. government grants.

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V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

31. Share capital (Unit: ten thousand shares)

At 30 June 2020:

		Changes in current(+、-)
	As at				As at
	31 December				30 June
Items	2019	Issued shares	Others	Subtotal	2020
Held by state-owned legal person (A share)	11,786,046	-	-	-	11,786,046
RMB public shares (A share)	1,783,333	-	-	-	1,783,333
Foreign shares listed overseas (H share)	5,414,961	-	-	-	5,414,961
Total	18,984,340	-	-	-	18,984,340
At 31 December 2019:
		Changes in current (+、-)
	As at				As at
	31 December				31 December
Items	2018	Issued shares	Others	Subtotal	2019
Held by state-owned legal person (A share)	11,786,046	-	-	-	11,786,046
RMB public shares (A share)	1,783,333	-	-	-	1,783,333
Foreign shares listed overseas (H share)	5,414,961	-	-	-	5,414,961
Total	18,984,340	-	-	-	18,984,340

32. Capital reserve

At 30 June 2020:

	As at			As at
	31 December	Increase for	Decrease for	30 June
Items	2019	the period	the period	2020
Share premium	11,629,142	-	-	11,629,142
Other capital reserve	85,439	2,299	-	87,738
Total	11,714,581	2,299	-	11,716,880
At 31 December 2019:
	As at			As at
	31 December	Increase for	Decrease for	31 December
Items	2018	the period	the period	2019
Share premium	11,629,142	-	-	11,629,142
Other capital reserve	81,621	3,818	-	85,439
Total	11,710,763	3,818	-	11,714,581

Notes: The increase in capital reserve is mainly due to provision for unpaid share payment of share option incentive scheme. Details refer to Note XI.

33. Other comprehensive income

			For the six months ended 30 June 2019
			Less:		Net-of-	Net-of-
			previously		tax amount	tax amount
	As at		recognized		attributable to	attributable
	31 December	Pre-tax	amount	Less:	shareholders	to non-	As at
	2019	income for	transferred to	Income tax	of the	controlling	30 June 2020
Items	(1)	the period	profit or loss	expense	Company(2)	interests	(3)=(1)+(2)
I. Items that will not be reclassified
to profit or loss
1. Changes in fair value through other
equity instrument investments	6,447	-	-	-	-	-	6,447
II. Items that may be reclassified to
profit or loss
Total	6,447	-	-	-	-	-	6,447

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V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

34. Special reserve

	As at	Increase for	Decrease for	As at
Items	31 December 2019	the period	the period	30 June 2020
Safety costs	373,238	551,604	241,326	683,516

In accordance with PRC regulations, the Group appropriated production safety fund of RMB551,604 thousand to specic reserve for the year ended 30 June 2020 (For the year ended 30 June 2019: RMB501,235 thousand), which was recognised in the cost of related products and the Specic reserve. For the year ended 30 June 2020, the Group utilised production safety fund amounting to RMB241,326 thousand (For the year ended 30 June 2019: RMB206,750 thousand) which was of expenditure nature.

35. Surplus reserve

	As at	Increase for	Decrease for	As at
Items	31 December 2019	the period	the period	30 June 2020
Statutory surplus reserve	200,383	-	-	200,383

Notes: In accordance with the Company Law and the Company's Articles of Association, the Company should appropriate 10% of net prot for the year to the statutory surplus reserve, and the Company can cease appropriation when the statutory surplus reserve accumulated to more than 50% of the registered capital. The statutory surplus reserve can be used to make up for the loss or increase the paid in capital after approval from the appropriate authorities.

36. Retained earnings

	For the six months	For the year ended	Appropriation/
Items	ended 30 June 2020	31 December 2019	distribution ratio
Retained earnings at 31 December 2019 before adjustment	-24,515,117	-25,429,361	-
Adjustment of total retained earnings at 31 December 2019
(Increase in "+", decrease in "-")	-	-	-
Retained earnings at 31 December 2019 after adjustment	-24,515,117	-25,429,361	-
Add: Net profit attributable to parent company	298,277	914,244	-
Less: Withdrawal of statutory surplus reserves	-	-	-
Retained earnings at 30 June 2020	-24,216,840	-24,515,117	-
Including: Surplus reserve attributable to parent company
extracted by subsidiaries	-	39,616	-

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

37. Revenue and cost of sales

	For the six months ended 30 June 2020	For the six months ended 30 June 2019
Items	Revenue	Cost	Revenue	Cost
Major business	31,067,360	28,454,426	30,009,996	27,250,852
Other business	365,077	200,529	246,034	236,779
Total	31,432,437	28,654,955	30,256,030	27,487,631

Notes: The analysis information of the Group's revenue and cost by industry and region refer to Note XIV No. 5.

(1) Income decomposition information

The Group has six reportable segments, they are geophysics, drilling engineering, logging and mud logging, special down-hole operations, engineering construction and others. The Group expects that classify and disclose revenue according to customer type, major business area and revenue recognition time can reect the impact of relevant economic factors on the nature, amount, time distribution and uncertainty of enterprise income and cash ow.

				Special
		Drilling	Logging and	down-hole	Engineering
Reporting policy	Geophysics	engineering	mud logging	operations	construction	Others	Total
Major areas of business
PRC	1,293,694	12,509,122	1,103,410	3,406,582	5,931,145	627,847	24,871,800
Other countries or regions	515,067	4,408,430	34,831	376,060	861,172	-	6,195,560
Total	1,808,761	16,917,552	1,138,241	3,782,642	6,792,317	627,847	31,067,360
Customer types
Related party	1,193,967	9,880,865	992,700	2,767,335	3,590,384	72,331	18,497,582
Third party	614,794	7,036,687	145,541	1,015,307	3,201,933	555,516	12,569,778
Total	1,808,761	16,917,552	1,138,241	3,782,642	6,792,317	627,847	31,067,360
Time of revenue recognition
Recognized (outputs) at a certain time	-	3,510	4,949	-	8,799	64,461	81,719
Recognized (services) over time	1,808,761	16,914,042	1,133,292	3,782,642	6,783,518	563,386	30,985,641
Total	1,808,761	16,917,552	1,138,241	3,782,642	6,792,317	627,847	31,067,360

(2) Statement of performance obligations

The Group's accounting policies for revenue is set out in Note III, No. 25. The Group signs petroleum engineering technical service contracts or construction engineering contracting contracts with customers to provide geophysical, drilling engineering, logging and mud logging, special down-hole operations and engineering construction, and usually completes labor services or delivers construction within the agreed period. The customer settles the completed workload in installments during the contract performance period, and pays the progress payment within 30-180 days after settlement. The nal settlement and payment are made after the completion of the project and the completion acceptance.

According to the contractual stipulations and legal provisions, etc., the Group's engineering construction business provides quality assurance for the construction. This type of quality assurance is a guarantee quality assurance to the customer that the construction meet the established standards and does not constitute an individual performance obligation. The Group accounts in accordance with the accounting policies described in Note III. No. 23.

The Group determines whether the Group's identity is the major principal or agent when engaging in a transaction based on whether it has control over the goods or services before transferring the goods or services to the customers. If the Group is able to control the goods or services before transferring goods or services to customers, the Group is the major principal and recognizes revenue according to the total amount received or receivable; otherwise, the Group is an agent and recognizes revenue in accordance with the amount of commission or poundage expected to be recognized. The amount is determined by the net amount of deducting to the payable of other related parties from the total amount received or receivable, or according to the established commission amount or proportion.

(3) Information related to residual performance obligations

The Group signs engineering service contracts with several customers to provide petroleum engineering technical services and construction engineering contracting services, and will perform them in a certain period of time. These contracts usually constitute an individual performance obligation. As at 30 June 2020, some of the Group's petroleum engineering technical services and construction projects are still in the course of performance, and the total transaction price allocated to the unfullled obligations is approximately 19.6 billion. The amount is related to performance of each contract and will be recognized as revenue based on the progress of the performance in the future performance period of each contract.

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Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

38. Tax and surcharges

	For the six months	For the six months
Items	ended 30 June 2020	ended 30 June 2019
Urban maintenance and construction tax	12,898	19,124
Education surtax	9,918	15,004
Overseas tax	28,700	32,022
Land use tax	28,642	33,252
Stamp duty	14,035	15,541
Others	10,681	10,409
Total	104,874	125,352

Notes: The provision and payment standards of tax and surcharges refer to Note IV. Taxation.

39. Selling and distribution expenses

	For the six months	For the six months
Items	ended 30 June 2020	ended 30 June 2019
Freight	1,017	656
Staff costs	23,081	19,420
Depreciation	152	145
Travel expenses	1,367	1,652
Sales service fees	-	118
Business promotion fee	-	91
Rental expenses	219	592
Office expense	949	884
Others	2,093	1,742
Total	28,878	25,300

40. General and administrative expenses

	For the six months	For the six months
Items	ended 30 June 2020	ended 30 June 2019
Repair and maintenance	165,916	149,206
Staff costs	514,776	476,627
Integrated service	218,937	192,827
The information system runs maintenance fees	74,438	52,225
Business entertainment	4,395	13,009
Travel expenses	9,197	22,676
Rental expenses	6,171	26,934
Depreciation and amortization	49,093	21,727
Consultation	4,895	6,772
Property insurance	1,447	1,453
Others	101,427	97,064
Total	1,150,692	1,060,520

97	Sinopec Oileld Service Corporation Interim Report 2020

Section VIII Financial Reports

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

41. Research and development expenses

	For the six months	For the six months
Items	ended 30 June 2020	ended 30 June 2019
Staff costs	154,910	144,176
Material cost	173,792	105,483
Technical collaboration fee	17,817	15,545
Experimental expenses	2,222	5,542
Depreciation	5,132	8,528
Others	265,930	200,508
Total	619,803	479,782

42. Finance costs

	For the six months	For the six months
Items	ended 30 June 2020	ended 30 June 2019
Interest expenses	476,850	488,160
Less: Interest capitalized	-	-
Interest income	-19,405	-79,224
Exchange losses/(gains)	3,211	18,761
Bank charges and others	26,491	27,391
Total	487,147	455,088

43. Other income

	For the six months	For the six months	Related to
Items	ended 30 June 2020	ended 30 June 2019	assets/income
National research grants	23,753	13,722	Related to income
Subsidy of heavy-polluting vehicles	-	2	Related to income
Subsidies of enterprise development	786	-	Related to income
Subsidies of stable post	13,574	1,294	Related to income
Self-use consumption tax refund	49,983	4,466	Related to income
Government incentives	425	442	Related to income
Recurrent funding subsidies	-	5,218	Related to income
Additional input VAT credit	10,124	378	Related to income
Labor protection fee refund	-	266	Related to income
Non-profit compensation of relocation	-	27	Related to income
National special research related to assets	594	379	Related to asset
Return of individual income tax fee	3,544	333	Related to income
Total	102,783	26,527	/

Notes:

1. The analysis information of the government grants refer to Note XIV No. 8.
2. In accordance to "Notication of refund of consumption tax for own use rened oil during oil (gas) eld production" (Cai Shui [2011] No. 7)) issued by MOF and State Taxation Administration, the oil eld enterprises will be refunded the consumption tax after the actual payment of consumption tax paid for the purchases of rened oil from Sinopec. For the six months ended 30 June 2020, the Self-use consumption tax refund of 49,983 thousand from the MOF was closely related to the company's business, it was a government grant that was quantitatively allocated according to the national uniform standard and was taken as a regular prot and loss.

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