1905

延長石油國際有限公司

YANCHANG PETROLEUM INTERNATIONAL LIMITED

(Incorporated in Bermuda with limited liability)

Stock Code: 00346

2024

ANNUAL REPORT

2 Corporate Information
3 Chairman's Statement
11 Management Discussion and Analysis
19 Supplementary Information on Oil and Gas Exploration, Development and Production Activities
22 Directors' and Senior Management's Biographies
25 Report of the Directors
35 Corporate Governance Report
47 Independent Auditor's Report
51 Consolidated Statement of Profit or Loss and Other Comprehensive Income
53 Consolidated Statement of Financial Position
55 Consolidated Statement of Changes in Equity
57 Consolidated Statement of Cash Flows
59 Notes to the Consolidated Financial Statements
130 Schedule of Investment Properties

YANCHANG PETROLEUM INTERNATIONAL LIMITED
ANNUAL REPORT 2024

CORPORATE INFORMATION

EXECUTIVE DIRECTORS

Mr. Feng Yinguo (Chairman)
Ms. Wang Haining
Mr. Ding Jiasheng

NON-EXECUTIVE DIRECTOR

Mr. Sun Jian

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. Ng Wing Ka
Mr. Leung Ting Yuk
Mr. Sun Liming
Dr. Mu Guodong

COMPANY SECRETARY

Mr. Law Hing Lam

AUDIT COMMITTEE

Mr. Leung Ting Yuk (Chairman)
Mr. Ng Wing Ka
Mr. Sun Liming

REMUNERATION COMMITTEE

Mr. Sun Liming (Chairman)
Mr. Leung Ting Yuk
Mr. Feng Yinguo

NOMINATION COMMITTEE

Mr. Ng Wing Ka (Chairman)
Mr. Sun Liming
Mr. Feng Yinguo

AUTHORISED REPRESENTATIVES

Mr. Feng Yinguo
Mr. Law Hing Lam

AUDITORS

BDO Limited
Public Interest Entity Auditor registered in accordance with the Accounting and Financial Reporting Council Ordinance
Certified Public Accountants
25th Floor, Wing On Centre
111 Connaught Road Central
Hong Kong

REGISTERED OFFICE

Clarendon House
2 Church Street
Hamilton HM 11
Bermuda

BERMUDA PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Codan Services Limited
Clarendon House
2 Church Street
Hamilton HM 11
Bermuda

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE

Tricor Investor Services Limited
17/F, Far East Finance Centre
16 Harcourt Road
Hong Kong

PRINCIPAL BANKERS

DBS Bank (Hong Kong) Limited
Industrial and Commercial Bank of China (Asia) Limited
China Construction Bank (Asia) Corporation Limited
Shanghai Pudong Development Bank Co., Limited
Bank of China Limited
National Bank of Canada

HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Room 3403, 34/F
Lee Garden One
33 Hysan Avenue, Causeway Bay
Hong Kong

STOCK CODE

00346

WEBSITE

www.yanchanginternational.com

CHAIRMAN'S STATEMENT

In 2024, the international oil and gas market exhibited characteristics of high volatility, weak demand, and strong game under the backdrop of escalating geopolitical conflicts, divergent energy policies, and weakened growth momentum of global economy. Despite the continuous strategy for controlling supply of OPEC+, however, the slowdown in industrial activity in certain economies had put pressure on the demand growth of crude oil, which maintained a "tight balance and weak" trend throughout the year. During the year, international oil prices were driven by multiple factors such as frequent revisions of expectations for supply and demand, bombardments from geopolitical risk events, and disruptions in liquidity of financial capital, resulting in a significant increase in the complexity of operations in the industry. Facing external challenges, Yanchang Petroleum International Limited (the "Company") adhered to the business philosophy of "conducting quality improvement and dynamic optimisation in a stable manner", deepen the cost reduction and efficiency improvement of its principal oil and gas business, and strengthen its ability to hedge risks in the industrial chain. In the upstream segment, the Company actively engaged in technological innovation to enhance recovery rates and operational efficiency. The downstream business consolidated market resilience by enhancing market expansion and deepening business cooperation.

UPSTREAM OIL AND GAS PRODUCTION BUSINESS IN CANADA

Novus Energy Inc. ("Novus") was committed to implementing the various work plans for 2024, and fully organised production and operation by focusing on key targets of the year. In 2024, Novus sold a total of 843,000 barrels of oil equivalent, representing a year-on-year decrease of 22.95%. Sales revenue was CAD60,800,000, representing a year-on-year decrease of 29.61%. WTI prices remained basically unchanged, while sales prices of natural gas continued to decline, representing a significant decrease of 41.02% as compared to the previous year. Sales prices of oil and gas mixture decreased by 8.65%. Benefiting from the impairment recovery of oil and gas assets of CAD25,260,000, Novus recorded a net profit of CAD11,600,000. Although the operating performance was below expectations, the overall operating condition of Novus

maintained good resilience under the influence of sharp decline in oil and gas prices, exchange rates, production scale and revenue.

(I) Successfully achieving production targets

In 2024, despite the unfavorable situation of no external capital injection and rapid decline in production of new wells, Novus focused on the production targets of the year and made precise efforts to coordinate "two key issues", namely production of new wells as well as control and reduction of production decline of old wells. On the one hand, Novus saved funds and organised drilling and production scientifically and reasonably through a series of effective measures such as control of operating expenses, reduction of drilling and completion costs, and compression of controllable costs. Novus recorded total capital expenditure of CAD11,310,000 throughout the year and gave priority to drilling 5 one-mile wells (with total penetration of 11,628 meters) and putting 8 wells into operation in core high-quality blocks, with new wells contributing 7,300 tonnes of production. On the other hand, Novus actively implemented effective optimisation measures for production such as washing wells with hot oil, depressurisation with casing, and replacement of pump under the wells. Novus implemented various measures on more than 105 occasions throughout the year and thereafter increased production by 129 barrels of oil equivalent per day, effectively controlling the production decline of old wells. During the year, a total of 837,000 barrels of oil equivalent were produced, successfully achieving the annual production target.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

CHAIRMAN'S STATEMENT

(II) Remarkable improvements in production and operation

Novus has always been committed to efficient organisation of production and operation by implementing concepts of refined management, and achieved remarkable improvements. Firstly, facing extreme cold weather and snowstorms in February and a road closure order during the snowmelt period, Novus established inventory by fully utilising storage tanks of crude oil, which greatly reduced transportation costs, and conducted staggered sales in May when Viking crude oil prices approached US$80, which increased sales revenue by CAD1,880,000. Secondly, with relatively low capital expenditures on drilling in 2024, over 80 drillable wells under application faced the risk of expiration, in which it usually takes 6 to 12 months to obtain drillable wells on the ground. To avoid the onerous approval and application procedures for wells and ensure the reserve of drillable wells in Novus, the expiration time of drillable wells has been delayed through continuation and maintenance. Currently, more than 80 drillable wells are in a drillable state. Thirdly, Novus closely monitored international crude oil prices and changes in cash flow in a timely manner, organised production and construction scientifically and reasonably, and purchased casing, equipment and other materials in advance, ensuring the smooth progress of drilling and production. In 2024, the completion cost of a single well was reduced by CAD80,000 per well year-on-year. Fourthly, Novus endeavoured to identify partners. Novus negotiated with Teine Energy and entered into a joint operation agreement to drill one cooperative well, which will be put into operation in the near future. Fifthly, Novus signed a transportation agreement with a pipeline transportation company for 5 years to reduce pipeline transportation rates by 11% and limit the increase to 2% per year, saving transportation costs of CAD650,000 in 2024. Sixthly, Novus completed the review of all road use agreements and pursued the payment collection of road use fees owed by third parties, totaling over CAD22,000, to safeguard the rights and interests of Novus in the use of leased roads.

(III) Enhanced technological support

Adhering to the problem-oriented, demand-oriented and efficiency-oriented approaches and from the perspective of sustainable development of Novus oilfield, it conducted comprehensive research on the oilfield and leveraged the leading role of new technologies in the development of oilfield. Firstly, Novus built a solid foundation of technical support through internal and external collaboration. On the one hand, Novus strengthened its cooperation with research institutions in scientific research. "The Comprehensive Geological Research of Novus Oilfield", a project collaborated with a team of professors from the University of Regina, Canada, has successfully passed the acceptance of the expert group, providing a detailed description and resource assessment of "Success" reservoir and a reference for expanding resources in the oilfield. On the other hand, Novus fully leveraged the technical strength of internal and superior units and developed a set of development technologies targeting the characteristics of thin sandstone reservoirs. Novus completed a research project, "The Geological Characteristics and Development Practice of Petroleum in Novus Oilfield", which has won the first prize of Science and Technology Progress Award of Shaanxi Petrochemical. Secondly, Novus explored new ways to increase the production of oilfields with innovation as the driver. Based on the actual development of Novus oilfield", Novus completed the resource potential analysis for the Manville group, Milton block, Major block, and Wembley block and Halfway group, and provided exploration and development proposals. Novus explored measures to improve the production of single well, and compared and analysed the feasibility of waterflooding and gas injection for secondary processes. Novus studied and developed the implementation proposals for exploring potential and increasing efficiency of old wells. Through a comparative study on the production of wells in operation in the Viking reservoir between the Novus oilfield and other surrounding companies, Novus analysed the reasons for low production of wells in Novus oilfield. A research project, "The Research on Drilling of Horizontal Wells and Application of Efficient Development Technologies in Thin Sandstone Reservoirs in Novus Oilfield", is currently being

CHAIRMAN'S STATEMENT

applied for a key scientific research project in Shaanxi Province, focusing on tackling technical problems, including fine description of reservoirs, geological foundation research, distribution of residual oil, and high efficient development of horizontal wells. Thirdly, Novus continued to promote efficient development led by technologies. Novus scientifically prepared "The 2024 Exploration and Development Deployment Plan", enhanced geological support, and rigorously demonstrated the rationality of well locations. In response to the formation conditions where "Viking" and "Success" reservoirs are only 3–4 meters thin, all 5 wells are developed by 1-mile extended horizontal well technology, representing a year-on-year increase of 33.33% (extended wells accounted for 75% in 2023). The application of super single drilling technology, geo-steering drilling technique, and closed-end sliding fracturing technology became more and more mature. For the whole year, 5 1-mile wells (with total penetration of 11,628 meters) were drilled, with the drilling cycle controlled within 5 days. The oil reservoir drilling rate was 100%, creating a new historical high. The success rate of fracturing and sand addition was 98%, and the technical indicators were excellent, ranking among the top in the industry.

(IV) Continuous consolidation of resource reserves

In 2024, Novus recorded a sharp decrease in capital expenditures and faced dual pressures of maintaining oil and gas production and expiration of lands. Novus took a series of effective measures to maintain the sustainability of resources. Firstly, Novus has taken multiple measures to preserve the mining rights of its lands. In 2024, 100 square kilometers of land faced the risk of expiration. Through strategic drilling, good relationships and communication with the government, application for extension of mining rights, and negotiations with owners of mining rights, 68 square kilometers of lands were successfully preserved, delaying the expiration time of lands in blocks such as Court, Major, and Milton. Secondly, due to large-scale drilling activities in recent years, unregistered 2P reserves at 22 wells were converted into registered reserves. Due to lack of exploration activities and production of 837,000 barrels of oil equivalent, 2P reserves increased by 1,247,000 barrels of oil equivalent. As at the end of 2024, the 2P reserves reached 18,520,000 barrels of oil equivalent, representing a year-on-year increase of

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

CHAIRMAN'S STATEMENT

2.3%, which continuously consolidated the corporate resource base. Thirdly, Novus successfully drilled one exploration well and put it into operation in the "success" reservoir under the Madison group, with a cumulative production of 5,000 barrels of oil equivalent in six months. Novus studied and established a geological model, and reserved wells drillable in the future, laying the foundation for subsequent exploration and development as well as resource succession.

(V) Scientific preparation of development plans

Focusing closely on future development needs and based on the actual sustainable development of oilfields, Novus conducted thorough research on the oil and gas market in Canada and the centralised transportation and metering system for oil and gas of Novus oilfield, to gain a comprehensive understanding of Canada's oil and gas resources, investment policies, and systems, as well as mastering Novus's centralised transportation and processing capabilities of oil and gas, and formulated a report headed "The Research on the Oil and Gas Market in Canada" and a report headed "The Centralised Transportation and Metering System for Oil and Gas of Novus Oilfield". Combined with Novus's comprehensive geological and development technology research results, Novus carefully planned and scientifically prepared the development plan for Novus oilfield under different oil prices and investment conditions. At the same time, Novus accurately predicted the balance points for profit or loss and cash flow, and clarified its development direction.

(VI) Rigorous implementation of safety and compliance

Novus has always been committed to safety and environmental management, stringently complied with laws and regulations in Canada, and

CHAIRMAN'S STATEMENT

conscientiously fulfilled its obligations of emissions reduction and abandonment of oil and gas wells according to the requirements of the federal and provincial governments. 4 wells were connected to gas pipeline, and 700 meters of gas pipeline were newly constructed. 20 abandoned wells were shut down, and 25 well locations were applied for recycling. 38 square kilometers of land with mining rights were returned to the proprietors or the government. Throughout the year, there were no safety, environmental protection and engineering quality incidents at Novus oilfield, and Novus did not receive any emission reduction penalty from the government. There was a cumulative reduction of 136,000 tonnes of carbon dioxide emissions, avoiding carbon emission fines of CAD13.52 million.

DOWNSTREAM OIL AND BY-PRODUCTS SALES BUSINESS IN CHINA

In 2024, Henan Yanchang Petroleum Sales Co., Limited ("Henan Yanchang") thoroughly implemented its deployment, adhered to safe and compliant operations, firmly advanced market-oriented reforms and promoted the orderly development of various tasks. Henan Yanchang was awarded by the Emergency Management Department of Henan Province as a paired poverty alleviation group with outstanding achievements in safety production. Henan Yanchang obtained the honors of "11th Shaanxi Provincial Outstanding Equipment Management Unit" (第十一届陕西省設備管理優秀單位) and "Advanced Collective of Xinzheng City in Statistical Work" (新鄭市統計工作先進集體). In 2024, Henan Yanchang recorded a cumulative oil sales volume of 3,838,500 tonnes with an operating revenue of RMB27.034 billion and a net profit of RMB4.56 million.

(I) Steadily and orderly progressing business

(1) Sales at gas stations. Over the year, Henan Yanchang expanded the surrounding markets focusing on gas stations, and newly secured 36 major customers. 9 customers had a stable oil procurement exceeding 10,000 litres monthly. Active negotiations were conducted with surrounding communities,

shopping malls, restaurants and auto repair shops to establish cross-industry collaborations. Voucher sales promoted sales of 18,000 litres, and the gift card business generated sales of RMB105,300. (2) Sales through railway channel. Benefiting from its proactive expansion in sales channels, Henan Yanchang has established long-term and stable cooperative relationships with Sinopec, CNPC, as well as local state reserve and private enterprises. Through regular follow-ups and market research, tailored refined oil supply solutions were offered to customers, which elevated customer stickiness and loyalty. In 2024, Henan Yanchang successfully fostered partnerships with 10 new customers, expanding its customer base across multiple provincial markets and realized a sales volume of 64,900 tonnes with a sales amount of RMB464 million. (3) External sourcing. Efforts were made to proactively explore the development pathways for centralised procurement business to expand new partnerships. In 2024, centralised procurement was focused around the Ningxia and Shandong regions. Moreover, stable collaborations were established with CNOOC Huadong Company, CNPC Hubei Company, Shell Chongqing Company and Shell Wuhan Company. Leveraging its core business, Henan Yanchang has expanded sales in the Hubei, Hunan and Chongqing regions. Throughout the year, the centralised procurement business reached 42,740 tonnes, establishing a strong market presence along the Yangtze River. (4) Sales at oil depots. A flexible pricing approach featuring price negotiation on a case-by-case basis for loyal customers and large-volume customers was implemented to enhance customer retention. In 2024, Henan Yanchang acquired 62 new customers and 1 new supplier. Sales to major customers (with annual sales exceeding 500 tonnes) amounted 52,900 tonnes. Giving full play to the strengths of oil depots, Henan Yanchang facilitated the transfer of 7,700 tonnes of Yanchang's oil products when its sales channels were disrupted, ensuring the smooth distribution of Yanchang's oil products. (5) Sales through highway channel. With each station as the central hub, radiating out to a radius of 200 kilometers, the development of end users was taken as a priority.

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

CHAIRMAN'S STATEMENT

While consolidating sales within the province, efforts were exerted to expand cooperation with end customers in other regions such as Shanxi, Ningxia and Inner Mongolia. This strategy aims to broaden the market coverage radius and boost sales.

(II) Remarkable achievements in business expansion

Firstly, Henan Yanchang actively promoted a membership system of terminal retailing covering all online customers and launched diversified new recruitment and membership activities, with a total of 350,000 members in the entire network and 90,000 members following our official accounts. Secondly, the efficient implementation of the fixed investment business has served 37 gas stations of Sinopec Henan (accounting for $44\%$ of its gas stations in Sanmenxia, with direct distribution sales representing over $75\%$ of diesel sales). The annual fixed investment sales reached 50,100 tonnes, with over 1,400 deliveries without any oil product backflow

or quality disputes. Thirdly, Henan Yanchang has vigorously pursued state reserve collaborations, securing supply of two batches of oil products totaling 90,000 tonnes to the Hubei state reserve, achieving a price difference of over RMB11 million. Fourthly, our independent transportation for external sourcing totaling 68,200 tonnes in the Yangtze River recorded a revenue of RMB602 million with a price difference of RMB1,913,000, covering 12 cities in 6 provinces in central and southwestern China, which significantly shored up our influence in the market of central China. Fifthly, Henan Yanchang was selected as a supplier to CNPC Hubei and CNOOC Huadong, supplying 29,300 tonnes of oil in 2024.

CHAIRMAN'S STATEMENT

(III) Robustly strengthening of business assurance

Firstly, 48 business processes across eight core modules, including customer and vendor management and pricing strategies, were comprehensively reviewed and restructured, efficiently enhancing business compliance and operational efficiency. Secondly, the retail management system was upgraded with the completion of the reform on retail business remuneration, optimisation of pricing strategies and the visual system design for gas stations. Thirdly, Henan Yanchang has advanced the optimisation of its organizational structure, completing the job position setup and value assessments. Proposals for open recruitment bidding and salary restructuring were also formulated and orderly implemented. Fourthly, the fee quota standard of Henan Yanchang was sorted out and fixed to solidify the foundation for implementing comprehensive budget management. Fifthly, we steadily facilitated the informatization construction and completed the system development of the direct connection between banks and enterprises, a direct connection between tax authorities and enterprises, CRM and expense control platform. Sixthly, the lease of Xiangcheng oil depot was terminated upon expiry through coordination. An overall reduction of 30% in the leasing fees for the Xiangcheng gas station (a total rent reduction of RMB1.74 million per year) was achieved.

(IV) Consistent consolidation of the safety foundation

Firstly, we passed the inspection of Safety Risk Intelligent Control Platform. Secondly, we organised two on-site meetings for the "High-Standard and Refined Management of Key Fire Safety Units" (消防安全重點單位高標準精細化管理) in Xinzheng City, which were attended by over 200 participants. Our safety management efforts were highly commended by both the local government and enterprises. Thirdly, we took the initiative to resolve existing risks and tax-related issues, reducing back taxes and late payment penalties by more than RMB10 million. Fourthly, our franchise contract with Ningxia Yongrun Pingluo Gas Station was terminated, effectively mitigating relevant operational risks. In 2024, we earned multiple awards, including Excellent Quality Management Achievements of National Petroleum and Chemical Industry (全國石油和化工行業優秀質量管理成果), the Sixth National Equipment Management and Technological Innovation Achievements (第六屆全國設備管理與技術創新成果獎), first class team and second class team recognised by China Association of Work Safety in terms of standardisation of safety management in 2024 (中國安全生產協會二零二四年度安全管理標準化一級班組、二級班組), First Prize, Second Prize and Exemplary Workshop of "Golden Idea" Invention of Mobile Equipment Management of China Equipment Management Association (中國設備管理協會活動設備管理「金點子」發明一等獎、二等獎及標杆工作室).

YANCHANG PETROLEUM INTERNATIONAL LIMITED
ANNUAL REPORT 2024

CHAIRMAN'S STATEMENT

OUTLOOK

Looking ahead to 2025, the international oil and gas market may face two headwinds of weak demand recovery and high volatility in supply. The threat of tariff war may slow down global economic growth, coupled with persistent geopolitical risks and energy policy uncertainties may further aggravate downward pressure on oil price. The capital expenditure in the industry is expected to favour areas with stronger anti-cyclical resilience. The Company will continue to beef up the efficiency of its oil and gas business across the entire industry chain and strengthen its cost control and market responsiveness through digital tools, with a strategic focus on consolidating fundamentals and fostering new growth drivers. The Company will uphold the principles of risk-control and innovation-driven and strive to create sustainable value for shareholders.

MANAGEMENT DISCUSSION AND ANALYSIS

FINANCIAL REVIEW

The board (the "Board") of directors (the "Director(s)") of the Company is pleased to announce the audited consolidated results of the Company and its subsidiaries (together the "Group") for the year ended 31 December 2024 together with the comparative figures as follows:

Highlights on financial results

| | 2024
HK$'000 | 2023
HK$'000 | Change in % |
| --- | --- | --- | --- |
| Revenue | 29,184,915 | 27,742,529 | 5% |
| Other revenue | 9,132 | 17,784 | (49%) |
| Cost of revenue | (28,782,973) | (27,145,282) | 6% |
| Royalties | (57,592) | (93,109) | (38%) |
| Field operation expenses | (89,376) | (108,712) | (18%) |
| Exploration and evaluation expenses | (2,680) | (2,597) | 3% |
| Selling and distribution expenses | (21,295) | (18,726) | 14% |
| Administrative expenses | (86,830) | (110,523) | (21%) |
| Depreciation, depletion and amortisation | (163,402) | (240,726) | (32%) |
| Net reversal/(recognition) of impairment loss of property, plant and equipment | 137,606 | (158,489) | N/A |
| Provision for expected credit loss | (5,676) | (43,923) | (87%) |
| Provision for litigations | – | (84,274) | (100%) |
| Other gains and losses | (31,744) | 11,316 | N/A |
| Finance costs | (34,930) | (58,926) | (41%) |
| Gain on deconsolidation of a subsidiary | – | 882,050 | (100%) |
| Taxation | 423 | (8,260) | N/A |
| Profit for the year | 55,578 | 580,132 | |

Segment revenue and segment results

For the year under review, the Group's operating segments comprised (i) exploration, exploitation and operation business, and (ii) supply and procurement business. During the year ended 31 December 2024, the Group's turnover was mainly derived from the production of oil and natural gas business in Canada as well as the oil and by-products trading business in the People's Republic of China ("PRC").

Novus is engaged in the business of exploration, exploitation and production of oil and natural gas in Western Canada. Novus achieved sales volume of oil and gas of 843,000 BOE and contributed revenue of HK$331,333,000 during the year under review as compared to sales volume of 1,093,000 BOE and revenue of HK$501,817,000 of the previous year. Due to the decrease of both sales volume and oil prices in 2024, the exploration, exploitation and operation business recorded an operating loss of HK$4,300,000, as compared to an operating profit of HK$33,431,000 in 2023.

YANCHANG PETROLEUM INTERNATIONAL LIMITED
ANNUAL REPORT 2024

MANAGEMENT DISCUSSION AND ANALYSIS

FINANCIAL REVIEW (Continued)

Highlights on financial results (Continued)

Segment revenue and segment results (Continued)

Due to sales volume increased from the previous year of 3.42 million tonnes to this year of 3.84 million tonnes, the revenue of oil and by-products trading business in the PRC increased from the previous year of HK$27,240,712,000 to this year of HK$28,853,582,000 in spite of lower selling prices. For the year under review, supply and procurement business generated an operating profit of HK$5,084,000, as compared to an operating loss of HK$118,066,000 in 2023.

Other revenue

Apart from the aforesaid segment results, the Group recorded other revenue of HK$9,132,000 this year which mainly represented interest income from bank deposits and oil card income in the PRC, as compared to that of HK$17,784,000 in the previous year.

Cost of revenue

Cost of revenue was wholly derived from the oil and by-products trading business in the PRC, which increased from the previous year of HK$27,145,282,000 to this year of HK$28,782,973,000. The increase of cost of revenue was mainly due to the increase in sales of the refined oil and by-products trading business of Henan Yanchang in the PRC.

Royalties

Royalties, including crown, freehold and overriding royalties were incurred by Novus for the oil and natural gas production business in Canada, decreased from the last year of HK$93,109,000 to the current year of HK$57,592,000 due to decrease in sales volume.

Field operation expenses

Due to decrease in production, field operation expenses decreased to this year of HK$89,376,000 from the previous year of HK$108,712,000. Such expenses were incurred by Novus in the production of oil and natural gas in Canada, which included labour costs, repairs and maintenance, processing costs, fluid hauling, lease rentals and workovers etc.

Exploration and evaluation expenses

Exploration and evaluation expenses amounted to HK$2,680,000 this year which represented the holding costs, mainly lease rentals, on the interests of non-producing lands held by Novus, compared to that of HK$2,597,000 in the previous year.

Selling and distribution expenses

Selling and distribution expenses mainly derived from the refined oil and by-products trading business of Henan Yanchang in the PRC, increased from the previous year of HK$18,726,000 to the current year of HK$21,295,000.

Administrative expenses

Administrative expenses including directors' remuneration, staff costs, office rentals, professional fees and listing fee etc., amounted to HK$86,830,000 this year, saving of HK$23,693,000 as compared to HK$110,523,000 of the previous year.

Depreciation, depletion and amortisation

Depreciation, depletion and amortisation decreased from the previous year of HK$240,726,000 to the current year of HK$163,402,000. It was mainly due to the simultaneous decrease in depletion of oil and gas assets of Novus in Canada because of the decrease in production during the year under review.

Net reversal/(recognition) of impairment loss of property, plant and equipment

Net reversal of impairment loss of property, plant and equipment of HK$137,606,000 mainly due to the reversal of impairment loss of oil and gas assets in Canada.

Provision for expected credit loss

The Company recognised provision for expected credit loss of HK$5,676,000 for trade and other receivables of oil and by-products trading business in the PRC, as compared to HK$43,923,000 in previous year.

MANAGEMENT DISCUSSION AND ANALYSIS

FINANCIAL REVIEW (Continued)

Highlights on financial results (Continued)

Provision for litigations

No provision for litigations was made for the year under review. Provision for litigations of the last year was all attributable to Yanchang Petroleum (Zhejiang FTZ) Limited ("Yanchang Zhejiang") which was deconsolidated from the Group in previous year.

Other gains and losses

Other loss of HK$31,744,000 recorded this year mainly including (i) net foreign exchange loss of HK$36,281,000, and (ii) gain on lease modification of HK$6,588,000.

Finance costs

Finance costs of HK$34,930,000 mainly comprised (i) bank borrowing costs and secured term loans interests totalling HK$22,840,000, (ii) accretion expenses totalling HK$2,586,000, (iii) imputed interest of HK$3,598,000 and (iv) interest expenses on other loans of HK$5,906,000.

Taxation

Tax credit of HK$423,000 comprised (i) over-provision for the PRC enterprise income tax on the profit earned from the oil and by-products trading business amounted to HK$253,000, and (ii) recognition of deferred tax assets amounted to HK$170,000.

Profit for the year

Benefiting from the impairment recovery of oil and gas assets in Canada, the Group as a whole recorded a profit of HK$55,578,000 during the year under review, as compared to a profit of HK$580,132,000 for the previous year. The significant decrease in profit in 2024 was mainly due to the absence of one-off gain arising from deconsolidation of Yanchang Zhejiang in 2023.

Highlights on financial position

| | 2024
HK$'000 | 2023
HK$'000 | Change in
% |
| --- | --- | --- | --- |
| Property, plant and equipment | 1,771,918 | 1,859,533 | (5%) |
| Investment properties | 11,542 | 12,590 | (8%) |
| Exploration and evaluation assets | 8,898 | 11,384 | (22%) |
| Right-of-use assets | 75,730 | 99,349 | (24%) |
| Goodwill and intangible asset | 58,149 | 58,149 | - |
| Inventories | 89,851 | 346,580 | (74%) |
| Trade receivables | 457,758 | 1,014,916 | (55%) |
| Prepayments, deposits and other receivables | 47,478 | 55,853 | (15%) |
| Cash and bank balances | 278,675 | 226,188 | 23% |
| Trade and other payables | (650,214) | (1,208,394) | (46%) |
| Bank borrowings and other loans | (159,691) | (405,594) | (61%) |
| Decommissioning liabilities | (166,761) | (171,349) | (3%) |
| Lease liabilities | (66,417) | (94,653) | (30%) |
| Secured term loans | (444,652) | (445,355) | - |

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

MANAGEMENT DISCUSSION AND ANALYSIS

FINANCIAL REVIEW (Continued)

Highlights on financial position (Continued)

Property, plant and equipment

Property, plant and equipment consisted of buildings, furniture, fixtures and equipment, plant and machineries, motor vehicles, petroleum and natural gas properties and construction-in-progress amounted to HK$1,771,918,000 as at 31 December 2024, the amount decreased by HK$87,615,000 compared to that of the last year which was mainly attributable to the decrease of petroleum and natural gas properties in Canada.

Investment properties

Investment properties as at the year end comprised properties in the PRC owned by Henan Yanchang leased out in return of receiving rental income.

Exploration and evaluation assets

Exploration and evaluation assets mainly represented the undeveloped lands held by Novus as at 31 December 2024.

Right-of-use assets

Right-of-use assets amounted to HK$75,730,000 as at 31 December 2024, consisted of leasehold lands and gas stations in the PRC owned by Henan Yanchang and office and staff quarter rentals in the PRC, Hong Kong and Canada of the Group.

Goodwill and intangible asset

Goodwill and intangible asset was arisen on the acquisition of 70% interest in Henan Yanchang by the Group in 2011. No impairment had been made for such asset during the year, hence the amount remained the same as the previous year.

Inventories

Inventories represented the refined oil held in oil storage tanks of Henan Yanchang in the PRC as at 31 December 2024.

Trade receivables

Trade receivables represented account receivables from customers of Novus in Canada and Henan Yanchang in the PRC as at 31 December 2024. The outstanding amounts had been mostly recovered in February 2025.

Prepayments, deposits and other receivables

Prepayments, deposits and other receivables decreased to this year of HK$47,478,000 from the previous year of HK$55,853,000. Such decrease was mainly due to the decrease in prepayments made for the purchase of refined oil by Henan Yanchang for its refined oil trading business.

Cash and bank balances

As at 31 December 2024, cash and bank balances maintained at HK$278,675,000 as compared to the last year of HK$226,188,000.

Trade and other payables

Trade and other payables mainly represented trade payables to suppliers and prepayments received in advance from customers of oil and by-products trading business of Henan Yanchang in the PRC as at 31 December 2024.

Bank borrowings and other loans

The amount represented loans from banks of the PRC for financing the refined oil and by-products trading business in the PRC and other unsecured loans from Shaanxi Yanchang Petroleum (Group) Co., Limited ("Yanchang Petroleum Group") and third parties.

Decommissioning liabilities

Decommissioning liabilities amounted to HK$166,761,000 as at 31 December 2024, representing the expected future costs associated with the plugging and abandonment of wells, facilities dismantlement and site reclamation in Canada incurred by Novus.

MANAGEMENT DISCUSSION AND ANALYSIS

FINANCIAL REVIEW (Continued)

Highlights on financial position (Continued)

Lease liabilities

Lease liabilities amounted to HK$66,417,000 as at 31 December 2024, representing the obligation to make lease payments in relation to leasehold lands in the PRC, and office, gas station and staff quarter rentals in the PRC, Hong Kong and Canada.

Secured term loans

Secured term loans included the US$35,000,000 3-year secured term loan granted to Novus by Yanchang Petroleum Group (Hong Kong) Co., Limited (“Yanchang Petroleum HK”) and US$22,000,000 3-year secured term loan granted to the Company by Yanchang Petroleum HK as general working capital for operation.

LIQUIDITY AND FINANCIAL RESOURCES

The Group funded its operation mainly by its internal resources together with bank borrowings and secured term loans for the year ended 31 December 2024.

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Current assets | 873,762 | 1,643,537 |
| Total assets | 2,799,999 | 3,684,542 |
| Current liabilities | 816,878 | 2,067,497 |
| Total liabilities | 1,499,820 | 2,336,376 |
| Total equity | 1,300,179 | 1,348,166 |
| Gearing ratio | 115.4% | 173.3% |
| Current ratio | 107.0% | 79.5% |

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

MANAGEMENT DISCUSSION AND ANALYSIS

LIQUIDITY AND FINANCIAL RESOURCES (Continued)

The Group had outstanding variable interest rates bank borrowings amounted to HK$106,000 (equivalent to RMB100,000) as at 31 December 2024 (31 December 2023: HK$131,544,000) under Henan Yanchang. The Group has obtained bank facilities of HK$526,630,000 (equivalent to RMB495,000,000) from banks in the PRC.

On 20 December 2019, Novus drew down a secured term loan of US$35,000,000 granted by Yanchang Petroleum HK which bears interest rate at 4.8% per annum and repayable in 3 years. The secured term loan granted to Novus by Yanchang Petroleum HK as general working capital for operation. On 6 December 2022, Novus entered into a supplemental facility agreement with Yanchang Petroleum HK, pursuant to which Novus renewed the secured term loan of US$35,000,000 which bears interest rate at 4.8% per annum and repayable in 3 years. The principal amount of relevant secured term loan was still outstanding as at 31 December 2024.

On 3 September 2021, the Company drew down a secured term loan of US$22,000,000, granted by Yanchang Petroleum HK which bears interest rate at 4.8% per annum and repayable in 3 years. The secured term loan granted to the Company by Yanchang Petroleum HK as general working capital for operation. On 8 August 2024, the Company entered into a supplemental loan agreement with Yanchang Petroleum HK, pursuant to which the Company renewed the secured term loan of US$22,000,000 which bears interest rate at 5.2% per annum and repayable in 3 years. The principal amount of relevant secured term loan was still outstanding as at 31 December 2024.

As at 31 December 2024, the Group had cash and bank balances of HK$278,675,000 (31 December 2023: HK$226,188,000). In view of the cash on hand together with the available bank facilities, the Group has sufficient working capital to finance its business operation.

As at 31 December 2024, the gearing ratio of the Group, measured on the basis of total liabilities as a percentage of total equity, was 115.4% as compared to 173.3% of the previous year. The current ratio of the Group, measured on the basis of current assets as a percentage of current liabilities stood at 107.0% as at 31 December 2024 (31 December 2023: 79.5%).

COMMODITY PRICE MANAGEMENT

Novus is engaged in crude oil and gas development, production and selling activities. Prices of crude oil and gas are affected by both domestic and global factors which are beyond the control of Novus. The fluctuations in such prices may have favourable or unfavourable impacts to the Group. Therefore the Group was exposed to general price fluctuations of crude oil and gas. No commodity contract was entered for the year ended 31 December 2024 (31 December 2023: nil).

TREASURY MANAGEMENT AND POLICIES

The Group adopts a prudent approach for its cash management and risk control. The objective of the Group's treasury policies is to minimise risks and exposures due to the fluctuations in foreign currency exchange rates and interest rates.

Cash has been generally placed in short-term deposits denominated in Hong Kong dollar, US dollar, Canadian dollar and Renminbi. The Group has obtained bank facilities and borrowings with stable interest rates. The Group does not foresee any significant interest rate risks. The Group's transactions and investment are mostly denominated in Hong Kong dollar, US dollar, Canadian dollar and Renminbi. As the Group's policy is to have its operating entities to operate in their corresponding local currencies to minimise currency risks, therefore the Group does not anticipate any material foreign exchange exposures and risks.

During the year under review, no hedging transactions related to foreign exchange had been made, proper steps will be taken when the management considers appropriate.

MATERIAL ACQUISITIONS AND DISPOSALS

The Group had no material acquisitions and disposals for the year ended 31 December 2024 (31 December 2023: nil).

SIGNIFICANT INVESTMENTS

The Group did not hold any significant investments as at 31 December 2024 (31 December 2023: nil).

MANAGEMENT DISCUSSION AND ANALYSIS

CAPITAL COMMITMENTS

As at 31 December 2024, the Group had commitments related to property, plant and equipment amounted to HK$179,000 (31 December 2023: HK$275,000).

Save as the aforesaid, the Group did not have any other material commitments as at 31 December 2024.

PLEDGE OF ASSETS

US$35,000,000 secured term loan granted by Yanchang Petroleum HK, available to Novus, is secured by the debenture of US$70,000,000 with first and fixed charge over all of Novus' right, title and interest, with floating charge over all assets of Novus.

US$22,000,000 secured term loan granted by Yanchang Petroleum HK, available to the Company, is secured by 70% of the issued share capital of Henan Yanchang under the share charge deed pursuant to which the Company agreed to provide a guarantee in favour of Yanchang Petroleum HK that the Company shall procure on the best effort basis the carrying valuation of Henan Yanchang will be not less than US$31,430,000.

Save as the aforesaid, none of the Group's other assets had been pledged for granting the bank and other borrowings.

CONTINGENT LIABILITIES

As at 31 December 2024, the Group did not have any significant contingent liabilities (31 December 2023: nil).

EMPLOYEES AND REMUNERATION POLICIES

As at 31 December 2024, the Group's total number of staff was 204 (2023: 207). Salaries of employees were maintained at a competitive level with total staff costs for the year ended 31 December 2024 amounted to HK$86,607,000 (2023: HK$82,938,000). Remuneration policy is based on principle of equality, motivation, performance and prevailing market practice and remuneration packages are normally reviewed on an annual basis. Other staff benefits include provident fund, medical insurance coverage, etc. There is also a share option scheme offered to employees and eligible participants. No share option was granted under the Company's share option scheme during the year ended 31 December 2024 (31 December 2023: nil).

DIVIDENDS

The Board does not recommend the payment of any dividends for the year ended 31 December 2024 (31 December 2023: nil).

HEALTH, SAFETY AND ENVIRONMENT POLICIES

The Group is committed to ensuring a safe and healthful workplace and the protection of the environment. The Company believes that safety and protecting the environment is important to good business and that all work-related injuries, illnesses, property losses and adverse environmental impacts are preventable. There are no loss time accidents occurred in 2024 and 2023.

The Group's health, safety and environment policies include:

Make health, safety and environmental considerations a top priority.
Work actively to continuously improve safety and environmental performance.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

MANAGEMENT DISCUSSION AND ANALYSIS

HEALTH, SAFETY AND ENVIRONMENT POLICIES (Continued)

Identify potential risks and hazards before work begins.
Encourage personnel to be individually responsible for identifying and eliminating hazards.
Ensure personnel have sufficient training, resources and systems.
Provide and maintain properly engineered facilities, plants and equipment.
Actively monitor, audit and review to improve systems, processes, environmental and safety performance.
As a minimum, ensure regulatory compliance at all times.

No environmental claims, lawsuits, penalties or administrative sanctions were reported to the Company's management. The Company is of the view that the Group was in compliance with all relevant laws and regulations in Hong Kong, Canada and the PRC, regarding environmental protection in all material respects during the year under review and as at the date of the annual report. The Group has also adopted and implemented the environmental policies on a standard which is not less stringent than the prevailing environmental laws and regulations of Hong Kong, Canada and the PRC.

RELATIONSHIP WITH SUPPLIERS, CUSTOMERS AND OTHERS

The Group understands the importance of maintaining a good relationship with its suppliers and customers to meet its immediate and long-term goals. The Group has built up long-term relationship with suppliers and customers. During the year under review, there were no material and significant dispute between the Group and its suppliers and/or customers.

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES

This section provides supplemental information on oil and gas activities in accordance with the Chapter 18 of Rules Governing the Listing of Securities (the "Listing Rules") on The Stock Exchange of Hong Kong Limited (the "Stock Exchange").

A. INFORMATION ON CRUDE OIL AND NATURAL GAS RESERVES

The Group has adopted the Canadian Oil and Gas Evaluation Handbook ("COGEH") prepared jointly by the Society of Petroleum Evaluation Engineers (Calgary Chapter) and the Canadian Institute of Mining, Metallurgy & Petroleum (Petroleum Society) in reserves estimation that are consistent with the standards of National Instrument 51-101. Reserves are determined through analysis of geological and engineering data which appear, with reasonable certainty, to be economically producible in the future from known and discovered oil and natural gas reservoirs under existing economic conditions, operating methods and government regulation.

Reported total reserves are estimated by deterministic or probabilistic methods under the following levels of certainty under a specific set of economic conditions:

a. There is a 90% probability that at least the estimated proved reserves will be recovered.

b. There is a 50% probability that at least the sum of the estimated proved reserves plus probable reserves will be recovered.

A quantitative measure of the probability associated with a reserves estimate is generated only when a probabilistic estimate is conducted. The majority of reserves estimates is performed using deterministic methods that do not provide a quantitative measure of probability.

The Group engaged an independent third party consulting firm, Sproule Associates Limited to evaluate the Group's estimation on proved and probable reserves as at 31 December 2024 and its opinion that the reserve estimates are reasonable.

YANCHANG PETROLEUM INTERNATIONAL LIMITED
ANNUAL REPORT 2024

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES

A. INFORMATION ON CRUDE OIL AND NATURAL GAS RESERVES (Continued)

The following table sets out the estimates of Group's net interest reserves:

Net proved reserves	Oil and natural gas liquids (Mbbl)	Canada
		Natural gas (MMcf)	Total (Mboe)
At 1 January 2024	9,643.8	18,832.0	12,782.5
Acquisition	–	–	–
Production	(656.7)	(1,092.0)	(838.7)
Disposals	–	–	–
Discoveries & revisions	743.5	2,578.0	1,172.7
At 31 December 2024	9,730.6	20,318.0	13,116.5
Net probable reserves	Oil and natural gas liquids (Mbbl)	Canada
		Natural gas (MMcf)	Total (Mboe)
At 1 January 2024	3,957.5	8,190.0	5,322.5
Acquisition	–	–	–
Disposals	–	–	–
Discoveries & revisions	48.9	190.0	80.7
At 31 December 2024	4,006.4	8,380.0	5,403.2
Net proved + probable reserves	Oil and natural gas liquids (Mbbl)	Canada
		Natural gas (MMcf)	Total (Mboe)
At 1 January 2024	13,601.3	27,022.0	18,105.0
Acquisition	–	–	–
Production	(656.7)	(1,092.0)	(838.7)
Disposals	–	–	–
Discoveries & revisions	792.4	2,768.0	1,253.4
At 31 December 2024	13,737.0	28,698.0	18,519.7

Notes:
1. Barrels of oil equivalent ("boe") is calculated using a conversion ratio of 6 Mcf/bbl.
2. The Group's net interest reserves represent the Group's working interests excluding interests owned by others in Canada.
3. bbl = barrels
Mbbl = thousand barrels
Mboe = thousand barrels of oil equivalent
Mcf = thousand cubic feet
MMcf = million cubic feet

SUPPLEMENTARY INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES

B. MAJOR EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES

The following table summarised the major exploration, development and production activities during the reporting period:

	Canada	Madagascar
Exploration activities:	Nil	Nil
Development activities:	5 wells drilled
8 wells completed	Nil
Production activities:	Average daily net production
Oil: 1,675 bbl
Gas: 2,945 Mcf	Nil

C. GROUP'S SHARE OF COSTS INCURRED ON EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES

The following table summarised the Group's share of costs incurred on exploration, development and production activities for the year ended 31 December 2024:

| | Canada
HK$'000 | Madagascar
HK$'000 | Total
HK$'000 |
| --- | --- | --- | --- |
| Exploration costs | 2,680 | – | 2,680 |
| Developments costs | 74,415 | – | 74,415 |
| Production costs (note) | 89,376 | – | 89,376 |

Note: Production costs excluding depletion, depreciation and amortisation, government tax and selling expenses.

YANCHANG PETROLEUM INTERNATIONAL LIMITED
ANNUAL REPORT 2024

DIRECTORS' AND SENIOR MANAGEMENT'S BIOGRAPHIES

EXECUTIVE DIRECTORS

Mr. Feng Yinguo

Aged 59, was appointed as an executive Director on 9 June 2020 and was also appointed as the chairman of the Board and an authorised representative of the Company on 1 April 2021. Mr. Feng is currently the executive director and the deputy secretary of the Party Committee of Shaanxi Yanchang Petroleum International Energy & Chemical Co., Limited under Shaanxi Yanchang Petroleum (Group) Co., Limited ("Yanchang Petroleum Group"). Mr. Feng joined Yanchang Petroleum Management Bureau under Yanchang Petroleum Group in December 1983. He was mainly responsible for oil mine management, exploration and development, and was promoted from technician to deputy officer. From December 2017 to March 2020, he served in Oil And Gas Exploration Company under Yanchang Petroleum Group and was promoted to deputy general manager. Mr. Feng obtained a master's degree in Executive Master of Business Administration at Shaanxi Master of Business Administration Institute, and is also a senior petroleum engineer. Mr. Feng has been engaged in oil and gas exploration, development and management for a long time, and has extensive experience in integrated oil and gas management and business leadership. Save as the aforesaid, Mr. Feng did not hold directorship in other listed companies in the past three years.

Ms. Wang Haining

Aged 48, was appointed as an executive Director on 22 July 2024. Ms. Wang, a senior accountant and registered accountant, is currently the supervisor of the Finance Center and deputy secretary of the Party Committee of Shaanxi Yanchang Petroleum (Group) Co., Ltd. ("Yanchang Petroleum Group"). Ms. Wang joined Yanchang Petroleum Group in 2009. Ms. Wang served as the chief accountant of Shaanxi Yanchang Petroleum Materials Group from February 2017 to December 2022, and Ms. Wang has been the supervisor of the Finance Center of Yanchang Petroleum Group since January 2023, where she is primarily responsible for the financial management of Yanchang Petroleum Group. She was graduated from Central University of Finance and Economics with a Bachelor's degree in Finance in 2000. Ms. Wang has been engaged in financial management in the petroleum and petrochemical industry for a long time, and has many years of extensive experience in financial and finance management, as well as the operation and governance of petroleum enterprises. Save as aforesaid, Ms. Wang did not hold any directorship in other listed companies in the past three years.

Mr. Ding Jiasheng

Aged 37, was appointed as an executive Director on 1 April 2021. Mr. Ding is currently the executive chairman of Novus, an indirect wholly-owned subsidiary of the Company in Canada. Mr. Ding joined Novus in May 2014 and has served as the production engineer, exploration and development engineer, vice president and executive chairman of Novus. He has extensive technical and management experience. He holds a bachelor's degree in petroleum engineering from the University of Alberta in Canada and a master's degree in Earth and Environment from the Columbia University in U.S.A., and is a registered professional engineer in Canada. Save as the aforesaid, Mr. Ding did not hold any directorship in other listed companies in the past three years.

NON-EXECUTIVE DIRECTOR

Mr. Sun Jian

Aged 31, was appointed as a non-executive Director on 8 February 2023. Mr. Sun is currently the director of the Shenzhen office of Changan Huitong Co., Ltd., the executive director and general manager of Changan Huitong (Shenzhen) Investment Co., Ltd., and the director of Changan Huitong Investment (Hong Kong) Co., Ltd. He worked in Orient Securities Co., Limited and Research Institute of Guotai Junan Securities Co., Limited during 2017 to 2021. Mr. Sun graduated from Beijing Foreign Studies University with a Master's Degree in International Finance and Trade. Mr. Sun has extensive experience and professional knowledge in finance, investment and capital market. Save as the aforesaid, Mr. Sun did not hold any directorship in other listed companies in the past three years.

DIRECTORS' AND SENIOR MANAGEMENT'S BIOGRAPHIES

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. Ng Wing Ka

Aged 55, was appointed as an independent non-executive Director on 7 January 2005. Mr. Ng is also the chairman of the nomination committee and a member of the audit committee of the Company. Mr. Ng graduated with a Bachelor of Laws degree and a Post-graduated Certificate in Laws from The University of Hong Kong. He is the partner of Tung, Ng, Tse & Lam, Solicitors. Mr. Ng was elected as a member of the 14th Hong Kong delegation to the National People's Congress of the People's Republic of China in December 2022. Mr. Ng has been elected as a member of Court and was appointed as a member of the Council of the University of Hong Kong. Mr. Ng is a chairman of the Hong Kong Taiwan Business Co-operation Committee, a chairman of HKSAR Passports Appeal Board, a vice chairman of Independent Police Complaint Council, and a non-executive director of The Hong Kong Mortgage Corporation Limited, a member of Competition Commission and a member of the Chinese People's Political Consultative Conference of Shaanxi Province, the PRC. Mr. Ng has been appointed as an independent non-executive director of MTR Corporation Limited (a company listed on The Stock Exchange of Hong Kong Limited (the "Stock Exchange")) since May 2019. Mr. Ng has also been appointed as an independent non-executive director of Glorious Sun Enterprises Limited (a company listed on the Stock Exchange) since June 2019 and appointed as an independent non-executive Director of Catalo Natural Health Science Limited since 1 September 2024. He has been re-elected as a member of the Legislative Council (Industrial (Second) Functional Constituency) on 20 December 2021. Save as the aforesaid, Mr. Ng did not hold any directorship in other listed companies in the past three years.

Mr. Leung Ting Yuk

Aged 50, was appointed as an independent non-executive Director on 3 December 2009. Mr. Leung is also the chairman of the audit committee and a member of the remuneration committee of the Company. He is a member of the Certified Practicing Accountants, Australia and the Hong Kong Institute of Certified Public Accountants. He has over 20 years' experience in financial management, accounting and auditing. Mr. Leung has been appointed as an independent non-executive director of Most Kwai Chung Limited (a company listed on the Stock Exchange) since March 2018 and he has also been appointed as an independent non-executive director of Xinyi Energy Holdings Limited (a company listed on the Stock Exchange) since November 2018. Mr. Leung has been appointed as an independent non-executive director of Tai United Holdings Limited (a company listed on the Stock Exchange) since July 2023. Save as the aforesaid, Mr. Leung did not hold any directorship in other listed companies in the past three years.

Mr. Sun Liming

Aged 71, was appointed as an independent non-executive Director, the chairman of the remuneration committee and a member of each of the audit committee and the nomination committee of the Company on 1 April 2012. Mr. Sun holds a bachelor's degree in management engineering from Xi'an Jiaotong University. Mr. Sun has extensive experience in corporate planning, and economic and financial management. Mr. Sun was a managing director of Lishan Company Limited in Hong Kong and a chief representative of Shaanxi Commerce Representative Office in Hong Kong for years, and he served as chief economist with 中國電子進出口陝西公司 (China Electronics Import and Export Shaanxi Company) as well as worked in stated-owned sectors for various senior economic and financial positions. Mr. Sun had been acted as an executive director, a co-chief executive officer and the chairman of the investment committee of DTXS Silk Road Investment Holdings Company Limited (a company listed on the Stock Exchange) from 1 February 2023 to 15 January 2024. Save as the aforesaid, Mr. Sun did not hold any directorship in other listed companies during the past three years.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

DIRECTORS' AND SENIOR MANAGEMENT'S BIOGRAPHIES

INDEPENDENT NON-EXECUTIVE DIRECTORS (Continued)

Dr. Mu Guodong

Aged 67, was appointed as an independent non-executive Director on 28 December 2012. Dr. Mu was graduated from the School of Economics and Finance of Xi'an Jiaotong University (formerly known as "Shaanxi Institute of Finance & Economics") with a Master degree of Economics in 1988. He was appointed by the State Education Commission of the People's Republic of China as a visiting scholar of Macquarie University in Australia in 1993. Dr. Mu obtained the Endeavour Awards from the Australian Government to study the doctor's degree of Economics in 1995, and obtained his Doctor of Philosophy degree from The University of New England in 2001. Dr. Mu has been appointed as an independent non-executive director of Shaanxi Energy Investment Co., Limited (a company listed on the Shenzhen Stock Exchange). Dr. Mu had acted as the assistant to the general manager of the business development department of China Merchants Group Limited, the controlling shareholder of China Merchants Holdings (International) Company Limited, a company listed on the Stock Exchange). Dr. Mu had acted as the general manager of 招商金葵資本管理有限責任公司 (China Merchants Jinkui Capital Management Company Limited) and had acted as the assistant to the general manager of China Merchants Capital Limited and the general manager of the Fundraising and IR Department of China Merchants Capital Management (International) Limited. Dr. Mu has extensive experience in corporate finance and management, merger and acquisition and corporate restructuring. He led and participated in numbers of large-scale merger and acquisition projects over the past ten years, which included the projects of China Merchants Group Limited in Vietnam and Sri Lanka, the project of highway merger integration and the project of Qianhai Bonded Port Area in Shenzhen. Save as the aforesaid, Dr. Mu did not hold any directorship in other listed companies during the past three years.

COMPANY SECRETARY

Mr. Law Hing Lam

Aged 61, was appointed as the company secretary of the Company on 21 March 2011. Mr. Law is a member of the Hong Kong Institute of Certified Public Accountants and also a member of the American Institute of Certified Public Accountants. Mr. Law has extensive experience in accounting, auditing, taxation, finance and company secretarial matters. Prior to joining the Company, Mr. Law held the position of financial controller in certain listed companies in Hong Kong. Mr. Law is currently the financial controller and an authorised representative of the Company. He is also currently the financial controller and the director of certain subsidiaries of the Company.

REPORT OF THE DIRECTORS

The Board has pleasure in presenting the annual report together with the audited consolidated financial statements of the Group for the year ended 31 December 2024.

The head office and principal place of business is situated at Room 3403, 34/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong.

PRINCIPAL ACTIVITIES AND BUSINESS REVIEW

The principal activity of the Company is investment holding. The principal activities of the Group engaged in supply and procurement operation of oil related products in the PRC as well as oil and gas exploration, exploitation, sale and operation in Canada and Madagascar. Further discussion and analysis of these activities as required by Schedule 5 to the Companies Ordinance, including a discussion of the principal risks and uncertainties facing the Group and an indication of likely future developments in the Group's business, are set out in the Chairman's Statement section on pages 3 to 10 and the Management Discussion and Analysis section on pages 11 to 18 of the annual report. This discussion forms part of the directors' report.

SEGMENT INFORMATION

An analysis of the Group's turnover and contribution to results by principal activities and geographical area of operations for the year ended 31 December 2024 is set out in note 7 to the consolidated financial statements on pages 87 to 91.

RESULTS AND APPROPRIATIONS

The results of the Group for the year ended 31 December 2024 and the state of affairs of the Group at that date are set out in the consolidated financial statements on pages 51 to 129. The state of affairs of the Company on 31 December 2024 is set out in note 39 to the consolidated financial statements.

The Directors do not recommend the payment of any dividends for the year (2023: nil).

YANCHANG PETROLEUM INTERNATIONAL LIMITED
ANNUAL REPORT 2024

REPORT OF THE DIRECTORS

SUMMARY OF FINANCIAL INFORMATION

The following is a summary of the published consolidated results as well as assets and liabilities of the Group for the last five years, as extracted from the audited consolidated financial statements:

Results

	Year ended 31 December
	2024
HK$'000	2023
HK$'000	2022
HK$'000	2021
HK$'000	2020
HK$'000
Revenue	29,184,915	27,742,529	29,936,206	19,776,474	27,256,800
Profit/(loss) before taxation	55,155	588,392	(608,271)	377,556	(779,496)
Taxation	423	(8,260)	(10,828)	(19,101)	(13,173)
Profit/(loss) for the year	55,578	580,132	(619,099)	358,455	(792,669)
Profit/(loss) attributable to
– Owners of the Company	54,128	217,593	(199,510)	353,601	(795,765)
– Non-controlling interests	1,450	362,539	(419,589)	4,854	3,096
	55,578	580,132	(619,099)	358,455	(792,669)

Assets and liabilities

	At 31 December
	2024
HK$'000	2023
HK$'000	2022
HK$'000	2021
HK$'000	2020
HK$'000
Non-current assets	1,926,237	2,041,005	2,050,401	1,653,596	1,136,873
Current assets	873,762	1,643,537	2,467,808	2,855,109	1,499,139
Total assets	2,799,999	3,684,542	4,518,209	4,508,705	2,636,012
Current liabilities	(816,878)	(2,067,497)	(3,600,546)	(2,906,621)	(1,324,754)
Non-current liabilities	(682,942)	(268,879)	(448,237)	(434,640)	(510,122)
Total liabilities	(1,499,820)	(2,336,376)	(4,048,783)	(3,341,261)	(1,834,876)
Total equity	1,300,179	1,348,166	469,426	1,167,444	801,136

This summary does not form part of the audited consolidated financial statements.

REPORT OF THE DIRECTORS

PROPERTY, PLANT AND EQUIPMENT AND INVESTMENT PROPERTIES

Details of movements in the property, plant and equipment and investment properties of the Group during the year are set out in notes 17 and 18 to the consolidated financial statements respectively on pages 99 to 104.

SHARE CAPITAL AND SHARE OPTIONS

Details of movements in the Company's share capital during the year and details of the Company's share option scheme are set out in note 26 to the consolidated financial statements on pages 111 to 113.

RESERVES

Details of movements in the reserves of the Group during the year are set out in the consolidated statement of changes in equity on pages 55 and 56.

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Company's Bye-laws or the laws of Bermuda, being the jurisdiction in which the Company was incorporated, which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY

During the year ended 31 December 2024, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the year and up to the date of this report.

DISTRIBUTABLE RESERVES

At 31 December 2024, the Company's reserve available for distribution and/or distribution in specie, calculated in accordance with the Companies Act of Bermuda, is HK$323,200,000 (2023: HK$343,137,000) which is the sum of the Company's share premium, contribution surplus and accumulated losses as stated in note 39 to the consolidated financial statements on page 129 which may only be distributed in certain circumstances.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

REPORT OF THE DIRECTORS

MAJOR CUSTOMERS AND SUPPLIERS

For the year under review, the percentages of sales and purchases attributable to the Group's major customers and suppliers were as follows:

(1) The aggregate amount of sales attributable to the Group's five largest customers represented approximately 81% of the Group's total sales for the year. The amount of sales to the Group's largest customer included therein represented approximately 56%.

(2) The aggregate amount of cost of revenue attributable to the Group's five largest suppliers represented approximately 88% of the Group's total cost of revenue for the year. The amount of cost of revenue from the Group's largest supplier included therein represented approximately 35%.

Yanchang Petroleum Group, a substantial shareholder of the Company, had beneficial interests in the largest supplier of the Group.

Saved as the aforesaid, neither the Directors, their associates nor the shareholders (which, to the best knowledge of the Directors, own more than 5% of the Company's issued share capital) had any beneficial interests in the Group's five largest customers or five largest suppliers during the year.

MATERIAL RELATED PARTY TRANSACTIONS

Details of the material related party transactions of the Group are set out in note 37 to the consolidated financial statements on pages 122 and 123.

PENSION SCHEMES AND COSTS

Details of the Group's pension schemes and costs charged to the consolidated statement of profit or loss and other comprehensive income for the year are set out in note 33 to the consolidated financial statements.

At 31 December 2024, the Group did not have any significant obligations for long service payments to its employees pursuant to the requirements under the Employment Ordinance, Chapter 57 of the Laws of Hong Kong.

REPORT OF THE DIRECTORS

DIRECTORS

The Directors of the Company during the year and at the date of this report were as follows:

Executive Directors

Mr. Feng Yinguo (Chairman)
Ms. Wang Haining (appointed on 22 July 2024)
Mr. Zhang Jianmin (resigned on 22 July 2024)
Mr. Ding Jiasheng

Non-executive Director

Mr. Sun Jian

Independent Non-executive Directors

Mr. Ng Wing Ka
Mr. Leung Ting Yuk
Mr. Sun Liming
Dr. Mu Guodong

The Company has received, from each of the independent non-executive directors, an annual confirmation of his independence pursuant to Rule 3.13 of the Listing Rules of the Stock Exchange. The Company considers all of the independent non-executive Directors are independent.

RE-ELECTION OF DIRECTORS

Pursuant to Bye-law 86(2) of the Company's Bye-law, Ms. Wang Haining is subject to re-election at the following annual general meeting ("2025 AGM") of the Company.

Pursuant to Bye-law 87 of the Company's Bye-laws, Mr. Ding Jiasheng, Mr. Ng Wing Ka, Mr. Leung Ting Yuk, Mr. Sun Liming and Dr. Mu Guodong will retire by rotation and, being eligible, offer themselves for re-election at the forthcoming 2025 AGM of the Company.

DIRECTORS' BIOGRAPHIES

Biographical details of the directors of the Company are set out in the section "Directors' and Senior Management's Biographies" on pages 22 to 24 of the annual report.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

REPORT OF THE DIRECTORS

DIRECTORS' SERVICE CONTRACTS

Each of the executive Directors has entered into a service contract with the Company for three years, which can be terminated by either party giving notice in writing to the other party.

Save as disclosed above, no Director proposed for re-election at the 2025 AGM has a service contract with the Company which is not determinable by the Company within one year without payment of compensation, other than statutory compensation.

MANAGEMENT CONTRACT

No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or subsisted during the year.

DIRECTORS' INTERESTS IN TRANSACTION, ARRANGEMENT AND CONTRACT

Save as disclosed in note 37 to the consolidated financial statements, no transaction, arrangement and contract of significance to which the Company, or any of its holding company, subsidiaries or fellow subsidiaries was a party, and in which a Director had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

DIRECTORS' INTEREST IN COMPETING BUSINESS

As far as the Directors are aware of, none of the Directors has any interest in a business which competes or may compete with the business of the Group or has any other conflict of interest with the Group during the year.

PERMITTED INDEMNITY

Pursuant to the Bye-laws of the Company, every Director shall be indemnified and secured harmless out of the assets and profits of the Company from and against all actions, costs, charges, losses, damages and expenses which they or any of them may incur or sustain by or by reason of any act done, concurred in or omitted by or about the execution of their duty. Such permitted indemnity provision has been in force throughout the year. The Company has arranged appropriate Directors' and officers' liability insurance coverage for the Directors and officers of the Group.

REPORT OF THE DIRECTORS

DIRECTORS' INTERESTS IN SHARE CAPITAL

At 31 December 2024, the interests and short positions of the Directors and chief executives in the share capital of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the "SFO")) as recorded in the register required to be kept by the Company under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") were as follows:

Interests and short positions in shares, underlying shares and debentures of the Company

Name of Director	Nature of interest	Long position/Short position	Number of ordinary shares of the Company held	Approximate percentage of the total issued ordinary share capital of the Company
Mr. Sun Liming	Personal interest	Long position	30,000	0.003%
Dr. Mu Guodong ("Dr. Mu")	Personal interest and interest of spouse (note)	Long position	15,000	0.001%

Note: Out of these 15,000 shares, Dr. Mu personally held 11,500 Shares and his spouse held 3,500 shares. Dr. Mu is deemed to be interested in these 3,500 shares under the SFO.

Save as disclosed above, as at 31 December 2024, none of the Directors or chief executives of the Company or their respective associates had any personal, family, corporate or other interests in the share capital of the Company or any of its associated corporations as defined in the SFO.

DIRECTORS' RIGHTS TO ACQUIRE SHARES OR DEBENTURES

Apart from as disclosed under the heading "Share Option Scheme" below, at no time during the year and up to the date of this report was the Company or any of its subsidiaries a party to any arrangement to enable the Company's Directors, their respective spouse or children under 18 years of age to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.

SHARE OPTION SCHEME

In order to enable the Company to grant share options to eligible participants as incentives or rewards for their contributions or potential contribution to the success of the Group, a share option scheme (the "Scheme") was adopted by the Board on 27 May 2022.

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

REPORT OF THE DIRECTORS

SHARE OPTION SCHEME (Continued)

As at 31 December 2024, no share options had been granted and remained outstanding under the Scheme (31 December 2023: Nil), representing 0% (31 December 2023: 0%) of the total number of the Shares of the Company in issue at that date, further details of the Scheme are set out in note 26 to the consolidated financial statements on pages 111 to 113.

EQUITY-LINKED AGREEMENTS

Save for the Scheme as disclosed above, the Company has not entered into any other equity-linked agreements for the year ended 31 December 2024.

SUBSTANTIAL SHAREHOLDERS

As at 31 December 2024, the interests of persons, other than a Director or chief executive of the Company, in the shares of the Company as recorded in the register maintained pursuant to Section 336 of the SFO were as follows:

Interests and short positions of substantial shareholders in shares and underlying shares of the Company

Name	Capacity	Long position/Short position	Number of ordinary shares of the Company held	Approximate percentage of the total issued ordinary share capital of the Company
Yanchang Petroleum Group (note 1)	Interest of controlled corporation	Long position	634,310,161	57.66%
Yanchang Petroleum HK (note 1)	Directly owned	Long position	634,310,161	57.66%
Chang An Huitong Co., Limited (“Chang An Huitong”) (note 2)	Interest of controlled corporation	Long position	183,350,467	16.67%
ChangAn Huitong Investment Management Co., Ltd (“ChangAn Huitong Investment”) (note 2)	Interest of controlled corporation	Long position	183,350,467	16.67%
ChangAn Huitong HK (note 2)	Directly owned	Long position	183,350,467	16.67%

Notes:
1. Yanchang Petroleum Group beneficially held these 634,310,161 shares through its direct wholly-owned subsidiary, Yanchang Petroleum HK.
2. Chang An Huitong beneficially held these 183,350,467 shares through its directly wholly-owned subsidiary, ChangAn Huitong Investment, which in turn wholly owned ChangAn Huitong HK.

Save as disclosed above, the Company had not been notified of any other interests or short positions in the shares and underlying shares of the Company representing 5% or more of the issued share capital of the Company as at 31 December 2024.

REPORT OF THE DIRECTORS

CONTINUING CONNECTED TRANSACTIONS

Yanchang Petroleum Group and Henan Yanchang (an indirect non-wholly owned subsidiary of the Company) renewed and entered into a new supply agreement dated 18 November 2022 and a supplemental agreement to revise annual caps dated 27 November 2023 (together the "Supply Agreement"), pursuant to which Yanchang Petroleum Group agreed to supply and Henan Yanchang agreed to purchase refined oil and by-products (including chemical products) for the three years ending 31 December 2025.

On 27 November 2023, Henan Yanchang renewed and entered into sales agreements with Yanchang Shell Henan Petroleum Limited ("Yanchang Shell Henan") and China Petroleum Yanchang Petroleum Trading Stock Limited Company ("China Petroleum Yanchang") in respect of the sales of refined oil and by-products (the "Sales Agreements") from Henan Yanchang to Yanchang Shell Henan and China Petroleum Yanchang, respectively for the three years ending 31 December 2026.

The aforesaid transactions constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

The independent non-executive Directors of the Company had reviewed the continuing connected transactions contemplated under the Supply Agreement and the Sales Agreements mentioned above and had confirmed that the Company had complied with the disclosure requirements in accordance with Chapter 14A of the Listing Rules:

(1) the aggregate value of the continuing connected transactions contemplated under the Supply Agreement for the year ended 31 December 2024 as indicated above did not exceed the 2024 annual cap amount of RMB25,857,000,000 (equivalent to approximately HK$27,597,176,100);

(2) the aggregate value of continuing connected transactions contemplated under the Sales Agreements for the year ended 31 December 2024 from the Henan Yanchang to Yanchang Shell Henan and China Petroleum Yanchang as indicated above did not exceed the 2024 annual cap amount of RMB172,000,000 (equivalent to approximately HK$183,575,600) and RMB43,000,000 (equivalent to approximately HK$45,893,900) respectively; and

(3) the continuing connected transactions were entered into (a) in the ordinary and usual course of business of the Group; (b) on normal commercial terms or on terms no less favourable to the Group than terms available from or to independent third parties; and (c) in accordance with the terms of the Supply Agreement and the Sales Agreements governing such transactions, which were fair and reasonable and in the interests of the Company and its shareholders as a whole.

BDO Limited, the Company's auditors, were engaged to report on the Group's continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 "Assurance Engagements Other Than Audits or Review of Historical Financial Information" and with reference to Practice Note 740 "Auditor's Letter on Continuing Connected Transactions under the Hong Kong Listing Rules" issued by the Hong Kong Institute of Certified Public Accountants. BDO Limited had issued their letter containing their findings and conclusions in respect of the continuing connected transactions disclosed above by the Group in accordance with Rule 14A.56 of the Listing Rules. A copy of the auditors' letter had been provided by the Company to the Stock Exchange.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

REPORT OF THE DIRECTORS

MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Model Code as set out in Appendix 10 to the Listing Rules.

Having made specific enquiry of all Directors, they confirmed that they had complied with the required standard as set out in the Model Code as their code of conduct regarding Directors' securities transactions with the Company throughout the year ended 31 December 2024.

CORPORATE GOVERNANCE

The Company is committed to maintain a high standard of corporate governance practices. Information on the corporate governance practices adopted by the Company is set out in the "Corporate Governance Report" on pages 35 to 46.

COMPLIANCE WITH LAWS AND REGULATIONS

As at 31 December 2024 and up to the date of this annual report, the Board was unaware of any non-compliance with the relevant laws and regulations that have a significant impact on the Company.

SUFFICIENCY OF PUBLIC FLOAT

As at the date of this annual report, based on information that is publicly available to the Company, and within the knowledge of the Directors, more than 25% of the issued capital of the Company were held by the public.

CLOSURE OF REGISTER OF MEMBERS

The register of members will be closed from 27 May 2025 to 30 May 2025 (both days inclusive), during which period, no transfer of share(s) will be registered. In order to qualify for attending the annual general meeting of the Company to be held on 30 May 2025, all share transfers, accompanied by the relevant share certificates must be lodged with the Company's branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited located at 17/F, Far East Finance Centre, 16 Harcourt Road, Hong Kong for registration, not later than 4:30 p.m. on 26 May 2025.

AUDITORS

A resolution will be proposed at the 2025 AGM to re-appoint BDO Limited as the auditors of the Company for the ensuing year.

On behalf of the Board

Mr. Feng Yinguo
Chairman
Hong Kong, 27 March 2025

CORPORATE GOVERNANCE REPORT

CORPORATE GOVERNANCE PRACTICE

The Board is committed to achieve a high standard of corporate governance practices and procedures with a view to enhance the management of the Company as well as to safeguard the interests of its shareholders as a whole in terms of transparency, independence, accountability, responsibilities and fairness. The Board will review and improve the corporate governance practices from time to time to ensure that the Group is under the leadership of an effective Board to optimise long-term value and return for the shareholders of the Company.

In the opinion of the Board, the Company had complied with the code provisions set out in the Corporate Governance Code (the "CG Code") in Appendix 14 of the Listing Rules during the year ended 31 December 2024, except for the following deviations:

code provision B.2.4(b) of the CG Code provides that all the independent non-executive Directors have served more than nine years on the Board, the Company should appoint a new independent non-executive Director on the Board. Mr. Ng Wing Ka, Mr. Leung Ting Yuk, Mr. Sun Liming and Dr. Mu Guodong have served as the independent non-executive Directors for more than nine years. The Company would appoint an additional new independent non-executive Director as soon as practicable as the Company needs time to identify a qualified and suitable candidate. As at the date of this report, the Company has not yet identified a suitable candidate to assume the role of the new independent non-executive Director as provided by the code provision B.2.4(b).
code provision C.1.6 of the CG Code provides that the independent non-executive Directors and other non-executive Directors should also attend general meetings and develop a balance understanding of the views of shareholders. The non-executive Director, Mr. Sun Jian and one of the independent non-executive Directors, Mr. Ng Wing Ka were unable to attend at the annual general meeting of the Company held on 31 May 2024 due to other ad hoc engagements.
code provision C.2.1 of the CG Code provides that the roles of chairman and chief executive officer should be separate and should not be performed by the same individual. The position of the chief executive officer of the Company was vacant following the resignation of Mr. Bruno Guy Charles Deruyck as an executive Director and chief executive officer on 1 June 2019. The Board considers that the balance of power and authority, accountability and independent decision-making under present arrangement is not impaired because of the diverse background and experience of the executive Directors, the non-executive Director and the independent non-executive Directors. The audit committee of the Company has free and direct access to the Company's senior management, external auditors and independent professional advisers when it considers necessary. Therefore, the Board considers that the deviation from code provision C.2.1 of the CG Code is not significant in such circumstance.
code provision F.2.2 of the CG Code provides that the chairman of the Board should attend the annual general meeting. He should also invite the chairman of the audit, remuneration, nomination and any other committees (as appropriate) to attend. The chairman of the Board, Mr. Feng Yinguo was unable to attend the annual general meeting held on 31 May 2024 due to other ad hoc engagements.

BOARD OF DIRECTORS

Board Composition

The Board serving the important function of guiding the management, currently comprises:

(a) three executive Directors, namely Mr. Feng Yinguo (Chairman), Ms. Wang Haining and Mr. Ding Jiasheng;

(b) one non-executive Director, namely Mr. Sun Jian; and

(c) four independent non-executive Directors required under Rule 3.10(1) of the Listing Rules, namely Mr. Ng Wing Ka, Mr. Leung Ting Yuk, Mr. Sun Liming and Dr. Mu Guodong which represent more than one-third of the total number of the members of the Board. One of the independent non-executive Directors has appropriate professional qualifications with accounting and related financial expertise required under Rule 3.10(2) of the Listing Rules.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

CORPORATE GOVERNANCE REPORT

BOARD OF DIRECTORS (Continued)

Board Composition (Continued)

The respective biographical details of each of the Directors are disclosed in the section of "Directors' and Senior Management's Biographies" in the annual report. Details of changes in the Board during the year are set out in the "Report of the Directors" of the annual report.

The Company considers that the Board members have the necessary skills and experience appropriate for discharging their duties as Directors in the best interest of the Company and that the current Board size is adequate for its present operations.

Each of the Directors keeps abreast of his responsibilities as a Director of the Company and of the conduct, business activities and development of the Company.

Roles and Responsibilities of the Board and Delegated Functions of the Management

The Board is responsible for the leadership and overall control of the Company, oversees the Group's business, formulates strategic plans/decisions and monitors financial and operational performances, and is collectively responsible for promoting the success of the Company by directing and supervising its affairs. In practice, the Board takes responsibilities for decision making in all major matters of the Company which include, approving and monitoring all policy matters, setting of objectives, annual budgets and overall strategies, material transactions, appointment of directors and other significant financial and operational matters.

The day-to-day management, administration and operation of the Company are delegated to the senior executives under the direction and supervision of the chief executive officer of the Company. These responsibilities include the implementation of decisions of the Board, the co-ordination and direction of day-to-day operation and management of the Company in accordance with the management strategies and plans approved by the Board. Approval has to be obtained from the Board prior to any significant transactions entered into by these senior executives and the Board has the full support from them to discharge its duties and responsibilities.

Corporate Governance Functions

No corporate governance committee has been established and the Board is responsible for performing the corporate governance functions including (i) to develop and review the Company's policies, practices on corporate governance and make recommendations thereof; (ii) to review and monitor the training and continuous professional development of Directors and senior management; (iii) to review and monitor the Company's policies and practices on compliance with legal and regulatory requirements; to develop, review and monitor the code of conduct and companies manual (in any) applicable to employees and Directors; and (iv) to review the Company's compliance with the CG Code and disclosure in the corporate governance report.

Appointment and Re-election of Directors

Upon the appointment of a new Director, the Company will provide a formal letter to the Director, setting out his/her duties and obligations. Such Directors are given appropriate briefings when they are first appointed to the Board. Appropriate orientations are conducted for all new Directors to ensure that they are familiar with the Company's business, operations, governance practice and regulatory requirements. The company secretary or the external lawyers also provide trainings to new Director on his/her fiduciary duties and responsibilities as a Director in accordance with the Listing Rules and all other applicable laws and the Company's on going obligations as a company listed on the Stock Exchange.

According to the Bye-laws of the Company, the Board shall have the power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy on the Board or as an addition to the existing Board. Any Director so appointed by the Board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election at that meeting.

Besides, at each annual general meeting, one-third of the Directors for the time being (or, if their number is not a multiple of three (3), the number nearest to but not less than one-third) shall retire from office by rotation provided that every Director shall be subject to retirement at least once every three years.

CORPORATE GOVERNANCE REPORT

BOARD OF DIRECTORS (Continued)

Board Diversity Policy

The Board adopted the board diversity policy in accordance with the requirement set out in the CG Code. Such policy aims to set out the approach to achieve diversity on the Board. All Board member appointments shall be based on meritocracy, and candidates shall be considered against objective criteria, having due regard for the benefits of diversity on the Board. Selection of candidates shall be based on a range of diversity perspectives, including but not limited to, gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service. The ultimate decision shall be based on merit and contribution that the selected candidates shall bring to the Board. The Board monitors, on an annual basis, the implementation of the board diversity policy, and reviews, as appropriate, the said policy to ensure its effectiveness.

Having reviewed the Board composition, the Board recognises the importance and benefits of gender diversity at the Board level and has appointed Ms. Wang Haining as the executive Director to enhance the gender diversity among the Board members.

Board Meetings

The Board conducts meetings on a regular basis and on an ad hoc basis, as required by business needs. The Bye-laws of the Company allows board meetings to be conducted by way of telephone or video conference and any resolutions to be passed by way of written resolutions circulated to and signed by all Directors from time to time when necessary unless any matters in which a substantial shareholder or a Director or their respective associates has conflict of interest.

For the Board meetings, sufficient 14 days' notices for regular board meetings and reasonable days for non-regular Board meetings were given to all directors so as to ensure that each of them had an opportunity to attend the meetings, to include matters in the agenda and accompanying board papers were given to all Directors in a timely manner before the appointed date of the Board meetings. Every Board member has full access to the advice and services of the company secretary with a view to ensuring that Board procedures, and all applicable rules and regulations are followed. Sufficient information was also supplied by the management to the Board to enable it to discharge its duties and to make decisions, which are in the best interests of the Company.

Minutes of all Board meetings recording sufficient details of matters considered and decisions reached are kept by the company secretary of the meetings and are open for inspection by the Directors.

Directors' Continuous Professional Development

The Directors are regularly briefed on the amendments to or updates on the relevant laws, rules and regulations. In addition, the Company has been encouraging the Directors and senior executives to enroll in a wide range of professional development courses and seminars relating to the Listing Rules, Companies Ordinance/Act and corporate governance practices organized by external professional bodies in Hong Kong so that they can continuously update and further improve their relevant knowledge and skills.

From time to time, Directors are provided with written materials to develop and refresh their professional knowledge and skills; whereas the company secretary also arranges seminars on the latest updates and development of the applicable laws, rules and regulations for the Directors to assist them in discharging their duties and to enhance their awareness of good corporate governance practices. During the year under review, the Company has arranged a seminar for all Directors presented by BMI Professional Training Centre Limited on the topic of Notifiable Transactions. A record of the training received by the respective Directors are kept and updated by the company secretary of the Company.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

CORPORATE GOVERNANCE REPORT

CHAIRMAN AND CHIEF EXECUTIVE OFFICER

The chairman is responsible for exercising control over the quality and timeliness of the flow of information between the management of the Company and the Board and ensuring compliance with the Group's guidelines on corporate governance. The chairman ensures that Board meetings are held regularly in accordance with the agreed schedule and sets the agenda of the Board meetings.

The chairman also builds constructive relations within the Board and between the Board and the management of the Company, and facilitates the effective participation of the non-executive Director and the independent non-executive Directors by promoting a culture of openness and debate of the Board. The chairman further ensures effective communication with the shareholders and promotes high standards of corporate governance.

The duties of the chief executive officer include taking responsibility for the Group's operation and management, implementing decisions and plans approved by the Board, making day-to-day operational and managerial decisions and co-ordinating overall business operations.

The Board is of the view that there are sufficient safeguards and checks to ensure that the process of decision-making by the Board is independent and based on collective decisions without any individual exercising any considerable concentration of power or influence.

Code provision C.2.1 of the CG Code provides that the roles of chairman and chief executive officer should be separate and should not be performed by the same individual. The position of the chief executive officer of the Company was vacant following the resignation of Mr. Bruno Guy Charles Deruyck as an executive Director and chief executive officer on 1 June 2019.

The Board considers that the vacancy will not impair the balance of power and authority between the Board and the management as the Board comprises eight experienced individuals including three executive Directors, one non-executive Director and four independent non-executive Directors. In addition, one of the important roles of the chairman is to provide leadership to the Board to ensure that the Board always acts in the best interests of the Group. The chairman shall ensure that the Board works effectively and fully discharges its responsibilities, and that all key issues are discussed by the Board in a timely manner. All Directors have been consulted about any matters proposed for inclusion in the agenda. With the support of the company secretary, the chairman seeks to ensure that all Directors are properly briefed on issues arising at any Board meeting and have received adequate and reliable information in a timely manner.

NON-EXECUTIVE DIRECTOR

The non-executive Director, Mr. Sun Jian has brought to the Board outside perspective and objective judgement, independent of the management, on the development, performance and risk management of the Company. He was appointed for a term of three years.

INDEPENDENT NON-EXECUTIVE DIRECTORS

All the four independent non-executive Directors, Mr. Ng Wing Ka, Mr. Leung Ting Yuk, Mr. Sun Liming and Dr. Mu Guodong have served more than nine years on the Board and were appointed for a term of three years. No equity-based remuneration with performance-related elements have been granted to the independent non-executive Directors so that the independent non-executive Directors' objectivity and independence will not be impaired. They are also subject to retirement by rotation at least once every three years in accordance with the Bye-laws of the Company at the annual general meeting of the Company.

CORPORATE GOVERNANCE REPORT

INDEPENDENT NON-EXECUTIVE DIRECTORS (Continued)

The independence of each Director is assessed and reviewed annually by the nomination committee and the board as provided in the CG Code. The Board considers, an independent Director as one who is independent in conduct, character and judgement and has no relationship with the Group, its related corporations, its 5% shareholders or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the Director's independent business judgment in the best interest of the Company and the Group.

Each of the independent non-executive Directors has made annual confirmation that he complied with the independence criteria set out in Rule 3.13 of the Listing Rules. The Board considers that all the four independent non-executive Directors are independent under these independence criteria and are capable to effectively exercise independent judgment.

The Board is able to exercise objective judgment on corporate affairs independently from the management of the Company. No individual or group of individuals is allowed to dominate the Board's decision-making. Currently, half of the Board's members are independent non-executive Directors. The Company has also met the requirements of Rule 3.10 of the Listing Rules relating to the appointment of at least three independent non-executive Directors with at least one of them possessing appropriate professional qualifications, accounting or related financial management expertise. The Board is therefore of the view that there is sufficiently strong independent elements on the Board to enable independent Directors to exercise independent, constructive and informed comments on the Company's strategy and policies, taking into account factors such as the number of independent Directors and the size and scope of the affairs and operations of the Group.

BOARD COMMITTEES

The Company has established three Board committees, namely the audit committee, the remuneration committee and the nomination committee with defined terms of reference, to assist the Board in discharging its duties and responsibilities. Upon reasonable request, the Directors and each committee can engage outside consultants or experts to seek independent professional advice, at the Company's expense, as they consider necessary to discharge their responsibilities. Minutes of all committees' meetings are circulated to their members. To further reinforce independence and effectiveness, all audit committee members are independent non-executive Directors, and the nomination and remuneration committees have been structured with a majority of independent non-executive Directors as members.

Audit Committee

The audit committee currently comprises the three independent non-executive Directors, namely Mr. Leung Ting Yuk, Mr. Ng Wing Ka and Mr. Sun Liming. Mr. Leung Ting Yuk is the chairman of the audit committee.

The audit committee has reviewed the accounting principles and policies adopted by the Company and has discussed the risk management, internal control systems and financial reporting matters with the management. The audit committee has reviewed the Group's results for the year ended 31 December 2024.

The audit committee is responsible for the appointment of external auditors, review of the Group's financial information and overseeing the Group's financial reporting, risk management and internal control systems. It is also responsible for reviewing the interim and annual results of the Group prior to recommending them to the Board for approval. It meets regularly to review financial reporting, risk management and internal control systems and to this end has unrestricted access to the Company's senior management and external auditors. Its written terms of reference are available on the websites of the Stock Exchange and the Company.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

CORPORATE GOVERNANCE REPORT

BOARD COMMITTEES (Continued)

Audit Committee (Continued)

During the year ended 31 December, 2024, the audit committee held four meetings. At the meetings, the committee (i) reviewed positive profit alert announcement in relation to the financial year ended 31 December 2023; (ii) reviewed the annual results for the year ended 31 December 2023 with the external auditors, and reviewed and discussed the Group's financial reporting, risk management and internal control systems; (iii) reviewed profit warning announcement in relation to interim results for six months ended 30 June 2024; (iv) reviewed the interim results for the period ended 30 June 2024.

Remuneration Committee

The remuneration committee currently comprises two independent non-executive Directors, namely Mr. Sun Liming and Mr. Leung Ting Yuk, and an executive Director, Mr. Feng Yinguo. Mr. Sun Liming is the chairman of the remuneration committee.

The remuneration committee was established for the purpose of making recommendations to the Board on the Company's policies and structure on remuneration of all Directors (including independent non-executive Directors) and senior management. The Remuneration Committee has adopted the approach under code provision E.1.2(c)(ii) of the CG Code to make recommendations to the Board on the remuneration packages of individual executive Directors and senior management. Its written terms of reference are available on the websites of the Stock Exchange and the Company.

During the year ended 31 December 2024, the remuneration committee held three meetings. At the meetings, the committee (i) reviewed and approved the existing remuneration package of the Directors and senior management of the Company; (ii) reviewed and approved the remuneration of the newly appointed executive Director; and (iii) reviewed and approved revised 2024 performance forms program and production proposal of Novus.

The remuneration paid to the senior management by band for the year ended 31 December 2024 and 31 December 2023 is set out as below:

	Number of individuals
	2024	2023
HK$
1,500,001–2,000,000	2	2
2,000,001–2,500,000	1	1
2,500,001–3,000,000	–	–
3,000,001–3,500,000	1	1
3,500,001–4,000,000	–	–
4,000,001–4,500,000	1	1
	5	5

CORPORATE GOVERNANCE REPORT

BOARD COMMITTEES (Continued)

Nomination Committee

The nomination committee currently comprises two independent non-executive Directors, namely Mr. Ng Wing Ka and Mr. Sun Liming, and an executive Director, Mr. Feng Yinguo. Mr. Ng Wing Ka is the chairman of the nomination committee.

The nomination committee is responsible for reviewing the structure, size and composition (including the skills, knowledge and experience) of the Board at least annually and making recommendations on any proposed changes to the Board to complement the Company's corporate strategy; identifying individuals suitably qualified to become Board members and assessing the independence of independent non-executive Directors; and making recommendations to the Board on the appointment or reappointment of Directors and succession planning for Directors. The nomination committee will also give consideration to the board diversity policy (as defined above) when identifying suitable qualified candidates to become members of the Board, and the Board will review the board diversity policy, so as to develop and review measurable objectives for implementing the board diversity policy and to monitor the progress on achieving these objectives. Its written terms of reference are available on the websites of the Stock Exchange and the Company.

During the year ended 31 December 2024, the nomination committee held two meetings. At the meetings, the committee (i) reviewed and assessed the independence of all the independent non-executive Directors, the composition and structure of the Board and the retirement and re-election of Directors at the 2024 annual general meeting of the Company; and (ii) reviewed the new service contract of the Director.

Details of the Directors' attendance (either in person or by phone) at the Board meetings, general meetings, audit committee meetings, remuneration committee meetings and nomination committee meetings held during the year ended 31 December 2024 are set out in the table below:

Directors	No. of meetings attended/entitled to attend
	Annual General Meeting	Special General Meeting	Board	Audit Committee	Remuneration Committee	Nomination Committee
Executive Directors:
Mr. Feng Yinguo	0/1	0/0	9/9	–	3/3	2/2
Mr. Zhang Jianmin (resigned 22 July 2024)	0/1	0/0	2/3	–	–	–
Ms. Wang Haining (appointed 22 July 2024)	0/0	0/0	5/6	–	–	–
Mr. Ding Jiasheng	1/1	0/0	9/9	–	–	–
Non-Executive Director:
Mr. Sun Jian	0/1	0/0	9/9	–	–	–
Independent Non-executive Directors:
Mr. Ng Wing Ka	0/1	0/0	9/9	4/4	–	2/2
Mr. Leung Ting Yuk	1/1	0/0	9/9	4/4	3/3	–
Mr. Sun Liming	1/1	0/0	9/9	4/4	3/3	2/2
Dr. Mu Guodong	1/1	0/0	9/9	–	–	–

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

CORPORATE GOVERNANCE REPORT

COMPANY SECRETARY

Mr. Law Hing Lam was appointed as the company secretary of the Company with effect from 21 March 2011. He is responsible to support the Board by ensuring good information flow within the Board and that Board meeting procedures and policies are followed. He is also responsible for advising the Board through the chairman and/or the chief executive officer on corporate governance matters and also facilitating induction and professional development of Directors. In addition, Mr. Law is directly responsible for the Group's compliance with the continuing obligations of the Listing Rules, Codes on Takeovers and Mergers and Share Repurchases, Companies Ordinance, SFO and other applicable laws, rules and regulations.

Mr. Law is also the financial controller and the authorised representative of the Company. The biographical details of Mr. Law is set out in the section "Directors' and Senior Management's Biographies" on page 24 of the annual report.

DIRECTORS' SECURITIES TRANSACTIONS

The Company has adopted the Model Code as set out in Appendix 10 to the Listing Rules. Having made specific enquiry of all Directors, the Directors confirmed that they had complied with the required standard set out in the Model Code throughout the year ended 31 December 2024.

DIRECTORS' RESPONSIBILITIES FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

The directors are also responsible for overseeing the Group's financial reporting process. The Audit Committee assists the directors in discharging their responsibility in this regard.

The financial statements of the Company for the year ended 31 December 2024 have been reviewed by the audit committee and audited by the external auditors, BDO Limited. The Directors acknowledge their responsibilities for preparing the financial statements of the Group which give a true and fair view. The Directors' responsibilities for the accounts are set out in the independent auditor's report on pages 47 to 50.

CORPORATE GOVERNANCE REPORT

RISK MANAGEMENT AND INTERNAL CONTROL

The management has the responsibility to maintain appropriate and effective risk management and internal control systems, and the Board has the responsibility to review and monitor the effectiveness of the Group's risk management and internal control systems at least annually covering material controls, including financial, operational and compliance controls, to ensure that the systems in place are adequate and effective.

The Company has conducted an annual review on whether there is a need for an internal audit department. Given the Group's corporate and operation structure, as opposed to diverting resources to establish a separate internal audit department, the Board considers that it is more cost-effective to engage external independent consultants to perform such annual internal audit function.

The Group adopts a risk management system which manages the risk associated with its business and operations. The system comprises the following phases:

Identification: Identify ownership of risks, business objectives and risks that could affect the achievement of objectives.
Evaluation: Analyse the likelihood and impact of risks and evaluate the risk portfolio accordingly.
Management: Consider the risk responses, ensure effective communication to the Board and ongoing monitor the residual risks.

The Group has in place risk management and internal control systems which adopts The Committee of Sponsoring Organizations of the Treadway Commission 2013 ("COSO") framework. The COSO framework enables the Group to achieve objectives regarding effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations. The five key components of the COSO framework are elaborated as follows:

Control Environment: A set of standards, processes and structures that provide the basis for carrying out internal control across the Group.
Risk Assessment: A dynamic and iterative process for identifying and analysing risks to achieve the Group's objectives, forming a basis for determining how risks should be managed.
Control Activities: Action established by policies and procedures to help ensure that management directives to mitigate risks to the achievement of objectives are carried out.
Information and Communication: Internal and external communication to provide the Group with the information needed to carry out day-to-day controls.
Monitoring: Ongoing and separate evaluations to ascertain whether each component of internal control is present and functioning.

The Group's risk management and internal control systems are, however, designed to manage and minimise rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

CORPORATE GOVERNANCE REPORT

RISK MANAGEMENT AND INTERNAL CONTROL (Continued)

The Company engaged external independent consultants with professional staff in possession of relevant expertise to conduct an independent review of the risk management and internal control systems of the Group annually in order to maintain high standards of corporate governance. The Board and its audit committee has also reviewed the resources, staff qualifications and experience, training programs and budget of the Company's accounting, internal audit and financial reporting functions and considered they are adequate and sufficient.

With respect to procedures and internal controls for the handling and dissemination of inside information, the Company is aware of the relevant obligations under the SFO and the Listing Rules.

In order to enhance the Group's system of handling inside information, and to ensure the truthfulness, accuracy, completeness and timeliness of its public disclosures, the Group also adopts and implements an inside information policy and procedures. Certain reasonable measures have been taken from time to time to ensure that proper safeguards exist to prevent breach of disclosure requirements in relation to the Group, which include:

The access of information is restricted to a limited number of employees on a need-to-know basis. Employees who are in possession of inside information are fully conversant with their obligations to preserve confidentiality.
Confidentiality covenants will be in place when the Group enters into significant negotiations.

In addition, all employees are required to strictly adhere to the rules and regulations regarding the management of inside information, including that all employees who, because of his/her office or employment, is likely to be in possession of inside information in relation to the Company, are required to comply with the securities transaction rules adopted by the Company which are on terms no less exacting than the required standard set out in the Model Code under the Listing Rules.

The Board and its audit committee had reviewed the adequacy and effectiveness of the Group's risk management and internal control systems during the year under review. Several areas have been considered during such reviews, which include but not limited to (i) the changes in the nature and extent of significant risks since the last annual review, and the Group's ability to respond to changes in its business and the external environment; and (ii) the scope and quality of management's ongoing monitoring of risks and of the internal control systems. Having confirmed by the management, the Board and its audit committee were not aware of any material internal control defects, and considered such systems effective and adequate throughout the year under review.

AUDITORS' REMUNERATION

Auditors' remuneration for the year amounted to a total of HK$2,772,000, which was incurred for audit service.

ANTI-CORRUPTION POLICIES

The Company has always been operating its businesses with integrity and ethics. The Company requires all staff to adhere to professional and ethical standards, and set standards for staff's behaviour. The Company does not tolerate any form of corruption, including bribery and extortion, fraud, and money laundering. As such, the Group has established an effective internal monitoring and management systems to ensure that employees act with integrity, impartiality, and honesty. During the year under review, no prosecutions were brought against the Company and its subsidiaries or any of their employee, in relation to corruption.

To take forward a corporate culture of integrity and anti-corruption, the Group has established a clear standard of conduct to guide our employees and partners, which provides rules and guidelines for dealing with gifts, treats, transactions, financial management. The Group has in place internal anti-corruption policies that employees are required to comply. The Group has also formulated fair, open and impartial procedures for product or service procurement and tendering to inhibit any potential corruption.

CORPORATE GOVERNANCE REPORT

WHISTLE-BLOWING POLICY

To avoid the occurrence of corruption and frauds, the Company has put in place the whistle-blowing policy that encourages employees and other stakeholders to report any suspected improper or illegal activities via anonymous ways such as by mail, email, telephone, etc. The Company will investigate and handle the case once fraud or malpractice related information is received. The investigations are administered on a confidential basis and there will be no reprisal against employees. The identity of the whistle-blower and all the concerns or irregularities raised will be treated with confidence and every effort will be made to ensure that confidentiality is maintained throughout the process.

The investigations are conducted by the chief executive officer (if chief executive officer is involved, the case will be passed to the chairman) or any designated person by the Directors, and notify the complainant the result of investigation. The complainant may raise the matter directly to the Directors. If there is evidence of criminal activity, activity on solicitation and acceptance of advantages or breach of legal and regulatory requirements, the person responsible for the internal investigation may legally be obliged to inform the relevant public or regulatory bodies, as appropriate. The chief executive officer shall summarise the complaints received and report any matter of significance to the audit committee at appropriate time.

SHAREHOLDERS' RIGHTS

(1) Procedures for shareholders to convene a Special General Meeting

The Board may whenever it thinks fit call special general meetings, and members holding at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company shall at all times have the right, by written requisition to the Board or the company secretary of the Company, to require a special general meeting ("SGM") to be called by the Board for the transaction of any business specified in such requisition.

Such meeting shall be held within three (3) months after the deposit of such requisition. If within twenty-one (21) days of such deposit the Board fails to proceed to convene such meeting the requisitionists themselves may do so in accordance with the provisions of Section 74(3) of the Companies Act 1981 of Bermuda.

(2) Procedures by which enquiries may be put to the Board and sufficient contact details to enable these enquiries to be properly directed

Shareholders may send their enquiries and concerns to the Board in writing through the company secretary of the Company whose contact details are as follows:

Yanchang Petroleum International Limited
Room 3403, 34/F, Lee Garden One
33 Hysan Avenue, Causeway Bay, Hong Kong
Telephone: 3528 5228
Fax: 3528 5238
Email: [email protected]

The company secretary will forward the enquiries or concerns to the chief executive officer or the chairman of the Board committees or senior management as appropriate within their area of responsibilities for answering and/or further handling.

Shareholders may also make enquiries with the Board at the general meetings of the Company.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

CORPORATE GOVERNANCE REPORT

SHAREHOLDERS' RIGHTS (Continued)

(3) Procedures for putting forward proposals at shareholders' meetings

Shareholders are requested to follow the provisions of the Company's Bye-laws for including a resolution at a SGM. The requirements and procedures are set out above. Pursuant to Bye-law 88 of the Company's Bye-laws, no person, other than a Director retiring at a meeting, shall, unless recommended by the Directors for election, be eligible for appointment as a Director at any general meeting unless there shall have been lodged at the head office or at the principal place of business in Hong Kong of the Company notice in writing signed by a shareholder (other than the person to be proposed) duly qualified to attend and vote at the meeting for which such notice is given of his intention to propose that person for election as a Director and also notice in writing signed by that person of his willingness to be elected as a Director. The minimum length of the period for lodgment of the said notices shall be at least seven days and that (if the notices are submitted after the despatch of the notice of the general meeting appointed for such election), the period for lodgment of the said notice(s) shall commence on the day after the dispatch of the notice of the general meeting for such election of Director(s) and end no later than seven days prior to the date of such general meeting. The written notice must state that person's biographical details as required by Rule 13.51(2) of the Listing Rules. The procedures for shareholders of the Company to propose a person for election as director is posted on the Company's website.

CONSTITUTIONAL DOCUMENTS

There are no changes in the Company's constitutional documents during the year.

COMMUNICATION WITH SHAREHOLDERS

During the year under review, the Group has proactively enhanced its corporate transparency and communications with its shareholders and the investment community through its annual and interim reports and the public relations company, Cornerstones Communications Limited. Constantly being updated in a timely manner, the Company maintains its website at www.yanchanginternational.com on which press releases, announcements, financial and other information relating to the Company and its business are disclosed. The annual report together with the annual general meeting circular which contains the notice of the annual general meeting are distributed to all the shareholders at least 20 clear business days before the meeting.

The annual general meeting provides a useful forum for shareholders to exchange views with the Board. The chairman of the Board as well as the respective chairman of the audit committee, nomination committee and remuneration committee are pleased to answer shareholders' questions.

Separate resolutions are proposed at general meetings on each substantially separate issue.

Pursuant to Rule 13.39(4) of the Listing Rules, any vote of shareholders at a general meeting must be taken by poll except where the chairman, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands.

Shareholders' Communication Policy

The Company adopted a shareholders' communication policy in March 2012 which aims at enhancing the corporate communication effectively between the shareholders, and the Board and senior management of the Company through various official channels so that the shareholders can access the Company's public information equally and effectively in a timely manner.

INDEPENDENT AUDITOR'S REPORT

BDO

INDEPENDENT AUDITOR'S REPORT

TO THE SHAREHOLDERS OF YANCHANG PETROLEUM INTERNATIONAL LIMITED

(Incorporated in Bermuda with limited liability)

OPINION

We have audited the consolidated financial statements of Yanchang Petroleum International Limited (the "Company") and its subsidiaries (together the "Group") set out on pages 51 to 129, which comprise the consolidated statement of financial position as at 31 December 2024, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including material accounting policy information.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2024, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with HKFRS Accounting Standards as issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

BASIS FOR OPINION

We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAs") issued by the HKICPA. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Consolidated Financial Statements" section of our report. We are independent of the Group in accordance with the HKICPA's "Code of Ethics for Professional Accountants" (the "Code"), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

INDEPENDENT AUDITOR'S REPORT

KEY AUDIT MATTERS (Continued)

Assessing impairment of petroleum and natural gas properties

As at 31 December 2024, the Group had petroleum and gas properties with the carrying amount of approximately HK$1,660,782,000 (see note 17), which contributed 59.3% of the Group's total assets. Management reviewed petroleum and natural gas properties, which comprise different cash-generating units ("CGUs"), for indicators of possible impairment or reversal of impairment by considering events or changes in circumstances. Such events and changes in circumstances included the economic impact on these CGUs resulting from fluctuation of oil and gas prices, production costs and change in production and oil and gas reserve volumes.

For those CGUs where an indicator of impairment or reversal of impairment was identified, management compared the carrying amount of each CGU with its recoverable amount, which was estimated by calculating the fair value less costs of disposal using a discounted cash flow forecast, to determine the amount of impairment or reversal of impairment, if any. The preparation of discounted cash flow forecasts involves the exercise of significant management judgement, particularly in estimating future selling prices for crude oil and natural gas, future production profiles and in determining appropriate discount rates.

As a result of the impairment assessment exercise, an reversal of impairment loss of petroleum and natural gas properties of HK$137,651,000 was recognised in profit or loss for the year ended 31 December 2024.

We identified the assessment of impairment of petroleum and natural gas properties as a key audit matter because the impairment assessments are complex and involve the exercise of significant management judgement in estimating the inputs in the impairment assessment models, which can be inherently uncertain and could be subject to management bias.

Our response:

assessing management's identification of indicators of potential impairment of petroleum and natural gas properties, identification of CGUs, the allocation of assets to those CGUs and the methodology adopted by management in the impairment assessments with reference to the requirements of the prevailing accounting standards;
challenging the key inputs in the discounted cash flow forecasts, including future selling prices for crude oil and natural gas and future production profiles, with reference to the Group's business plans and external data and forecasts, together with oil and gas reserves reports issued by third party reserves specialists and considering whether there were any indicators of management bias in the selection of key inputs;
involving our internal valuation specialists to assist us in assessing whether the discount rates applied by the Group in the discounted cash flow forecasts were within the range adopted by other companies in the same industry;
assessing the competence, capabilities, independence and objectivity of the third party reserves specialists engaged by the Group to estimate the oil and gas reserves;
comparing the actual results for the current year with management's forecasts prepared in the prior year to assess the historical accuracy of management's forecasting process;
making enquiries of management as to the reasons for any significant variations identified and considering whether these had been taken into account in the current year's forecasts; and
considering the disclosures in the consolidated financial statements in respect of the impairment assessment of petroleum and natural gas properties and the key assumptions adopted with reference to the requirements of the prevailing accounting standards.

INDEPENDENT AUDITOR'S REPORT

OTHER INFORMATION IN THE ANNUAL REPORT

The directors are responsible for the other information. The other information comprises the information included in the Company's annual report, but does not include the consolidated financial statements and our auditor's report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

DIRECTORS' RESPONSIBILITIES FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRS Accounting Standards as issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

The directors are also responsible for overseeing the Group's financial reporting process. The audit committee of the Company (the "Audit Committee") assists the directors in discharging their responsibility in this regard.

AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. This report is made solely to you, as a body, in accordance with Section 90 of the Bermuda Companies Act 1981, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with HKSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

INDEPENDENT AUDITOR'S REPORT

AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the group as a basis for forming an opinion on the group financial statements. We are responsible for the direction, supervision and review of the work performed for the purposes of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

BDO Limited

Certified Public Accountants

Lee, Alfred

Practising Certificate Number P04960

Hong Kong, 27 March 2025

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December 2024

| | Notes | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- | --- |
| Revenue | 8 | 29,184,915 | 27,742,529 |
| Other revenue | 8 | 9,132 | 17,784 |
| | | 29,194,047 | 27,760,313 |
| Expenses | | | |
| Cost of revenue | | (28,782,973) | (27,145,282) |
| Royalties | | (57,592) | (93,109) |
| Field operation expenses | | (89,376) | (108,712) |
| Exploration and evaluation expenses | | (2,680) | (2,597) |
| Selling and distribution expenses | | (21,295) | (18,726) |
| Administrative expenses | | (86,830) | (110,523) |
| Depreciation, depletion and amortisation | 10 | (163,402) | (240,726) |
| Net reversal/(recognition) of impairment loss of property, plant and equipment | 17 | 137,606 | (158,489) |
| Provision for expected credit loss | 5(b) | (5,676) | (43,923) |
| Provision for litigations | 35 | - | (84,274) |
| Other gains and losses | 9 | (31,744) | 11,316 |
| | | (29,103,962) | (27,995,045) |
| Profit/(loss) from operating activities | 10 | 90,085 | (234,732) |
| Finance costs | 13 | (34,930) | (58,926) |
| Gain on deconsolidation of a subsidiary | 36 | - | 882,050 |
| Profit before taxation | | 55,155 | 588,392 |
| Taxation | 14 | 423 | (8,260) |
| Profit for the year | | 55,578 | 580,132 |
| Other comprehensive income | | | |
| Item that may be reclassified subsequently to profit or loss: | | | |
| Exchange differences on translation of financial statements of subsidiaries outside Hong Kong | | | |
| - Exchange differences arising during the year | | (98,762) | 33,355 |
| - Reclassification of exchange difference on deconsolidation of a subsidiary | | - | (10,673) |
| Other comprehensive income for the year, with nil tax effect | | (98,762) | 22,682 |
| Total comprehensive income for the year | | (43,184) | 602,814 |

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December 2024

	Notes	2024	2023
		HK$'000	HK$'000
Profit for the year attributable to:
Owners of the Company		54,128	217,593
Non-controlling interests	38(b)	1,450	362,539
		55,578	580,132
Total comprehensive income for the year attributable to:
Owners of the Company		(42,958)	237,064
Non-controlling interests		(226)	365,750
		(43,184)	602,814
Earnings per share
Basic and diluted, HK cents	16	4.92	19.89

The notes on pages 59 to 129 form an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2024

| | Notes | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- | --- |
| ASSETS | | | |
| Non-current assets | | | |
| Property, plant and equipment | 17 | 1,771,918 | 1,859,533 |
| Investment properties | 18 | 11,542 | 12,590 |
| Exploration and evaluation assets | 19 | 8,898 | 11,384 |
| Right-of-use assets | 20 | 75,730 | 99,349 |
| Goodwill and intangible asset | 21 | 58,149 | 58,149 |
| | | 1,926,237 | 2,041,005 |
| Current assets | | | |
| Inventories | 22 | 89,851 | 346,580 |
| Trade receivables | 23 | 457,758 | 1,014,916 |
| Prepayments, deposits and other receivables | 24 | 47,478 | 55,853 |
| Cash and bank balances | 25 | 278,675 | 226,188 |
| | | 873,762 | 1,643,537 |
| Total assets | | 2,799,999 | 3,684,542 |
| EQUITY | | | |
| Capital and reserves attributable to the owners of the Company | | | |
| Share capital | 26 | 440,041 | 440,041 |
| Reserves | | 807,914 | 850,872 |
| Total equity attributable to the owners of the Company | | 1,247,955 | 1,290,913 |
| Non-controlling interests | 38(b) | 52,224 | 57,253 |
| Total equity | | 1,300,179 | 1,348,166 |

YANCHANG PETROLEUM INTERNATIONAL LIMITED
ANNUAL REPORT 2024

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2024

| | Notes | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- | --- |
| LIABILITIES | | | |
| Current liabilities | | | |
| Trade and other payables | 27 | 650,214 | 1,208,394 |
| Lease liabilities | 28 | 5,065 | 7,838 |
| Bank borrowings and other loans | 29 | 159,691 | 405,594 |
| Provision for litigations | 35 | - | - |
| Secured term loans | 32 | - | 445,355 |
| Current tax payables | | 1,908 | 316 |
| | | 816,878 | 2,067,497 |
| Non-current liabilities | | | |
| Decommissioning liabilities | 30 | 166,761 | 171,349 |
| Lease liabilities | 28 | 61,352 | 86,815 |
| Deferred tax liabilities | 31 | 10,177 | 10,715 |
| Secured term loans | 32 | 444,652 | - |
| | | 682,942 | 268,879 |
| Total liabilities | | 1,499,820 | 2,336,376 |
| Total equity and liabilities | | 2,799,999 | 3,684,542 |
| Net current assets/(liabilities) | | 56,884 | (423,960) |
| Total assets less current liabilities | | 1,983,121 | 1,617,045 |

Approved and authorised for issue by the board of directors on 27 March 2025.

Mr. Feng Yinguo
Chairman

Ms. Wang Haining
Director

The notes on pages 59 to 129 form an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2024

	Attributable to the owners of the Company								Non-controlling interests	Total
	Share capitalHK$'000	Share premiumHK$'000(note i)	Contribution surplusHK$'000(note ii)	Exchange reserveHK$'000	ReservesStatutory reserveHK$'000(note iii)	Other reserveHK$'000(note iv)	Accumulated lossesHK$'000(note v)	Sub-totalHK$'000
At 1 January 2023	366,701	2,115,311	6,400,652	(353,266)	24,467	1,821	(7,782,730)	406,255	(303,530)	469,426
Profit for the year	-	-	-	-	-	-	217,593	217,593	362,539	580,132
Other comprehensive income for the yearItem that may be reclassified subsequently to profit or loss: Exchange differences on translation of financial statements of subsidiaries outside Hong Kong- Exchange differences arising during the year- Reclassification of exchange difference on deconsolidation of a subsidiary (note 36)	-	-	-	35,811	-	-	-	35,811	(2,456)	33,355
	-	-	-	(16,340)	-	-	-	(16,340)	5,667	(10,673)
Total comprehensive income for the year	-	-	-	19,471	-	-	217,593	237,064	365,750	602,814
Deconsolidation of a subsidiary	-	-	-	-	(2,569)	-	2,569	-	-	-
Share subscription	73,340	207,553	-	-	-	-	-	207,553	-	280,893
Transfer of reservesDividend paid to non-controlling interests (note 38(b))	-	-	-	-	-	4,490	(4,490)	-	-	-
At 31 December 2023 and 1 January 2024	440,041	2,322,864	6,400,652	(333,795)	21,898	6,311	(7,567,058)	850,872	57,253	1,348,166
Profit for the year	-	-	-	-	-	-	54,128	54,128	1,450	55,578
Other comprehensive income for the yearItem that may be reclassified subsequently to profit or loss: Exchange differences on translation of financial statements of subsidiaries outside Hong Kong- Exchange differences arising during the year	-	-	-	(97,086)	-	-	-	(97,086)	(1,676)	(98,762)
Total comprehensive income for the year	-	-	-	(97,086)	-	-	54,128	(42,958)	(226)	(43,184)
Transfer of reservesDividend paid to non-controlling interests (note 38(b))	-	-	-	-	-	4,774	(4,774)	-	-	-
At 31 December 2024	440,041	2,322,864	6,400,652	(430,881)	21,898	11,085	(7,517,704)	807,914	52,224	1,300,179

YANCHANG PETROLEUM INTERNATIONAL LIMITED
ANNUAL REPORT 2024

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2024

Notes:

(i) The share premium represents (a) the difference between the nominal value and the fair value of the consideration shares of the Company (as defined in note 1) paid for acquisition of subsidiaries in prior years and (b) the excess of the proceeds received over the nominal value of the shares of the Company issued, less expenses incurred in connection with the issue.

(ii) The contribution surplus of the Group (as defined in note 1) represents the difference between the nominal value of the share capital of the subsidiaries acquired pursuant to a reorganisation scheme (the "Group Reorganisation") to rationalise the structure of the Group in preparation for the public listing of the Company's shares on the Stock Exchange (as defined in note 1) set out in the Company's prospectus dated 30 March 2001, over the nominal value of the shares of the Company issued in exchange therefor.

(iii) As stipulated by the relevant laws and regulations in the PRC (as defined in note 1), the subsidiaries of the Company established in the PRC shall set aside 10% of their net profit after taxation for the statutory surplus reserve fund (except when the reserve balance has reached 50% of the subsidiaries' paid-up capital). The reserve fund can only be used, upon approval by the board of directors and by the relevant authority, to offset accumulated losses or increase capital.

(iv) The other reserve represents the safety production fund. Under PRC's laws and regulations, the Group is required to accrue safety production fund at a certain percentage of the sales of dangerous goods. The fund is earmarked for improving the safety of production. The fund is accrued from retained earnings to other reserve and converted back to retained earnings when used.

(v) Accumulated losses represent the cumulative net revenue, expenses, gains and losses recognised in profit or loss.

The notes on pages 59 to 129 form an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2024

| | Notes | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- | --- |
| Profit before taxation | | 55,155 | 588,392 |
| Adjustments for: | | | |
| Interest income | 8 | (5,117) | (12,263) |
| Depreciation and depletion of property, plant and equipment | 17 | 155,588 | 232,354 |
| Depreciation of right-of-use assets | 20 | 7,814 | 8,372 |
| Fair value change on investment properties | 18 | 679 | 655 |
| Gain on deconsolidation of a subsidiary | 36 | – | (882,050) |
| Gain on leases modification | 9 | (6,588) | – |
| Written off of expired exploration and evaluation assets | 19 | 1,373 | 281 |
| Net (reversal)/recognition of impairment loss of property, plant and equipment | 17 | (137,606) | 158,489 |
| Reversal of impairment loss of exploration and evaluation assets | 19 | – | (474) |
| Provision for litigations | 35 | – | 84,274 |
| Provision for expected credit loss | 5(b) | 5,676 | 43,923 |
| Net foreign exchange loss/(gain) | 9 | 36,281 | (11,778) |
| Finance costs | 13 | 34,930 | 58,926 |
| Operating profit before movements in working capital | | 148,185 | 269,101 |
| Decrease in inventories | | 247,305 | 121,765 |
| Decrease/(increase) in trade receivables | | 521,265 | (460,145) |
| Decrease in prepayments, deposits and other receivables | | 6,716 | 147,756 |
| Decrease in restricted cash | | – | 41,287 |
| (Decrease)/increase in trade and other payables | | (519,603) | 280,401 |
| Decrease in decommissioning liabilities | | (6,373) | (5,005) |
| Cash generated from operations | | 397,495 | 395,160 |
| Interest received | 8 | 5,117 | 12,263 |
| Income tax refund/(paid) | | 1,777 | (605) |
| Net cash generated from operating activities | | 404,389 | 406,818 |
| Cash flows from investing activities | | | |
| Purchases of exploration and evaluation assets | | (382) | (6,978) |
| Purchases of property, plant and equipment | | (64,833) | (350,503) |
| Net cash used in investing activities | | (65,215) | (357,481) |

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2024

| | Notes | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- | --- |
| Cash flows from financing activities | | | |
| Proceeds from new bank borrowings | 25(b) | 53,365 | 447,884 |
| Proceeds from other loans | 25(b) | 160,095 | 274,050 |
| Other interest paid | 25(b) | (28,746) | (35,240) |
| Repayment of bank borrowings | 25(b) | (181,334) | (613,929) |
| Repayment of other loans | 25(b) | (266,825) | (282,025) |
| Share subscription | 26 | – | 280,893 |
| Dividend paid to non-controlling interests | 38(b) | (4,803) | (4,967) |
| Capital element of lease rentals paid | 25(b) | (5,663) | (6,402) |
| Interest element of lease rentals paid | 25(b) | (3,598) | (4,880) |
| Net cash (used in)/generated from financing activities | | (277,509) | 55,384 |
| Net increase in cash and cash equivalents | | 61,665 | 104,721 |
| Cash and cash equivalents at the beginning of the year | | 226,188 | 133,209 |
| Effect of exchange rate changes on cash and cash equivalents | | (9,178) | (11,742) |
| Cash and cash equivalents at the end of the year | 25(a) | 278,675 | 226,188 |

The notes on pages 59 to 129 form an integral part of these consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

1. CORPORATE INFORMATION

Yanchang Petroleum International Limited (the "Company") was incorporated in Bermuda on 5 January 2001 as an exempted company with limited liability under the Bermuda Companies Act and its shares are listed on The Stock Exchange of Hong Kong Limited (the "Stock Exchange"). The addresses of the registered office and principal place of business of the Company are disclosed in the corporate information section of the annual report.

The Company acts as an investment holding company while its subsidiaries are engaged in supply and procurement of oil related products as well as oil and gas exploration, exploitation, sale and operation. The Company and its subsidiaries are collectively referred to as the "Group".

The consolidated financial statements are presented in Hong Kong dollars ("HK$") and all values are rounded to the nearest thousand (HK$'000), unless otherwise stated.

The directors of the Company (the "Directors") consider the immediate parent and ultimate holding company of the Company to be Yanchang Petroleum Group (Hong Kong) Co., Limited ("Yanchang Petroleum HK"), a company incorporated in Hong Kong, and Shaanxi Yanchang Petroleum (Group) Co., Limited ("Yanchang Petroleum Group"), a state-owned corporation registered in the People's Republic of China (the "PRC") with limited liability, respectively. These entities do not produce financial statements available for public use.

2. ADOPTION OF HKFRS ACCOUNTING STANDARDS

(a) Adoption of new or amendments to HKFRS Accounting Standards

The Group has applied for the first time the following new or amendments to standards and interpretations (the "new or amendments to HKFRS Accounting Standards") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"), which are effective for the Group's consolidated financial statements for the annual period beginning on 1 January 2024:

Amendments to HKAS 7 and HKFRS 7 – Supplier Finance Arrangements
Amendments to HKFRS 16 – Lease Liability in Sale and Leaseback
Amendments to HKAS 1 – Classification of Liabilities as Current or Non-current
Amendments to HKAS 1 – Non-current Liabilities with Covenants
Amendments to HK Int 5 (Revised) – Presentation of Financial Statements – Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause (Amendments to HKAS 1 – Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants)

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

2. ADOPTION OF HKFRS ACCOUNTING STANDARDS (Continued)

(a) Adoption of new or amended HKFRS Accounting Standards (Continued)

The nature and the impact of the revised HKFRS Accounting Standards are described below:

Amendments to HKAS 7 and HKFRS 7

Amendments to HKAS 7 and HKFRS 7 clarify the characteristics of supplier finance arrangements and require additional disclosure of such arrangements. The disclosure requirements in the amendments are intended to assist users of financial statements in understanding the effects of supplier finance arrangements on an entity's liabilities, cash flows and exposure to liquidity risk. As the Group does not have supplier finance arrangements, the amendments did not have any impact on the Group's financial statements.

Amendments to HKFRS 16

Amendments to HKFRS 16 specify the requirements that a seller-lessee uses in measuring the lease liability arising in a sale and leaseback transaction to ensure the seller-lessee does not recognise any amount of the gain or loss that relates to the right of use it retains. Since the Group has no sale and leaseback transactions with variable lease payments that do not depend on an index or a rate occurring from the date of initial application of HKFRS 16, the amendments did not have any impact on the financial position or performance of the Group.

Amendments to HKAS 1 and related amendments to HK Int 5 (Revised)

The amendments clarify the requirements for classifying liabilities as current or non-current, including what is meant by a right to defer settlement and that a right to defer must exist at the end of the reporting period. Classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement. The amendments also clarify that a liability can be settled in its own equity instruments, and that only if a conversion option in a convertible liability is itself accounted for as an equity instrument would the terms of a liability not impact its classification. The amendments further clarify that, among covenants of a liability arising from a loan arrangement, only those with which an entity must comply on or before the reporting date affect the classification of that liability as current or non-current. Additional disclosures are required for non-current liabilities that are subject to the entity complying with future covenants within 12 months after the reporting period. The Group has reassessed the terms and conditions of its liabilities as at 1 January 2023 and 2024 and concluded that the classification of its liabilities as current or non-current remained unchanged upon initial application of the amendments. Accordingly, the amendments did not have any impact on the financial position or performance of the Group.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

2. ADOPTION OF HKFRS ACCOUNTING STANDARDS (Continued)

(b) New or amendments to HKFRS Accounting Standards, that have been issued but are not yet effective

The Group has not applied any new standard, amendments to standards and interpretation that have been issued but are not yet effective for the financial year beginning on 1 January 2024. These new and amendments to standards and interpretation include the following which may be relevant to the Group.

Amendments to HKAS 21 – Lack of Exchangeability¹
Amendments to HKFRS 9 and HKFRS 7 – Amendments to the Classification and Measurement of Financial Instruments²
Amendments to HKFRS 9 and HKFRS 7 – Contracts Referencing Nature- dependent Electricity²
Amendments to HKFRS 1, HKFRS 7, HKFRS 9, HKFRS 10 and HKAS 7 – Annual Improvements to HKFRS Accounting Standards – Volume 11²
HKFRS 18 – Presentation and Disclosure in Financial Statements³
HKFRS 19 – Subsidiaries without Public Accountability: Disclosures³
Amendments to HKFRS 10 and HKAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture⁴

¹ Effective for annual periods beginning on or after 1 January 2025
² Effective for annual periods beginning on or after 1 January 2026
³ Effective for annual periods beginning on or after 1 January 2027
⁴ No mandatory effective date yet determined but available for adoption

Further information about those HKFRS Accounting Standards that are expected to be applicable to the Group is described below.

HKFRS 18 replaces HKAS 1 Presentation of Financial Statements. While a number of sections have been brought forward from HKAS 1 with limited changes, HKFRS 18 introduces new requirements for presentation within the statement of profit or loss, including specified totals and subtotals. Entities are required to classify all income and expenses within the statement of profit or loss into one of the five categories: operating, investing, financing, income taxes and discontinued operations and to present two new defined subtotals. It also requires disclosures about management-defined performance measures in a single note and introduces enhanced requirements on the grouping (aggregation and disaggregation) and the location of information in both the primary financial statements and the notes. Some requirements previously included in HKAS 1 are moved to HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which is renamed as HKAS 8 Basis of Preparation of Financial Statements. As a consequence of the issuance of HKFRS 18, limited, but widely applicable, amendments are made to HKAS 7 Statement of Cash Flows, HKAS 33 Earnings per Share and HKAS 34 Interim Financial Reporting. In addition, there are minor consequential amendments to other HKFRSs. HKFRS 18 and the consequential amendments to other HKFRSs are effective for annual periods beginning on or after 1 January 2027 with earlier application permitted. Retrospective application is required. The Group is currently analysing the new requirements and assessing the impact of HKFRS 18 on the presentation and disclosure of the Group's financial statements.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

2. ADOPTION OF HKFRS ACCOUNTING STANDARDS (Continued)

(b) New or amendments to HKFRS Accounting Standards, that have been issued but are not yet effective (Continued)

Amendments to HKFRS 9 and HKFRS 7 clarify the date on which a financial asset or financial liability is derecognised and introduce an accounting policy option to derecognise a financial liability that is settled through an electronic payment system before the settlement date if specified criteria are met. The amendments clarify how to assess the contractual cash flow characteristics of financial assets with environmental, social and governance and other similar contingent features. Moreover, the amendments clarify the requirements for classifying financial assets with non-recourse features and contractually linked instruments. The amendments also include additional disclosures for investments in equity instruments designated at fair value through other comprehensive income and financial instruments with contingent features. The amendments shall be applied retrospectively with an adjustment to opening retained profits (or other component of equity) at the initial application date. Prior periods are not required to be restated and can only be restated without the use of hindsight. Earlier application of either all the amendments at the same time or only the amendments related to the classification of financial assets is permitted. The amendments are not expected to have any significant impact on the Group's financial statements.

Amendments to HKFRS 10 and HKAS 28 address an inconsistency between the requirements in HKFRS 10 and in HKAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss resulting from a downstream transaction when the sale or contribution of assets constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor's profit or loss only to the extent of the unrelated investor's interest in that associate or joint venture. The amendments are to be applied prospectively. The previous mandatory effective date of amendments to HKFRS 10 and HKAS 28 was removed by the HKICPA. However, the amendments are available for adoption now.

Amendments to HKAS 21 specify how an entity shall assess whether a currency is exchangeable into another currency and how it shall estimate a spot exchange rate at a measurement date when exchangeability is lacking. The amendments require disclosures of information that enable users of financial statements to understand the impact of a currency not being exchangeable. Earlier application is permitted. When applying the amendments, an entity cannot restate comparative information. Any cumulative effect of initially applying the amendments shall be recognised as an adjustment to the opening balance of retained profits or to the cumulative amount of translation differences accumulated in a separate component of equity, where appropriate, at the date of initial application. The amendments are not expected to have any significant impact on the Group's financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

2. ADOPTION OF HKFRS ACCOUNTING STANDARDS (Continued)

(b) New or amendments to HKFRS Accounting Standards, that have been issued but are not yet effective (Continued)

Annual Improvements to HKFRS Accounting Standards – Volume 11 set out amendments to HKFRS 1, HKFRS 7 (and the accompanying Guidance on implementing HKFRS 7), HKFRS 9, HKFRS 10 and HKAS 7. Details of the amendments that are expected to be applicable to the Group are as follows:

HKFRS 7 Financial Instruments: Disclosures: The amendments have updated certain wording in paragraph B38 of HKFRS 7 and paragraphs IG1, IG14 and IG20B of the Guidance on implementing HKFRS 7 for the purpose of simplification or achieving consistency with other paragraphs in the standard and/or with the concepts and terminology used in other standards. In addition, the amendments clarify that the Guidance on implementing HKFRS 7 does not necessarily illustrate all the requirements in the referenced paragraphs of HKFRS 7 nor does it create additional requirements. Earlier application is permitted. The amendments are not expected to have any significant impact on the Group's financial statements.
HKFRS 9 Financial Instruments: The amendments clarify that when a lessee has determined that a lease liability has been extinguished in accordance with HKFRS 9, the lessee is required to apply paragraph 3.3.3 of HKFRS 9 and recognise any resulting gain or loss in profit or loss. In addition, the amendments have updated certain wording in paragraph 5.1.3 of HKFRS 9 and Appendix A of HKFRS 9 to remove potential confusion. Earlier application is permitted. The amendments are not expected to have any significant impact on the Group's financial statements.
HKFRS 10 Consolidated Financial Statements: The amendments clarify that the relationship described in paragraph B74 of HKFRS 10 is just one example of various relationships that might exist between the investor and other parties acting as de facto agents of the investor, which removes the inconsistency with the requirement in paragraph B73 of HKFRS 10. Earlier application is permitted. The amendments are not expected to have any significant impact on the Group's financial statements.
HKAS 7 Statement of Cash Flows: The amendments replace the term "cost method" with "at cost" in paragraph 37 of HKAS 7 following the prior deletion of the definition of "cost method". Earlier application is permitted. The amendments are not expected to have any impact on the Group's financial statements.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ("HKASs") and Interpretations (hereinafter collectively referred to as the "HKFRS Accounting Standards") and the disclosure requirements of the Hong Kong Companies Ordinance. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules").

(b) Basis of preparation of the consolidated financial statements

The consolidated financial statements for the year ended 31 December 2024 comprise the Company and its subsidiaries.

The measurement basis used in the preparation of the consolidated financial statements is the historical cost basis except that investment properties are stated at their fair value as explained in the accounting policies set out in note 3(g).

The preparation of consolidated financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of HKFRSs that have significant effect on the consolidated financial statements and major sources of estimation uncertainty are discussed in note 4.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(c) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. This is even if this results in the non-controlling interests having a deficit balance.

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary attributable to the owners of the Company. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassify exchange reserve to profit or loss or transferred statutory reserve to another category of equity). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition of financial assets under HKFRS 9 or, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

In the Company's statements of financial position, investments in subsidiaries are stated at cost less impairment losses, unless the investment is classified as held for sale (or included in a disposal group that is classified as held for sale).

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(d) Goodwill and intangible asset

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (“CGUs”) (or groups of CGUs) that is expected to benefit from the synergies of the combination, which represent the lowest level at which the goodwill is monitored for internal management purposes and not larger than an operating segment.

A CGU (or groups of CGUs) to which goodwill has been allocated is tested for impairment annually or more frequently when there is indication that the unit may be impaired. If the recoverable amount is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit (or groups of CGUs). Any impairment loss is recognised in profit or loss and is not reversed in subsequent periods.

On disposal of the relevant CGU, the attributable amount of goodwill is included in the determination of the amount of profit or loss on disposal.

Intangible assets with indefinite useful lives, which are carried at cost less any subsequent accumulated impairment losses, are tested for impairment annually either individually or at the CGU level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis.

(e) Revenue

Income from sales of goods is classified by the Group as revenue as it arises from the ordinary course of the Group’s business.

Revenue from sales of goods is recognised when the customer takes possession of and accepts the products. If the products are a partial fulfilment of a contract covering other goods and/or services, then the amount of revenue recognised is an appropriate proportion of the total transaction price under the contract, allocated between all the goods promised under the contract on a relative stand-alone selling price basis. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

The Group takes advantage of the practical expedient in paragraph 63 of HKFRS 15 and does not adjust the consideration for any effects of a significant financing component if the period of financing is 12 months or less.

A refund liability is recognised for the obligation to refund some or all of the consideration received (or receivable) from a customer and is measured at the amount the Group ultimately expects it will have to return to the customer. The Group updates its estimates of refund liabilities (and the corresponding change in the transaction price) at the end of each reporting period.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(f) Property, plant and equipment and right-of-use assets

Property, plant and equipment and right-of-use assets are stated in the consolidated statement of financial position at cost less subsequent accumulated depreciation and subsequent impairment losses, including the following items:

interests in leasehold land and buildings where the Group is the registered owner of the property interest;
right-of-use assets arising from leases over leasehold properties where the Group is not the registered owner of the property interest (see note 3(k)); and
items of property, plant and equipment, including right-of-use assets arising from leases of underlying plant and equipment.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred.

Properties in the course of construction for production or for its own use purposes are carried at cost, less any recognised impairment loss. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Except for petroleum and natural gas properties, depreciation is recognised so as to write-off the cost of assets less their residual values over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The annual rates used are as follows:

Buildings	: over the shorter of the term of the lease or 50 years
Plant and machinery	: 20%
Furniture, fixtures and equipment	: 20%–30%
Motor vehicles	: 20%–30%
Leasehold improvements	: over the term of the related lease
Leasehold land	: over the unexpired term of lease

Petroleum and natural gas properties are depleted on an area-by-area basis using the unit-of-production method by reference to the ratio of production in the period to the related proved and probable reserves. Production and reserves of natural gas are converted to equivalent barrels of crude oil on the basis of six thousand cubic feet of gas to one barrel of oil. Calculation of depletion is based on total capitalised costs plus estimated future development costs of proved plus probable reserves. Changes in estimates used in prior periods, such as proved and probable reserves, that affect the unit-of-production calculations do not give rise to prior period adjustments and are dealt with on a prospective basis.

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed and adjusted if appropriate, at least at the end of each reporting period.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(f) Property, plant and equipment and right-of-use assets (Continued)

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset including related decommissioning liability and is recognised in profit or loss.

(g) Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties are initially measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at their fair values. Gains or losses arising from changes in the fair value of investment properties are included in profit or loss in the period in which they arise.

(h) Exploration and evaluation assets

Exploration and evaluation assets include costs capitalised by the Group in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Costs incurred before the Group has obtained the legal rights to explore an area are expensed. Exploration and evaluation assets are initially capitalised as intangible assets and are not amortised. Exploration and evaluation assets are assessed for impairment when facts and circumstances indicate that the carrying amount may exceed the recoverable amount. An impairment loss is recognised in profit or loss and separately disclosed. Once the technical feasibility and commercial viability of the extraction of resources in an area of interest are demonstrable based on technical data available to determine proved and/or probable reserves exist, exploration and evaluation assets attributable to that area are transferred to property, plant and equipment. For divestitures of exploration and evaluation assets, a gain or loss is recognised in profit or loss for the difference between the net disposal proceeds and the carrying amount of the asset.

(i) Impairment on tangible assets and intangible assets

At the end of the reporting period, the Group reviews the carrying amounts of its tangible assets and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss or reversal (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the CGU to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs, or otherwise they are allocated to the smallest groups of CGUs for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(i) Impairment on tangible assets and intangible assets (Continued)

If the recoverable amount of an asset (or a CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or the CGU) is reduced to its recoverable amount. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

(j) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average costing method. Net realisable value represents the estimated selling price for inventories less all estimated costs necessary to make the sale.

(k) Leased assets

At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.

(i) As a lessee

Where the contract contains lease component(s) and non-lease component(s), the Group has elected not to separate non-lease components and accounts for each lease component and any associated non-lease components as a single lease component for all leases.

At the lease commencement date, the Group recognises a right-of-use asset and a lease liability, except for short-term leases that have a lease term of 12 months or less which do not contain purchase option and leases of low-value assets which, for the Group are primarily laptops, office furniture and staff quarters. When the Group enters into a lease in respect of a low-value asset, the Group decides whether to capitalise the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalised are recognised as an expense on a systematic basis over the lease term.

Where the lease is capitalised, the lease liability is initially recognised at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortised cost and interest expense is calculated using the effective interest method. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability and hence are charged to profit or loss in the accounting period in which they are incurred.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(k) Leased assets (Continued)

(i) As a lessee (Continued)

The right-of-use asset recognised when a lease is capitalised is initially measured at cost, which comprises the initial amount of the lease liability plus any lease payments made at or before the commencement date, and any initial direct costs incurred. Where applicable, the cost of the right-of-use assets also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, discounted to their present value, less any lease incentives received. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses (see notes 3(f) and 3(i)).

The Group presents right-of-use assets and lease liabilities separately in the consolidated statement of financial position.

(ii) As a lessor

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the leased assets to the lessee. All other leases are classified as operating leases.

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease.

(l) Foreign currencies

(i) Functional and presentation currencies

The consolidated financial statements are presented in Hong Kong dollars which is the same as the financial currency.

(ii) Foreign currencies translation

In preparing the financial statements of each individual group entity, transactions in foreign currencies are recognised at the rates of exchanges prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are re-translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are re-translated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(I) Foreign currencies (Continued)

(ii) Foreign currencies translation (Continued)

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise, except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the Group’s interests.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into Hong Kong dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of exchange reserve (attributed to non-controlling interests as appropriate).

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the end of the reporting period. Exchange differences arising are recognised in other comprehensive income.

(m) Employee benefits

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirements plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(n) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax. Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively.

The tax currently payable is based on taxable profit for the year. Taxable profit/(loss) differs from profit/(loss) before taxation as reported in the consolidated statement of profit or loss and other comprehensive income because of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(n) Taxation (Continued)

Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences and unused tax losses to the extent that it is probable that taxable profits will be available against which those deductible temporary differences and unused tax losses can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit and does not give rise to equal taxable and deductible temporary difference. In addition, deferred tax liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. For the purposes of measuring deferred tax for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sale.

(o) Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

Financial assets are classified into financial assets at amortised cost.

Accounts receivable

A receivable is recognised when the Group has an unconditional right to receive consideration.

Receivables are stated at amortised cost using the effective interest method less allowance for credit losses.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(o) Financial instruments (Continued)

Credit losses from financial instruments

The Group recognises a loss allowance for expected credit losses ("ECL") on financial assets measured at amortised cost (including cash and cash equivalents and trade and other receivables).

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive).

The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material:

fixed-rate financial assets, accounts and other receivables: effective interest rate determined at initial recognition or an approximation thereof; and
variable-rate financial assets: current effective interest rate.

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.

ECLs are measured on either of the following bases:

12-month ECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and
lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(o) Financial instruments (Continued)

Credit losses from financial instruments (Continued)

Measurement of ECLs (Continued)

Loss allowances for trade receivables are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date.

For all other financial instruments, the Group recognises a loss allowance equal to 12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs.

Significant increases in credit risk

In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, the Group compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, the Group considers that a default event occurs when (i) the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held) or (ii) the financial asset is 30 days past due. The Group considers both quantitative and qualitative information that is reasonable and supportable including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

failure to make payments of principal or interest on their contractually due dates;
an actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if available);
an actual or expected significant deterioration in the operating results of the debtor; and
existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to the Group.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(o) Financial instruments (Continued)

Credit losses from financial instruments (Continued)

Significant increases in credit risk (Continued)

Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as past due status and credit risk ratings.

ECLs are re-measured at each reporting date to reflect changes in the financial instrument's credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. The Group recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.

Credit-impaired financial asset

At each reporting date, the Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable events:

significant financial difficulties of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; or
the disappearance of an active market for a security because of financial difficulties of the issuer.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(o) Financial instruments (Continued)

Credit losses from financial instruments (Continued)

Write-off policy

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.

Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in profit or loss in the period in which the recovery occurs.

Financial liabilities and equity instruments

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Financial liabilities at amortised cost

Financial liabilities including trade and other payables, lease liabilities, bank borrowings and other loans and secured term loans are subsequently measured at amortised cost, using the effective interest method.

Interest expense is recognised on an effective interest basis and subject to capitalisation (see note 3(r)).

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire. On derecognition of a financial asset, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(p) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

Decommissioning liabilities

Decommissioning liabilities are recognised for decommissioning and restoration obligations associated with the Group's exploration and evaluation assets and property, plant and equipment. The best estimate of the expenditure required to settle the present obligation at the end of the reporting period is recorded on a discounted basis using the pre-tax risk-free interest rate. The future cash flow estimates are adjusted to reflect the risks specific to the liability. The value of the obligation is added to the carrying amount of the associated exploration and evaluation assets or property, plant and equipment and is depleted as part of the cost of exploration and evaluation assets or property, plant and equipment. The provision is accreted over time through charges to finance costs with actual expenditures charged against the accumulated obligation. Changes in the future cash flow estimates resulting from revisions to the estimated timing or amount of undiscounted cash flows or the discount rate are recognised as changes in the decommissioning provision and related asset. Actual decommissioning expenditures up to the recorded liability at the time are charged against the provision as the costs are incurred. Any differences between the recorded provision and the actual costs incurred is recorded as a gain or loss on asset derecognition in profit or loss.

(q) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which, are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.

(r) Capitalisation of borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

3. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICY INFORMATION (Continued)

(s) Related party

Related parties are individuals and companies, including subsidiaries, fellow subsidiaries, fellow associates, immediate holding company, ultimate holding company and key management personnel, where the individual or company has the ability, directly or indirectly, to control or jointly control the other party or exercise significant influence over the other party in making financial and operating decisions.

(t) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the consolidated financial statements. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Contingent assets are not recognised but are disclosed in the notes to the consolidated financial statements when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

(u) Segment reporting

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or to provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

The followings are key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

(a) Depletion and impairment of petroleum and natural gas properties

The amounts recorded for depletion and impairment of petroleum and natural gas properties are based on estimates. These estimates include proved and probable reserves, production rates, future petroleum and natural gas prices, future development costs, remaining lives and periods of future benefits of the related assets and other relevant assumptions.

The Group’s reserve estimates are evaluated annually pursuant to the parameters and guidelines stipulated under Canadian Oil and Gas Evaluation Handbook. Changes in reserve estimates impact the financial results of the Group as reserves and estimated future development costs are used to calculate depletion and are also used in impairment calculations.

The decision to transfer exploration and evaluation assets to petroleum and natural gas properties is based on the estimated proved and probable reserves which are in part used to determine a project’s technical feasibility and commercial viability.

For impairment testing, petroleum and natural gas properties and exploration and evaluation assets are aggregated into CGUs, based on management’s judgment in defining the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash flows from other assets or groups of assets. CGUs are determined by similar geological structure, shared infrastructure, geographical proximity, commodity type, similar exposure to market risks and materiality.

The discount rate used to calculate the net present value of future cash flows for impairment testing is based on estimates of market conditions, recent asset sales and an approximate company and industry peer group weighted average cost of capital. Changes in the general economic environment could result in significant changes to this estimate.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

4. KEY SOURCES OF ESTIMATION UNCERTAINTY (Continued)

(b) Impairment of goodwill and intangible asset and property, plant and equipment other than petroleum and natural gas properties

Goodwill and intangible asset and property, plant and equipment other than petroleum and natural gas properties are tested for impairment when indicators exist. Further, irrespective of whether there is any indication of impairment, goodwill and intangible assets of supply agreement are required to be tested annually for impairment. For the purpose of impairment testing, goodwill and intangible assets of supply agreement has been allocated to a CGU operating in the supply and procurement of oil related products.

Determining whether goodwill and other assets allocated to a CGU is impaired requires an estimation of the value-in-use. The value-in-use calculation requires the Directors to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value.

(c) Decommissioning liabilities

The Group estimates future remediation costs of production facilities, well sites and gathering systems at different stages of development and construction of assets. In most instances, removal of assets occurs many years in the future. This requires an estimate regarding abandonment date, future environmental and regulatory legislation, the extent of reclamation activities, the engineering methodology for estimating cost, future technologies in determining the removal cost and liability-specific discount rates to determine the present value of these cash flows.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

5. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Financial assets | | |
| At amortised cost | | |
| - Trade receivables (note 23) | 457,758 | 1,014,916 |
| - Deposits (note 24) | 929 | 977 |
| - Other receivables (note 24) | 3,181 | 3,380 |
| - Cash and bank balances (note 25) | 278,675 | 226,188 |
| | 740,543 | 1,245,461 |
| Financial liabilities | | |
| At amortised cost | | |
| - Trade and other payables (note 27) | 542,825 | 1,033,445 |
| - Lease liabilities (note 28) | 66,417 | 94,653 |
| - Bank borrowings and other loans (note 29) | 159,691 | 405,594 |
| - Secured term loans (note 32) | 444,652 | 445,355 |
| | 1,213,585 | 1,979,047 |

(b) Financial risk management objectives

The Group's financial instruments include trade and other receivables, other deposits, restricted cash, cash and bank balances, trade and other payables, lease liabilities, bank borrowings and other loans and secured term loans. Details of these financial instruments are disclosed in respective notes to the consolidated financial statements. The risks associated with these financial instruments include market risk (foreign currency risk and interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these risk exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

The Group's activities expose it primarily to the financial risks of changes in foreign currency risk and interest rate risk.

Market risk exposures are measured by sensitivity analysis. There has been no change to the Group's exposure to market risk or the manner in which these risks are managed and measured.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

5. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Continued)

(b) Financial risk management objectives (Continued)

Market risk (Continued)

(i) Foreign currency risk management

The Group operates in Hong Kong, Canada, and the PRC and is exposed to foreign currency risk arising from various currency exposures, primarily with respect to US dollars ("USD"), Canadian dollars ("CAD") and Renminbi ("RMB"). Foreign currency risk arises from the foreign currency denominated commercial transactions, monetary assets and monetary liabilities. The Group has no significant direct exposure to foreign currencies on commercial transactions as most of the commercial transactions are denominated in a currency same as the functional currency of each entity of the Group.

However, the Group has significant foreign currency exposures on monetary liabilities. Such exposures arise from the balances of monetary liabilities that are denominated in a currency other than the functional currency of each entity of the Group. The carrying amounts of the foreign currency denominated monetary liabilities at the end of the reporting period are as follows:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Liabilities | | |
| USD – secured term loans | 444,652 | 445,355 |
| USD – Interest payable | 6,178 | 6,201 |

Management monitors foreign currency exposure by closely monitoring the movements of foreign currency rates. Management has set up a policy to require group entities to manage their foreign currency risk against their respective functional currency.

The following table indicates the approximate change in the Group's profit or loss for the year and accumulated losses in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the end of the reporting period. The sensitivity analysis includes balances between group companies where the denomination of the balances is in a currency other than the functional currencies of the lender or the borrower. A positive number below indicates an increase in profit or a decrease in loss and decrease in accumulated losses where the CAD strengthens against the relevant currency, USD. For a weakening of the CAD against USD, there would be an equal and opposite impact on the profit or loss and accumulated losses, and the balances below would be negative. The 5% change in CAD against USD represents management's best assessment of the possible changes in foreign exchange rates.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

5. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Continued)

(b) Financial risk management objectives (Continued)

Market risk (Continued)

(i) Foreign currency risk management (Continued)

The following sensitivity analysis has been determined based on the assumed percentage changes in foreign exchange rates taking place at the beginning of the reporting year and held constant throughout the year:

| | 2024
(Increase)/
decrease in
loss for the
year and
accumulated
losses
HK$'000 | 2023
(Increase)/
decrease in
loss for the
year and
accumulated
losses
HK$'000 |
| --- | --- | --- |
| Changes in exchange rate:
CAD depreciates by 5% against USD | (9,566) | (16,701) |
| CAD appreciates by 5% against USD | 9,566 | 16,701 |

(ii) Interest rate risk management

The Group is exposed to cash flow interest rate risk because entities in the Group borrow funds from banks at floating interest rates. The effective interest rate for the bank borrowings was approximately 2.68% as at 31 December 2024 (2023: 3.25%). The Group's cash flow interest rate risk is mainly concentrated on the fluctuation of benchmark interest rate published by the People's Bank of China for the Group's RMB denominated borrowings and by the National Bank of Canada for the Group's USD denominated borrowings.

Sensitivity analysis

The sensitivity analysis has been determined based on the exposure to interest rates for non-derivative instruments at the end of the reporting period. The analysis is prepared assuming the amount of financial instruments outstanding at the end of the reporting period was outstanding for the whole year. A 150 basis points (2023: 150 basis points) increase or decrease used represent management's assessment of the reasonably possible change in interest rates. Bank balances are excluded from sensitivity analysis as the Directors consider that the exposure of cash flow interest rate risk arising from variable-rate bank balances is insignificant.

If interest rates had been 150 basis points (2023: 150 basis points) higher/lower and all other variables were held constant, the Group's pre-tax profit for the year would decrease/increase by HK$5,000 (2023: pre-tax profit would decrease/increase by HK$1,973,000). This is mainly attributable to the Group's exposure to interest rates on its bank borrowings.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

5. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Continued)

(b) Financial risk management objectives (Continued)

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group.

The carrying amounts of trade and other receivables, restricted cash and cash and bank balances included in the consolidated statement of financial position represent the Group's maximum exposure to credit risk in relation to the Group's financial assets. No other financial assets carry a significant exposure to credit risk.

The Group's concentration of credit risk by geographical location is mainly in Canada and the PRC.

The Group's exposure to credit risk is influenced mainly by individual characteristics of each customer. At the end of the reporting period, 73% (2023: 96%) and 95% (2023: 99%) of the total trade receivables was due from the Group's largest debtor and the five largest debtors respectively.

In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade receivables at the end of the reporting period to ensure that adequate loss allowance are made for irrecoverable amounts. In this regard, the Directors consider that the Group's credit risk is significantly reduced.

The Group measures loss allowances for trade receivables at an amount equal to lifetime ECLs, which is calculated using a provision matrix. As the Group's historical credit loss experience does not indicate significantly different loss patterns for different customer segments, the loss allowance based on past due status is not further distinguished between the Group's different customer bases. In addition, trade receivables that are credit-impaired are assessed for ECL individually.

The following table provides information about the Group's exposure to credit risk and ECLs for trade receivables and deposits and other receivables:

	2024
	Expected loss rate %	Gross carrying amount HK$'000	Loss allowance HK$'000
Trade receivables
Collective assessment
- Not yet past due	0.02%–22.36%	440,786	6,555
- 0 to 30 days past due	0.2%	385	-
Individual assessment	63.2%–100%	64,927	41,785
		506,098	48,340
Deposits and other receivables
Individual assessment	0.05%–100%	4,347	237

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

5. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Continued)

(b) Financial risk management objectives (Continued)

Credit risk (Continued)

	Expected loss rate %	2023 Gross carrying amount HK$’000	Loss allowance HK$’000
Trade receivables
Collective assessment
- Not yet past due	0.01%	993,085	125
- 0 to 30 days past due	0.02%	595	-
Individual assessment	65.79%–100%	65,393	44,032
		1,059,073	44,157
Deposits and other receivables
Individual assessment	0.07%–2.39%	4,420	63

The following table shows the movement in loss allowance account in respect of trade receivables under the simplified approach:

	Lifetime ECL (not credit impaired) HK$’000	Lifetime ECL (credit impaired) HK$’000	Total HK$’000
As at 1 January 2023	130	116,208	116,338
Impairment loss charged to profit or loss	23	43,879	43,902
Deconsolidation of a subsidiary	(24)	(112,530)	(112,554)
Exchange realignment	(4)	(3,525)	(3,529)
As at 31 December 2023 and 1 January 2024	125	44,032	44,157
Impairment loss charged/(reversed) to profit or loss	6,453	(952)	5,501
Exchange realignment	(23)	(1,295)	(1,318)
As at 31 December 2024	6,555	41,785	48,340

The following table shows the movement in the loss allowance account in respect of deposits and other receivables during the year:

	Total HK$’000
As at 1 January 2023	76
Impairment loss charged to profit or loss	21
Deconsolidation of a subsidiary	(31)
Exchange realignment	(3)
As at 31 December 2023 and 1 January 2024	63
Impairment loss charged to profit or loss	175
Exchange realignment	(1)
As at 31 December 2024	237

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

5. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Continued)

(b) Financial risk management objectives (Continued)

Liquidity risk

The Group manages its liquidity risk by regularly monitoring current and expected liquidity requirements and ensuring sufficient liquid cash and intended lines of funding from major financial institutions to meet the Group's liquidity requirements in the short-term and long-term.

The following table details the Group's remaining contractual maturity for its financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group is required to pay. The table includes both interest and principal cash flows.

	Weighted average interest rate %	On demand or less than 1 year HK$’000	2-5 years HK$’000	Over 5 years HK$’000	Total undiscounted cash flows HK$’000	Total carrying amount HK$’000
31 December 2024
Non-derivative financial liabilities
Trade and other payables	-	542,825	-	-	542,825	542,825
Lease liabilities	5.09	8,364	27,591	57,729	93,684	66,417
Bank borrowings and other loans	2.27	163,317	-	-	163,317	159,691
Secured term loans	4.96	22,034	460,229	-	482,263	444,652
		736,540	487,820	57,729	1,282,089	1,213,585
31 December 2023
Non-derivative financial liabilities
Trade and other payables	-	1,033,445	-	-	1,033,445	1,033,445
Lease liabilities	4.93	12,407	36,497	84,831	133,735	94,653
Bank borrowings and other loans	1.53	411,799	-	-	411,799	405,594
Secured term loans	4.80	477,056	-	-	477,056	445,355
		1,934,707	36,497	84,831	2,056,035	1,979,047

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

5. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Continued)

(c) Fair value measurements of financial instruments

The fair value of financial assets and financial liabilities are determined as follows:

(i) The fair value of financial assets and financial liabilities with standard terms and conditions and traded in active markets are determined with reference to quoted market bid prices and ask prices respectively; and

(ii) The fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models (e.g. discounted cash flow analysis using observable and/or unobservable inputs).

6. CAPITAL MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the returns to stakeholders through the optimisation of the debt and equity balance. The Group's overall strategy remains unchanged from prior years.

The capital structure of the Group consists of debts which include total liabilities (which includes trade and other payables, current tax payables, bank borrowings and other loans, secured term loans, lease liabilities, decommissioning liabilities and deferred tax liabilities) and total equity.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. The gearing ratio is calculated as total liabilities divided by total equity. The gearing ratio at 31 December 2024 and 31 December 2023 were as follows:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Total liabilities | 1,499,820 | 2,336,376 |
| Total equity | 1,300,179 | 1,348,166 |
| Gearing ratio | 115.4% | 173.3% |

7. SEGMENT INFORMATION

Operating segments, and the amounts of each segment item reported in the consolidated financial statements, are identified from the financial information provided regularly to the Group's most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group's various lines of business and geographical locations.

The Group's operating and reportable segments are as follows:

(a) the exploration, exploitation and operation business segment involves oil and gas exploration, exploitation, sale and operation; and

(b) the supply and procurement business segment involves storage, transportation, trading and distribution of oil related products.

No operating segments have been aggregated to form the above reportable segments.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

7. SEGMENT INFORMATION (Continued)

Segment revenue and results

The following is an analysis of the Group's revenue and results by reportable and operating segment:

	Exploration, exploitation and operation		Supply and procurement		Consolidated
	2024	2023	2024	2023	2024	2023
	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
Segment revenue:
Sales to external customers	331,333	501,817	28,853,582	27,240,712	29,184,915	27,742,529
Segment (loss)/profit	(4,300)	33,431	5,084	(118,066)	784	(84,635)
Other revenue					9,132	17,784
Fair value change on investment properties					(679)	(655)
Net foreign exchange (loss)/gain					(36,281)	11,778
Net reversal/(recognition) of impairment loss of property, plant and equipment					137,606	(158,489)
Reversal of impairment loss of exploration and evaluation assets					-	474
Unallocated corporate expenses					(20,477)	(20,989)
Profit/(loss) from operating activities					90,085	(234,732)
Finance costs					(34,930)	(58,926)
Gain on deconsolidation of a subsidiary					-	882,050
Profit before taxation					55,155	588,392
Taxation					423	(8,260)
Profit for the year					55,578	580,132

Revenue reported was generated from external customers. There were no inter-segment sales for the year (2023: nil).

The accounting policies of the operating segments are the same as the Group's accounting policies described in note 3. Segment (loss)/profit represents the loss incurred/profit earned by each segment without allocation of other revenue, fair value change on investment properties, net foreign exchange (loss)/gain, net reversal/(recognition) of impairment loss of property, plant and equipment, reversal of impairment loss of exploration and evaluation assets, unallocated corporate expenses, finance costs and taxation. This is the measure reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

7. SEGMENT INFORMATION (Continued)

Segment assets and liabilities

The following is an analysis of the Group's assets and liabilities by reportable and operating segment:

	Exploration, exploitation and operation		Supply and procurement		Consolidated
	2024 HK$'000	2023 HK$'000	2024 HK$'000	2023 HK$'000	2024 HK$'000	2023 HK$'000
Segment assets	1,741,246	1,872,385	1,033,640	1,788,570	2,774,886	3,660,955
Unallocated assets					25,113	23,587
Total assets					2,799,999	3,684,542
Segment liabilities	497,991	596,601	819,523	1,556,645	1,317,514	2,153,246
Unallocated liabilities					182,306	183,130
Total liabilities					1,499,820	2,336,376

For the purpose of monitoring segment performance and allocating resources between segments:

all assets are allocated to reportable segments other than unallocated corporate assets; and
all liabilities are allocated to reportable segments other than unallocated corporate liabilities.

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

7. SEGMENT INFORMATION (Continued)

Other segment information

	Exploration, exploitation and operation		Supply and procurement		Unallocated		Consolidated
	2024 HK$'000	2023 HK$'000	2024 HK$'000	2023 HK$'000	2024 HK$'000	2023 HK$'000	2024 HK$'000	2023 HK$'000
Other segment information:
Depreciation of property, plant and equipment	158	181	9,737	10,846	19	23	9,914	11,050
Depletion of property, plant and equipment	145,674	221,304	-	-	-	-	145,674	221,304
Depreciation of right-of-use assets	285	191	5,656	6,307	1,873	1,874	7,814	8,372
Reversal of impairment loss of exploration and evaluation assets	-	(474)	-	-	-	-	-	(474)
Net (reversal)/recognition of impairment loss of property, plant and equipment	(137,651)	127,292	45	-	-	31,197	(137,606)	158,489
Provision for litigations	-	-	-	84,274	-	-	-	84,274
Provision for expected credit loss	-	-	5,676	43,923	-	-	5,676	43,923
Finance costs	16,596	14,293	9,707	36,120	8,627	8,513	34,930	58,926
Taxation	-	-	(423)	8,260	-	-	(423)	8,260
Additions to non-current assets*	76,244	356,522	4,156	3,553	-	-	80,400	360,075

The amount represents additions to property, plant and equipment, right-of-use assets and exploration and evaluation assets for the years ended 31 December 2024 and 31 December 2023.

Revenue from major products and services

The Group's revenue from its major products and services was from sales of crude oil and natural gas as well as trading and distribution of oil related products.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

7. SEGMENT INFORMATION (Continued)

Geographical information

The Group's operations are located in Canada, the PRC and Hong Kong.

Information about the Group's revenue from external customers and information about the Group's non-current assets by geographical location are detailed below:

	Revenue from external customers		Non-current assets
	2024 HK$'000	2023 HK$'000	2024 HK$'000	2023 HK$'000
PRC	28,853,582	27,240,712	254,293	287,304
Canada	331,333	501,817	1,671,122	1,750,986
Hong Kong and others	-	-	822	2,715
	29,184,915	27,742,529	1,926,237	2,041,005

Information about major customers

Included in revenue arising from supply and procurement business segment of HK$28,853,582,000 (2023: HK$27,240,712,000) are revenue of HK$21,001,432,000 (2023: HK$20,401,645,000) which arose from two (2023: two) customers of the Group, each of which contributed 10% or more to the Group's total revenue for the year.

Revenues from major customers of the Group's total revenue, are set out below:

	2024 HK$'000	2023 HK$'000
Customer A	16,349,901	16,091,750
Customer B	4,651,531	4,309,895

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

8. REVENUE AND OTHER REVENUE

Revenue represents the consideration expected to be entitled from the goods sold which are recognised under point in time under HKFRS 15. All significant intra-group transactions have been eliminated on consolidation.

An analysis of the Group's revenue and other revenue are as follows:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Revenue from contracts with customers within the scope of HKFRS 15 | | |
| Sales of crude oil and natural gas | 331,333 | 501,817 |
| Trading and distribution of oil related products | 28,853,582 | 27,240,712 |
| | 29,184,915 | 27,742,529 |
| | 2024
HK$'000 | 2023
HK$'000 |
| Other revenue | | |
| Bank interest income | 5,117 | 12,263 |
| Rental income (note 18) | 382 | 99 |
| Storage fee income | 858 | 1,590 |
| Others | 2,775 | 3,832 |
| | 9,132 | 17,784 |

Total future minimum lease payments receivable by the Group

The Group's total future minimum lease payments under non-cancellable operating leases are receivable as follows:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Not later than one year | 314 | 397 |
| Later than one year and not later than two years | 301 | 323 |
| Later than two years and not later than three years | 75 | 231 |
| | 690 | 951 |

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

9. OTHER GAINS AND LOSSES

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Net foreign exchange (loss)/gain | (36,281) | 11,778 |
| Fair value change on investment properties (note 18) | (679) | (655) |
| Reversal of impairment loss of exploration and evaluation assets (note 19) | – | 474 |
| Gain on lease modification | 6,588 | – |
| Others | (1,372) | (281) |
| | (31,744) | 11,316 |

10. PROFIT/(LOSS) FROM OPERATING ACTIVITIES

The Group's profit/(loss) from operating activities is arrived at after charging:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Auditors' remuneration | | |
| – Audit services | 2,772 | 2,752 |
| – Non-audit services | 452 | – |
| Cost of inventories sold | 28,782,973 | 27,145,282 |
| Depreciation and depletion of property, plant and equipment (note 17) | 155,588 | 232,354 |
| Depreciation of right-of-use assets (note 20) | 7,814 | 8,372 |
| | 163,402 | 240,726 |
| Expense relating to leases of low-value assets, excluding short-term leases of low-value assets | 1,085 | 2,341 |
| Staff costs (including Directors' remuneration) | | |
| – Salaries and wages | 82,318 | 77,912 |
| – Pension scheme contributions (note 33) | 4,289 | 5,026 |

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

11. DIRECTORS' REMUNERATION

The board of Directors is composed of executive Directors and independent non-executive Directors. Directors' remuneration disclosed pursuant to the Listing Rules and the Hong Kong Companies Ordinance, are as follows:

For the year ended 31 December 2024

	Directors' fees HK$'000	Salaries and other benefits HK$'000	Discretionary bonus HK$'000	Pension scheme contributions HK$'000	Equity-settled share option expenses HK$'000 (note 26)	Total HK$'000
Executive Directors
Mr. Feng Yinguo (Chairman)	–	250	–	–	–	250
Ms. Wang Haining (appointed on 22 July 2024)	–	118	–	–	–	118
Mr. Zhang Jianmin (resigned on 22 July 2024)	–	132	–	–	–	132
Mr. Ding Jiasheng	–	2,265	2,060	22	–	4,347
Sub-total	–	2,765	2,060	22	–	4,847
Non-executive Director
Mr. Sun Jian	–	–	–	–	–	–
Sub-total	–	–	–	–	–	–
Independent non-executive Directors
Mr. Ng Wing Ka	128	–	–	–	–	128
Mr. Leung Ting Yuk	128	–	–	–	–	128
Mr. Sun Liming	128	–	–	–	–	128
Dr. Mu Guodong	128	–	–	–	–	128
Sub-total	512	–	–	–	–	512
Total	512	2,765	2,060	22	–	5,359

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

11. DIRECTORS' REMUNERATION (Continued)

For the year ended 31 December 2023

| | Directors' fees
HK$'000 | Salaries and other benefits
HK$'000 | Discretionary bonus
HK$'000 | Pension scheme contributions
HK$'000 | Equity-settled share option expenses
HK$'000 (note 26) | Total
HK$'000 |
| --- | --- | --- | --- | --- | --- | --- |
| Executive Directors | | | | | | |
| Mr. Feng Yinguo (Chairman) | – | 250 | – | – | – | 250 |
| Mr. Zhang Jianmin | – | 250 | – | – | – | 250 |
| Mr. Ding Jiasheng | – | 2,415 | 1,830 | 22 | – | 4,267 |
| Sub-total | – | 2,915 | 1,830 | 22 | – | 4,767 |
| Non-executive Director | | | | | | |
| Mr. Sun Jian (appointed on 8 February 2023) | – | – | – | – | – | – |
| Sub-total | – | – | – | – | – | – |
| Independent non-executive Directors | | | | | | |
| Mr. Ng Wing Ka | 128 | – | – | – | – | 128 |
| Mr. Leung Ting Yuk | 128 | – | – | – | – | 128 |
| Mr. Sun Liming | 128 | – | – | – | – | 128 |
| Dr. Mu Guodong | 128 | – | – | – | – | 128 |
| Sub-total | 512 | – | – | – | – | 512 |
| Total | 512 | 2,915 | 1,830 | 22 | – | 5,279 |

The executive Directors' emoluments shown above were for their services in connection with the management of the affairs of the Company and the Group.

The independent non-executive Directors' emoluments shown above were for their services as Directors.

No Directors waived or agreed to waive any remuneration during the year (2023: nil). In addition, no emoluments were paid by the Group to the Directors as an inducement to join, or upon joining the Group, or as compensation for loss of office (2023: nil).

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

12. SENIOR MANAGEMENT'S EMOLUMENTS AND INDIVIDUALS WITH HIGHEST EMOLUMENTS

(a) Senior management of the Group

Senior management of the Group represents the executive Directors during the years ended 31 December 2024 and 31 December 2023.

(b) Five highest paid individuals

The five highest paid individuals of the Group during the year included one Director (2023: one), details of whose remuneration are set out in note 11 above. Details of the remuneration for the year of the remaining four (2023: four) highest paid individuals including two chief executives of the Company are as follows:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Basic salaries | 5,255 | 5,418 |
| Pension scheme contributions | 84 | 84 |
| Bonuses | 3,553 | 3,322 |
| | 8,892 | 8,824 |

The number of the highest paid individuals who are not the Directors whose remuneration fall within the following band is as follows:

	Number of individuals
	2024	2023
HK$
1,000,001–1,500,000	–	–
1,500,001–2,000,000	2	2
2,000,001–2,500,000	1	1
2,500,001–3,000,000	–	–
3,000,001–3,500,000	1	1
	4	4

No emoluments were paid by the Group to any of the five highest paid individuals as an inducement to join, or upon joining the Group, or as a compensation for loss of office (2023: nil). No five highest paid individuals waived or agreed to waive any remuneration during the year (2023: nil).

During the year ended 31 December 2024, no share options to subscribe for ordinary shares of the Company were granted to these individuals under the Company's share option scheme (2023: nil).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

13. FINANCE COSTS

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Interest expenses on bank borrowings and secured term loans wholly repayable within five years | 22,840 | 29,742 |
| Interest expenses on lease liabilities | 3,598 | 4,880 |
| Interest expenses on other loans | 5,906 | 21,530 |
| | 32,344 | 56,152 |
| Accretion expenses of decommissioning liabilities (note 30) | 2,586 | 2,774 |
| | 34,930 | 58,926 |

14. INCOME TAX IN THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

(a) Taxation in the consolidated statement of profit or loss and other comprehensive income represent:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Current tax – Hong Kong Profits Tax | | |
| Provision for the year | – | – |
| Current tax – Outside Hong Kong | | |
| Over-provision in prior years | (3,276) | – |
| Provision for the year | 3,023 | 8,424 |
| | (253) | 8,424 |
| Deferred tax | | |
| Reversal of temporary differences (note 31) | (170) | (164) |
| | (423) | 8,260 |

The provision for Hong Kong Profits Tax for 2024 is calculated at $16.5\%$ (2023: $16.5\%$) of estimated assessable profits for the year. Taxation for subsidiaries outside Hong Kong is charged at the appropriate current rate of taxation ruling in the relevant countries. The Canada blended statutory tax rate and the PRC corporate income tax rate applicable to the Group's subsidiaries in Canada and the PRC are $25\%$ (2023: $25\%$) and $25\%$ (2023: $25\%$) respectively.

YANCHANG PETROLEUM INTERNATIONAL LIMITED
ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

14. INCOME TAX IN THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (Continued)

(b) Reconciliation between tax (credit)/expense and accounting profit at applicable tax rates:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Profit before taxation | 55,155 | 588,392 |
| Notional tax on profit before taxation, calculated at the rates applicable to profit in the countries concerned | 12,721 | 72,723 |
| Tax effect of non-deductible expenses | 11,601 | 4,845 |
| Tax effect of non-taxable income | (185) | (145,624) |
| Tax effect of unused tax losses not recognised | – | 25,867 |
| Tax effect of deductible temporary difference not recognised | (22,309) | 49,011 |
| Withholding tax on dividends from subsidiary outside of Hong Kong | 561 | 565 |
| Withholding tax on interest income from subsidiary outside of Hong Kong | 636 | 1,037 |
| Over-provision in prior years | (3,276) | – |
| Others | (172) | (164) |
| Actual tax (credit)/expense | (423) | 8,260 |

15. DIVIDENDS

No dividend was paid or proposed for ordinary shareholders during the year ended 31 December 2024, nor has any dividend been proposed since the end of the reporting period (2023: nil).

16. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to the owners of the Company is based on the following data:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Profit | | |
| Profit for the year attributable to the owners of the Company for the purpose of basic and diluted earnings per share | 54,128 | 217,593 |
| | 2024
'000 | 2023
'000 |
| Number of shares | | |
| Weighted average number of ordinary shares for the purpose of basic and diluted earnings per share | 1,100,103 | 1,094,075 |

Diluted earnings per share for the years ended 31 December 2024 and 31 December 2023 were the same as the basic earnings per share as the Company had no dilutive potential ordinary shares in existence during the years ended 31 December 2024 and 31 December 2023.

The weighted average number of ordinary shares for the purpose of basic and diluted loss per share for the year ended 31 December 2023 has been adjusted retrospectively for share consolidation during the year ended 31 December 2023.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

PROPERTY, PLANT AND EQUIPMENT

	BuildingsHK$'000	Plant and machineryHK$'000	Furniture, fixtures and equipmentHK$'000	Motor vehiclesHK$'000	Leasehold improvementsHK$'000	Petroleum and natural gas propertiesHK$'000	Construction in progressHK$'000	TotalHK$'000
Cost
At 1 January 2023	178,446	25,210	15,732	5,318	7,149	3,828,344	114,185	4,174,384
Additions	-	-	491	-	-	349,366	646	350,503
Deconsolidation of a subsidiary (note 36)	-	-	(582)	-	(2,504)	-	-	(3,086)
Transfer from exploration and evaluation assets (note 19)	-	-	-	-	-	1,261	-	1,261
Written off	-	-	(9)	-	-	-	-	(9)
Exchange differences	(5,046)	(713)	(165)	(151)	-	91,230	(3,239)	81,916
At 31 December 2023 and 1 January 2024	173,400	24,497	15,467	5,167	4,645	4,270,201	111,592	4,604,969
Additions	287	2,960	516	8	-	74,415	476	78,662
Transfer from exploration and evaluation assets (note 19)	-	-	-	-	-	562	-	562
Written off	(139)	(295)	(310)	(10)	-	-	-	(754)
Exchange differences	(5,112)	(730)	(728)	(148)	(38)	(355,936)	(3,303)	(365,995)
At 31 December 2024	168,436	26,432	14,945	5,017	4,607	3,989,242	108,765	4,317,444
Accumulated depreciation, depletion and impairment
At 1 January 2023	59,692	13,144	13,453	3,887	6,875	2,129,617	82,426	2,309,094
Charge for the year	6,543	2,595	1,171	496	245	221,304	-	232,354
Deconsolidation of a subsidiary (note 36)	-	-	(400)	-	(2,477)	-	-	(2,877)
Eliminated on written off	-	-	(9)	-	-	-	-	(9)
Impairment loss during the year	-	-	-	-	-	127,292	31,197	158,489
Exchange differences	(1,665)	(363)	(123)	(109)	2	52,865	(2,222)	48,385
At 31 December 2023 and 1 January 2024	64,570	15,376	14,092	4,274	4,645	2,531,078	111,401	2,745,436
Charge for the year	6,393	2,503	657	361	-	145,674	-	155,588
Eliminated on written off	(139)	(295)	(310)	(10)	-	-	-	(754)
Impairment (reversal)/loss during the year	-	-	-	-	-	(137,651)	45	(137,606)
Exchange differences	(1,924)	(460)	(671)	(122)	(38)	(210,641)	(3,282)	(217,138)
At 31 December 2024	68,900	17,124	13,768	4,503	4,607	2,328,460	108,164	2,545,526
Net book value
At 31 December 2024	99,536	9,308	1,177	514	-	1,660,782	601	1,771,918
At 31 December 2023	108,830	9,121	1,375	893	-	1,739,123	191	1,859,533

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

17. PROPERTY, PLANT AND EQUIPMENT (Continued)

Impairment loss of petroleum and natural gas properties

As discussed in note 4(a) to the consolidated financial statements, the Group's petroleum and natural gas properties are aggregated into different CGUs, based on management's judgment in defining the smallest identifiable groups of assets. The recoverable amount of each CGU was determined on the basis of fair value less costs of disposal calculations. Oil and natural gas prices beyond the fourth year are escalated at 2% per annum (2023: escalated at 2% per annum). All fair values less costs of disposal use post-tax future cash flow projection based on the drilling proposals on proved and probable reserves approved by management and discounted at 10.5% (2023: 10.5%). In determining the discount rates, the Group considered acquisition metrics of recent transactions completed on assets similar to those in the specific CGU's and industry peer group weighted average cost of capital. The methodologies of fair value less costs of disposal and value in use are in compliance with HKAS 36, Impairment of Assets.

At 31 December 2024, the Group assessed for indicators of impairment or recovery for all its CGUs of petroleum and natural gas properties. The primary source of cash flow information was derived from the Group's petroleum and natural gas reserves, which were prepared by an independent qualified reserve evaluator (Level 3 of the fair value hierarchy). The Group reversed impairments on certain oil and gas properties after reassessing reserves due to successful offset wells and new drilling activities in 2024. These adjustments were based on improved reserve estimates, which incorporated production data and geological modelling from offset wells. During the year ended 31 December 2024, the Group recognised an impairment reversal on petroleum and natural gas properties of HK$137,651,000. The recoverable amount of the petroleum and natural gas properties has been determined on the basis of their fair values less costs of disposal, which is assessed to be higher than their value in use.

At 31 December 2023, the Group assessed for indicators of impairment or recovery for all its CGUs of petroleum and natural gas properties. The primary source of cash flow information was derived from the Group's petroleum and natural gas reserves, which were prepared by an independent qualified reserve evaluator (Level 3 of the fair value hierarchy). The Group determined that there were indicators of impairment loss at 31 December 2023 at its CGUs. The main indicator of impairment loss was the third party reserves evaluation which included an decrease in the forward price deck resulting in an increase in reserve and net present values across all CGUs. During the year ended 31 December 2023, the Group recognised an impairment loss on petroleum and natural gas properties of HK$127,292,000. The recoverable amount of the petroleum and natural gas properties has been determined on the basis of their fair values less costs of disposal, which is assessed to be higher than their value in use.

The aggregate recoverable amount of the Group's petroleum and natural gas properties amounted to HK$1.66 billion (2023: HK$1.74 billion).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

17. PROPERTY, PLANT AND EQUIPMENT (Continued)

Impairment loss of construction in progress

During the year ended 31 December 2024, the Group has recognised an impairment loss on construction in progress of HK$45,000 due to the uncertainty on obtaining relevant government authority's approval on construction work. The Group concluded there was indication for impairment and conducted impairment assessment on recoverable amounts of construction in progress.

During the year ended 31 December 2023, the Group has recognised an impairment loss on construction in progress of HK$31,197,000 due to the uncertainty on obtaining relevant government authority's approval on construction work. The Group concluded there was indication for impairment and conducted impairment assessment on recoverable amounts of construction in progress.

The recoverable amount of construction in progress has been determined based on fair value less cost of disposal using market approach. The level in the fair value hierarchy is arriving at the recoverable amount of construction in progress is considered under Level 3 on the basis of valuations carried out by China Valuer International Co., Ltd ("China Valuer"), independent qualified professional valuer not related to the Group.

The recoverable amount was reduced to zero as at 31 December 2023, which was lower than its carrying amount of construction in progress of approximately HK$31,197,000 as at 31 December 2023. The cost of disposal of construction in progress is amounted to HK$1,940,000 estimated by China Valuer. The fair value of construction in progress is determined using market approach by reference to recent sales price of recycling metal and construction costs with an adjustment on producer price index.

101

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

18. INVESTMENT PROPERTIES

	HK$'000
Fair values
At 1 January 2023	13,633
Decrease in fair values recognised in profit or loss (note 9)	(655)
Exchange differences	(388)
At 31 December 2023 and 1 January 2024	12,590
Decrease in fair values recognised in profit or loss (note 9)	(679)
Exchange differences	(369)
At 31 December 2024	11,542

All of the Group's property interest held to earn rentals or for capital appreciation purposes are measured using the fair value model and are classified and accounted for as investment properties.

The fair values of the Group's investment properties in the PRC at 31 December 2024 have been arrived at on the basis of valuations carried out by Vincorn Consulting and Appraisal Limited ("Vincorn") (2023: Vincorn), independent qualified professional valuer not related to the Group. Vincorn has appropriate qualification and recent experience in the valuation of similar properties in the relevant locations.

At each reporting date, the management of the Group will (i) verify all major inputs to the independent valuation report; (ii) assess property valuations movements when compared to the prior year valuation report; and (iii) hold discussion with the independent valuer.

There were no transfers between Levels 1 and 2, or transfers into or out of Level 3 in the both years.

The Group's policy is to recognise transfer into and transfer out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.

Valuation techniques

Income approach (term and reversion approach)

The income approach (term and reversion approach) estimates the value of investment properties on a market basis by capitalising net rental income on a fully leased basis. This method is typically used when a property is leased out for a specific term(s). This technique considers both the current passing rental income from existing tenancies and the potential future reversionary income at market level, by capitalising both at appropriate rates. In calculating the net rental income for this purpose, deduction is made for outgoings such as property management fees, vacancy loss, and other necessary expenses.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

18. INVESTMENT PROPERTIES (Continued)

Valuation techniques (Continued)

Direct sales comparison approach

Direct sales comparison approach estimates the value of the property interest by comparing recent sales of similar interests in the building or buildings located in their surrounding area. By analysing such sales which qualify as "arm's-length" transactions, between willing buyers and sellers, adjustments are made for size, location, time, amenities and other relevant factors when comparing such sales prices to assess the value of the subject properties.

Significant observable and unobservable inputs used to determine fair value

	Fair value at			Range of significant observable and unobservable inputs
	31 December 2024 HK$’000	31 December 2023 HK$’000	Valuation technique	Fair value hierarchy	Monthly market unit rent	Market unit value	Capitalisation rates	Sensitivity
Investment properties located in the PRC	11,542	12,590	Direct sales comparison approach and income approach	Level 3	RMB16.98 to RMB24.02 per square metre (2023: RMB16.98 to RMB24.02 per square metre)	RMB1,690 to RMB7,724 per square metre (2023: RMB1,797 to RMB8,160 per square metre)	3.7% to 12.1% (2023: 3.4% to 15.3%)	A significant increase in the monthly market unit rent used would result in a significant increase in fair value, and vice versa.
								A significant increase in the market unit value used would result in a significant increase in fair value, and vice versa.
								A slight increase in the capitalisation rate used would result in a significant decrease in fair value, and vice versa.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

18. INVESTMENT PROPERTIES (Continued)

The Group's investment properties are mainly situated in the PRC and are held under medium-term lease.

There has been no significant change from the valuation technique used in the prior year.

Details of the Group's investment properties and information about the fair value hierarchy as at the end of the reporting period are as follows:

	Fair value as at 31 December
	Level 2 HK$'000	Level 3 HK$'000	2024 HK$'000
Commercial and office buildings located in the PRC	–	11,542	11,542
	Level 2 HK$'000	Level 3 HK$'000	Fair value as at 31 December 2023 HK$'000
Commercial and office buildings located in the PRC	–	12,590	12,590

The following shows the details of rental income earned and direct operating expenses incurred by the Group during the years ended 31 December 2024 and 31 December 2023:

	2024 HK$'000	2023 HK$'000
Gross rental income from investment properties (note 8)	382	99
Less: Direct operating expenses incurred for investment properties that generated rental income during the year	–	–
	382	99

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

19. EXPLORATION AND EVALUATION ASSETS

	HK$'000
Cost
At 1 January 2023	12,432,827
Additions	6,978
Written off	(281)
Transfer to property, plant and equipment (note 17)	(1,261)
Exchange differences	201
At 31 December 2023 and 1 January 2024	12,438,464
Additions	382
Written off	(1,373)
Transfer to property, plant and equipment (note 17)	(562)
Exchange differences	(933)
At 31 December 2024	12,435,978
Accumulated impairment
At 1 January 2023	12,427,554
Reversal of impairment loss (note 9)	(474)
At 31 December 2023 and 1 January 2024	12,427,080
Reversal of impairment loss (note 9)	–
At 31 December 2024	12,427,080
Carrying amount
At 31 December 2024	8,898
At 31 December 2023	11,384

The exploration and evaluation assets represent (i) the unproved properties and capitalised exploration, drilling and completion costs which are pending the determination of commercial viability in Canada ("E&E in Canada"); and (ii) the oil and gas exploration, exploitation and operation rights and profit sharing rights at the Exploration Block 2104 and the Exploration Block 3113 ("Two Exploration Blocks") in Madagascar, onshore sites for oil and gas exploration, exploitation and operation, together with the expenditure paid for provision of services on activities relating to evaluation of the technical feasibility and commercial viability of extracting oil and gas in the Two Exploration Blocks in Madagascar.

The Group has adopted HKFRS 6 Exploration for and Evaluation of Mineral Resources and HKAS 36 Impairment of Assets which requires the Group to assess any impairment at the end of each reporting period.

105

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

19. EXPLORATION AND EVALUATION ASSETS (Continued)

Impairment test – E&E in Canada

The Group assessed E&E in Canada for any indication of impairment or recovery due to industry pricing fundamentals. Based on recent land sales and future drilling plans, the Group did not recognise a recovery or impairment of loss for the year ended 31 December 2024. The Group recognised a recovery of HK$474,000 for the year ended 31 December 2023.

Impairment test – Two Exploration Blocks

The Group entered into an investment and co-operation agreement with Yanchang Petroleum Group and ECO Energy (International) Investments Limited ("ECO") on exploration, exploitation and operation in the Exploration Block 3113 in Madagascar. Pursuant to the investment and co-operation agreement, the capital investment of the Exploration Block 3113 shall be contributed by the Group, Yanchang Petroleum Group and ECO.

The Two Exploration Blocks in Madagascar were fully impaired during the year ended 31 December 2016. In November 2017, the rights to explore in the Two Exploration Blocks were expired. There was no impairment loss or reversal of impairment loss recognised for the years ended 31 December 2024 and 31 December 2023.

20. RIGHT-OF-USE ASSETS

	HK$'000
Cost
At 1 January 2023	130,528
Additions	2,594
Exchange differences	(3,322)
At 31 December 2023 and 1 January 2024	129,800
Additions	1,356
Modification	(26,642)
Exchange differences	(3,083)
At 31 December 2024	101,431
Accumulated depreciation
At 1 January 2023	22,472
Charge for the year	8,372
Exchange differences	(393)
At 31 December 2023 and 1 January 2024	30,451
Charge for the year	7,814
Modification	(12,282)
Exchange differences	(282)
At 31 December 2024	25,701
Net book value
At 31 December 2024	75,730
At 31 December 2023	99,349

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

20. RIGHT-OF-USE ASSETS (Continued)

The analysis of expense items in relation to right-of-use assets in profit or loss is as follows:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Depreciation charge of right-of-use assets by class of underlying asset: | | |
| Ownership interests in leasehold land | 430 | 440 |
| Other properties leased for own use | 7,384 | 7,932 |
| | 7,814 | 8,372 |

The Group entered 3 new lease agreements for the use of office or staff quarters for the year ended 31 December 2024 (2023: 1). The leases of offices, gas stations and staff quarters contain minimum annual lease payment terms that are fixed.

Details of total cash outflow for leases and the maturity analysis of lease liabilities are set out in notes 25(c) and 28 respectively.

21. GOODWILL AND INTANGIBLE ASSET

The carrying amount of goodwill of HK$51,418,000 as at 31 December 2024 (2023: HK$51,418,000) has been allocated to a CGU of supply and procurement of oil related products.

During the year ended 31 December 2024, the Directors determine that no impairment loss should be provided in respect of goodwill (2023: nil).

The recoverable amount of the above CGU was determined on the basis of value-in-use calculation. The recoverable amount is based on certain assumptions. All value-in-use calculations use cash flow projections based on the financial budgets approved by management covering a 3-year period. The pre-tax discount rate used is 17.20% (2023: 17.90%). Cash flows beyond 3-year period are extrapolated using a steady growth rate of 2% per annum. The Directors believe that any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed its recoverable amount.

The key assumption used in the value-in-use calculation of the CGU is as follows:

Budgeted operating margin

Average operating margin achieved in the period immediately before the budget period. The value assigned to the assumptions reflects past experience.

Note: Trading and distribution of oil related products belongs to supply and procurement segment to the Group's business for the years ended 31 December 2024 and 31 December 2023.

The intangible asset of HK$6,731,000 (2023: HK$6,731,000) represents the supply agreements (as stated in note 37) which enable the Group to have stable and sufficient supply of refined oil in the PRC.

107

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

22. INVENTORIES

Inventories represented the merchandise of refined oil and by-products at the end of the reporting period.

23. TRADE RECEIVABLES

Trade receivables, which generally have credit terms of up to 90 days (2023: up to 90 days), are recognised and carried at the original invoiced amount less allowance for doubtful debt. Trade receivables are non-interest bearing.

The following is an ageing analysis of trade receivables presented based on the invoice dates at the end of the reporting period:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| 0 to 30 days | 434,230 | 992,263 |
| 31 to 60 days | 385 | 215 |
| 61 to 90 days | 688 | 482 |
| Over 90 days | 22,455 | 21,956 |
| | 457,758 | 1,014,916 |

Details of the Group's credit policy and impairment assessment on trade receivables for the years ended 31 December 2024 and 31 December 2023 are set out in note 5(b). The Group does not hold any collaterals or other credit enhancements over these balances.

Ageing of trade receivables which are past due but not credit-impaired at the reporting date is as follows:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| 0 to 30 days past due | 22,455 | 21,956 |

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

24. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Prepayments to suppliers of refined oil products | 29,465 | 31,162 |
| Other prepayments | 2,308 | 3,353 |
| Value added tax recoverable | 11,595 | 16,981 |
| Deposits | 929 | 977 |
| Other receivables | 3,181 | 3,380 |
| | 47,478 | 55,853 |

In determining the recoverability of deposits and other receivables, the Group considers any change in credit quality of the receivables from the date credit was initially granted up to the end of the reporting period. Details of impairment assessment on deposits and other receivables are set out in note 5(b). The Group does not hold any collateral over these balances.

25. CASH AND BANK BALANCES AND OTHER CASH FLOW INFORMATION

Bank balances carry interest at market rates which range from 0.001% to 2.92% (2023: 0.001% to 5.08%) per annum.

Included in the cash and bank balances as at 31 December 2024 were amounts in RMB equivalent to HK$216,417,000 (2023: HK$118,518,000) which are not freely convertible into other currencies.

(a) Cash and bank balances comprise:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Deposits with banks | 278,631 | 226,141 |
| Cash at bank and on hand | 44 | 47 |
| Cash and bank balances | 278,675 | 226,188 |

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

25. CASH AND BANK BALANCES AND OTHER CASH FLOW INFORMATION

(Continued)

(b) Reconciliation of liabilities arising from financing activities

The table below details changes in the Group's liabilities from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are liabilities for which cash flows are, or future cash flows will be, classified in the Group's consolidated statement of cash flows as cash flows from financing activities.

	Secured term loans (note 32) HK$'000	Bank borrowings and other loans (note 29) HK$'000	Lease liabilities (note 28) HK$'000	Total HK$'000
At 1 January 2023	445,747	700,032	101,450	1,247,229
Proceeds from new bank borrowings	–	447,884	–	447,884
Repayment of bank borrowings	–	(613,929)	–	(613,929)
Proceeds from other loans	–	274,050	–	274,050
Repayment of other loans	–	(282,025)	–	(282,025)
Capital element of lease rentals paid	–	–	(6,402)	(6,402)
Interest element of lease rentals paid	–	–	(4,880)	(4,880)
Other interest paid	(19,738)	(15,502)	–	(35,240)
Total changes from financing cash flows	(19,738)	(189,522)	(11,282)	(220,542)
Other changes:
Interest expenses (note 13)	19,738	31,534	4,880	56,152
Changes in trade and other payables	–	(18,204)	–	(18,204)
Addition to lease liabilities	–	–	2,594	2,594
Deconsolidation of a subsidiary (note 36)	–	(105,879)	–	(105,879)
Total other changes	19,738	(92,549)	7,474	(65,337)
Exchange adjustments	(392)	(12,367)	(2,989)	(15,748)
At 31 December 2023 and 1 January 2024	445,355	405,594	94,653	945,602
Changes from financing cash flows:
Proceeds from new bank borrowings	–	53,365	–	53,365
Repayment of bank borrowings	–	(181,334)	–	(181,334)
Proceeds from other loans	–	160,095	–	160,095
Repayment of other loans	–	(266,825)	–	(266,825)
Capital element of lease rentals paid	–	–	(5,663)	(5,663)
Interest element of lease rentals paid	–	–	(3,598)	(3,598)
Other interest paid	(22,466)	(6,280)	–	(28,746)
Total changes from financing cash flows	(22,466)	(240,979)	(9,261)	(272,706)
Other changes:
Interest expenses (note 13)	22,466	6,280	3,598	32,344
Lease modification	–	–	(20,948)	(20,948)
Additions to lease liabilities	–	–	1,356	1,356
Total other changes	22,466	6,280	(15,994)	12,752
Exchange adjustments	(703)	(11,204)	(2,981)	(14,888)
At 31 December 2024	444,652	159,691	66,417	670,760

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

25. CASH AND BANK BALANCES AND OTHER CASH FLOW INFORMATION

(Continued)

(c) Total cash outflows for leases

Amounts included in the consolidated statement of cash flows for leases comprise the following:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Within operating cash flows | 1,085 | 2,341 |
| Within financing cash flows | 9,261 | 11,282 |
| | 10,346 | 13,623 |

These amounts relate to lease rentals paid to and cash allowance granted and received from a lessor.

26. SHARE CAPITAL

	Par value	Number of shares		Amount
		2024	2023	2024	2023
	HK$	'000	'000	HK$'000	HK$'000
Ordinary shares
Authorised:
At the beginning of the year	0.02	5,000,000	100,000,000	2,000,000	2,000,000
Share consolidation	N/A	-	(95,000,000)	-	-
At the end of the year	0.4	5,000,000	5,000,000	2,000,000	2,000,000
Issued and fully paid:
At the beginning of the year	0.02	1,100,103	18,335,047	440,041	366,701
Subscription of new shares	0.02	-	3,667,009	-	73,340
Share consolidation	N/A	-	(20,901,953)	-	-
At the end of the year	0.4	1,100,103	1,100,103	440,041	440,041

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

26. SHARE CAPITAL (Continued)

Share subscription

On 13 January 2023, an aggregate of 3,667,009,346 subscription shares were allotted and issued to ChangAn HuiTong Investment (Hong Kong) Company Limited ("ChangAn Huitong HK") at the subscription price of HK$0.0766 per subscription share (the "Subscription") under the general mandate granted to the Directors by ordinary resolution passed at the annual general meeting of the Company held on 27 May 2022. Upon completion of the Subscription, the total number of issued shares of the Company increased from 18,335,046,733 shares to 22,002,056,079 shares (before share consolidation).

Details of the subscription of new shares were set out in the announcements of the Company dated 30 December 2022 and 13 January 2023.

Share consolidation

On 6 April 2023, the Board proposed that every twenty (20) shares in the issued and unissued share capital of the Company be consolidated into one (1) consolidated share (the "Share Consolidation"). The Share Consolidation was approved by the shareholders at the special general meeting of the Company held on 10 May 2023 and the same became effective on 12 May 2023. Upon the Share Consolidation becoming effective, there were 1,100,102,803 consolidated shares in issue which were fully paid or credited as fully paid.

Details of the Share Consolidation were set out in the announcement of the Company dated 6 April 2023 and the circular of the Company dated 18 April 2023.

Share options

In order to enable the Company to continue to grant share options to eligible participants as incentive or rewards for their contributions or potential contribution to the success of the Group, the Board adopts a share option scheme (the "Scheme"), eligible participants of the Scheme included the Directors and other employees of the Group. The Scheme was adopted on 27 May 2022 and, unless otherwise cancelled or amended, will remain in force for ten years from that date.

The maximum number of shares in respect of which share options may be granted under the Scheme shall not exceed 10% of the share capital of the Company in issue as at the date of approval of the Scheme. In addition, the maximum number of shares in respect of which share options may be granted to any eligible person within any 12-month period is limited to 1% of the total number of the shares of the Company in issue at any time. Any future grant of share options in excess of this limit is subject to shareholders' approval in a general meeting.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

26. SHARE CAPITAL (Continued)

Share options (Continued)

The exercise price of the share options is determinable by the Directors, but may not be less than the highest of (i) the closing price of the Company's shares as stated on the Stock Exchange's daily quotation sheets on the date of grant, which must be a business day; (ii) the average closing price of the Company's shares as stated on the Stock Exchange's daily quotation sheets for the five business days immediately preceding the date of grant; and (iii) the nominal value of the Company's shares.

The offer of a grant of share options may be accepted within 28 days from the date of the offer with a consideration of HK$1 being payable by the grantee. An option may be exercised in accordance with the terms of the Scheme at any time during a period to be determined and notified by the Directors to each grantee, which period may commence on the date on which the offer is made but shall end in any event not later than 10 years from the date of grant of the option subject to the provisions for early termination thereof and to the minimum period for which the option has to be held before it can be exercise as the Directors may at their discretion determine.

The maximum number of shares available for issue under options which may be granted under the Scheme of the Company is 110,010,280 (2023: 110,010,280) shares after the Share Consolidation became effective (being not more than 10% of the total number of the shares in issue as at the date of adoption of the Scheme), representing 10% (2023: 10%) of the total number of shares in issue as at the date of this annual report.

As at 31 December 2024, none of shares in respect of which options had been granted and remained outstanding under the Scheme (2023: nil).

None of share option was granted under the Scheme during the years ended 31 December 2024 (31 December 2023: nil).

113

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

27. TRADE AND OTHER PAYABLES

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Trade payable | 468,732 | 938,645 |
| Contract liabilities | 75,965 | 39,475 |
| Value added tax payables | 11,059 | 98,034 |
| Other tax payables | 4,664 | 28,742 |
| Staff cost payables | 15,701 | 8,698 |
| Other payables | 74,093 | 94,800 |
| | 650,214 | 1,208,394 |

Note:

Contract liabilities

Contract liabilities as at 31 December 2024 and 31 December 2023 mainly represent the advance received from customers upon order placement, and were fully recognised as revenue during the year when the control over a product is transferred to customer. The Group typically receives advance on acceptance of orders. The amount of the advance, if any, was negotiated on a case by case basis with customers.

Contract liabilities of HK$75,965,000 were recognised as at 31 December 2024 (2023: HK$39,495,000) as a result of the receipt of payment during the year in advance of the satisfaction of performance obligation, and are expected to be fully recognised as revenue within one year.

The table below details movements in contract liabilities:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| At 1 January | 39,495 | 479,522 |
| Amount included in contract liabilities at the beginning of the year that was recognised as revenue during the year | (39,475) | (80,516) |
| Cash received in advance of performance and not recognised as revenue during the year | 76,226 | 38,708 |
| Deconsolidation of a subsidiary | – | (384,660) |
| Exchange differences | (281) | (13,559) |
| At 31 December | 75,965 | 39,495 |

An ageing analysis of the trade payables at the end of the reporting period, based on invoice date, is as follows:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| 0 to 30 days | 464,345 | 890,855 |
| 31 to 60 days | 229 | 3,177 |
| 61 to 90 days | 6 | 38 |
| Over 90 days | 4,152 | 44,575 |
| | 468,732 | 938,645 |

As at 31 December 2024 and 31 December 2023, the trade payables are non-interest bearing and have an average credit period on purchases of up to 90 days.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

28. LEASE LIABILITIES

The following table shows the remaining contractual maturities of the Group's lease liabilities at the end of the current and previous reporting period:

	31 December 2024		31 December 2023
	Present value of the future lease payments HK$’000	Total future lease payments HK$’000	Present value of the future lease payments HK$’000	Total future lease payments HK$’000
Within 1 year	5,065	8,364	7,838	12,407
After 1 year but within 2 years	4,136	7,251	6,095	10,295
After 2 years but within 5 years	12,115	20,340	15,104	26,202
After 5 years	45,101	57,729	65,616	84,831
	61,352	85,320	86,815	121,328
	66,417	93,684	94,653	133,735
Less: total future interest expenses		(27,267)		(39,082)
Present value of lease liabilities		66,417		94,653

29. BANK BORROWINGS AND OTHER LOANS

At the end of each reporting period, details of bank borrowings and other loans were as follows:

	2024 HK$’000	2023 HK$’000
Carrying amount repayable within one year or on demand:
Unsecured bank borrowings (note a)	106	131,544
Unsecured other loans (note b)	159,585	274,050
	159,691	405,594

The ranges of effective interest rates (which are equal to the contracted interest rates) on bank borrowings and other loans are as follows:

	2024	2023
Bank borrowings
Floating rate	2.68%	1.40%-3.99%
Other loans
Fixed rate	2.27%	0.05%-2.65%

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

29. BANK BORROWINGS AND OTHER LOANS (Continued)

Notes:

(a) As at 31 December 2024, Henan Yanchang Petroleum Sales Co., Limited ("Henan Yanchang"), a subsidiary of the Company, has drawn down unsecured bank borrowings of RMB100,000 (equivalent to HK$106,000) (2023: RMB120,000,000 (equivalent to HK$131,544,000)). The bank borrowings denominated in RMB bear interest at the prevailing market rates quoted by the People's Bank of China and repayable within next twelve months.

(b) The balance represents loan advances from ultimate holding company of approximately HK$159,585,000 (2023: HK$274,050,000). As at 31 December 2024, loan advance from ultimate holding company is unsecured, interest-bearing at 2.27% (2023: 2.20%) per annum and repayable in December 2025 (2023: December 2024).

30. DECOMMISSIONING LIABILITIES

The Group's decommissioning liabilities are based on the Group's net ownership in wells and facilities along with management's estimate of the timing and expected future costs associated with the plugging and abandonment of wells, facilities dismantlement and site reclamation.

The following table reconciles the changes in the Group's decommissioning liabilities during the year:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| At the beginning of the year | 171,349 | 169,779 |
| Additional provision in the year | 13,543 | 7,901 |
| Utilisation in the year | (6,372) | (12,906) |
| Accretion expenses (note 13) | 2,586 | 2,774 |
| Exchange differences | (14,345) | 3,801 |
| At the end of the year | 166,761 | 171,349 |

The inflated, undiscounted amount of the future cash flows required to settle the obligations is estimated to be CAD36,600,000 (equivalent to HK$197,640,000) (2023: CAD31,500,000 (equivalent to HK$185,535,000)). The obligations were calculated using a risk-free interest rate of 1.85% (2023: 1.85%) and an inflation rate of 2.0% (2023: 2.0%). The risk-free interest rate adopted was referenced to the Bank of Canada Benchmark bond rate. It is expected that the obligations will be funded from the Group resources at the time the costs are incurred, none of which are expected to be short-term.

31. DEFERRED TAX LIABILITIES

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Deferred tax liabilities | (10,177) | (10,715) |

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

31. DEFERRED TAX LIABILITIES (Continued)

	Property, plant and equipment HK$’000	Prepaid lease payments HK$’000	Investment properties HK$’000	Total HK$’000
At 1 January 2023	(6,710)	(1,627)	(2,912)	(11,249)
Credited to profit or loss during the year (note 14)	–	–	164	164
Exchange differences	242	46	82	370
At 31 December 2023 and 1 January 2024	(6,468)	(1,581)	(2,666)	(10,715)
Credited to profit or loss during the year (note 14)	–	–	170	170
Exchange differences	74	46	248	368
At 31 December 2024	(6,394)	(1,535)	(2,248)	(10,177)

The Group did not have any significant unprovided deferred tax liabilities at 31 December 2024 and 2023.

32. SECURED TERM LOANS

(a) On 20 December 2019, Novus Energy Inc. ("Novus"), a subsidiary of the Company, drew down a secured term loan of US$35,000,000, pursuant to the loan agreement between Novus (as the borrower) and Yanchang Petroleum HK (as the lender), the immediate parent of the Company, signed on 5 November 2019. The relevant secured term loan denominated in US dollars bears interest rate at 4.8% per annum and was repayable in three years. The maturity date of the secured loan was 20 December 2022. On 6 December 2022, Novus entered into an agreement to extend the facility by entering into a supplemental facility agreement with Yanchang Petroleum HK. Under the deed of undertaking regarding the secured term loan dated 12 December 2022, the lender agreed to waive the right to exercise its right under the debenture during the period from 20 December 2022 to 17 January 2023. On 17 January 2023, the supplementary facility agreement was approved at the special general meeting by independent shareholders of the Company and become effective as all conditions precedent have been fulfilled. The term of the relevant secured term loan was extended for an additional three years and the secured term loan is now due on 17 January 2026.

The relevant secured term loan is secured by a US$70,000,000 debenture with the following charges: (1) first and fixed charge over all of Novus' right, title and interest, whether freehold, leasehold or other, under or in respect of the lands, in relation to the properties held by Novus from time to time; (2) a first priority security interest to and over all of Novus' present and after-acquired personal property (i.e. movable property) from time to time, tangible and intangible, in each case, of every nature and kind and wherever situate and all proceeds thereof; and (3) a floating charge over all of Novus' property to the extent not otherwise described above (excluding any agreement, right, franchise, intellectual property, license or permit). The relevant secured term loan is subject to a financial covenant that requires Novus to maintain a working capital ratio of at least 1:1. As at 31 December 2024, this ratio was 1.36:1 (31 December 2023: 0.20:1).

117

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

32. SECURED TERM LOANS (Continued)

(b) On 3 September 2021, the Company drew down a secured term loan of US$22,000,000, pursuant to the loan agreement between the Company (as the borrower) and Yanchang Petroleum HK (as the lender) signed on 30 June 2021. The relevant secured term loan denominated in US dollars bears interest rate at 4.8% per annum and is repayable in three years.

The relevant secured term loan is secured by 350 ordinary shares of Sino Union Energy International Limited ("Sino Union Energy") (representing 35% of the issued share capital of Sino Union Energy which is a direct wholly-owned subsidiary of the Company) under the share charge deed pursuant to which the Company agreed to provide a guarantee in favour of Yanchang Petroleum HK that the Company shall procure on the best effort basis the carrying valuation of Henan Yanchang will be not less than US$104,800,000. As at 31 December 2023, Sino Union Energy was able to maintain the above-mentioned valuation of Henan Yanchang. The said share charge was released on 8 August 2024.

On 8 August 2024, the Company entered into the supplemental loan agreement with Yanchang Petroleum HK, pursuant to which Yanchang Petroleum HK conditionally agreed to renew the relevant secured term loan for a term of three years bearing interest rate at 5.2% per annum. On 30 August 2024, the supplemental loan agreement was approved at the special general meeting by independent shareholders of the Company and become effective as all conditions precedent had been fulfilled. The relevant secured term loan is now due on 2 September 2027.

The relevant secured term loan is secured by 70% of the issued share capital of Henan Yanchang indirectly held by the Company under the share charge deed pursuant to which the Company agreed to provide a guarantee in favour of Yanchang Petroleum HK that the Company shall procure on the best effort basis the carrying valuation of Henan Yanchang will be not less than US$31,430,000. As at 31 December 2024, the Company was able to maintain the above-mentioned valuation of Henan Yanchang.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

33. RETIREMENT BENEFITS PLANS

The Group operates a defined contribution MPF Scheme in Hong Kong under the Mandatory Provident Fund Schemes Ordinance for those employees who are eligible to participate in the MPF Scheme. The MPF Scheme has operated since 1 December 2000. Under the MPF scheme, the employer and its employees are each required to make contributions to the plan at 5% of the employees' relevant income, subject to a cap of monthly relevant income of HK$30,000. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group's employer contributions vest fully with the employees when contributed into the MPF Scheme, except for the Group's employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the MPF Scheme.

Pursuant to the regulations of the relevant authorities in the PRC, the Group participates in the state-managed retirement benefit schemes ("PRC Schemes") whereby the Group is required to contribute to the PRC Schemes to fund the retirement benefits of the eligible employees. Contributions made to the PRC Schemes are calculated based on certain percentages of the applicable payroll costs as stipulated under the requirements in the PRC. The relevant authorities of the PRC are responsible for the entire pension obligations payable to the retired employees. The only obligation of the Group with respect to the PRC Schemes is to pay the ongoing required contributions under the PRC Schemes. The retirement benefit schemes contribution represents gross contributions by the Group to the PRC Schemes operated by the relevant authorities of the PRC.

The employees of the Group's subsidiary which operates in Canada may make voluntary contributions to a RRSP. The subsidiary matches the employee contributions up to an annual maximum. The subsidiary has no further payment obligation once the contributions have been paid. The contributions are recognised as staff costs when they are due.

The total cost charged to profit or loss of HK$4,289,000 for the year ended 31 December 2024 (2023: HK$5,026,000) represented contributions payable to the above schemes by the Group.

34. CAPITAL COMMITMENTS

The Group had capital commitments for purchase of property, plant and equipment amounting to HK$179,000 (2023: HK$275,000) which were contracted but not provided for as at 31 December 2024.

119

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

35. LITIGATIONS

Referring to the Company's announcement dated 2 June 2022, a claim was made by Chongqing Longhai Petroleum and Chemical Company Limited (重慶龍海石化有限公司, "Chongqing Longhai") against Yanchang Petroleum (Zhejiang FTZ) Limited ("Yanchang Zhejiang") for processing fees of approximately RMB442,696,000 and the relevant costs and interest so arisen. Yanchang Zhejiang also made a counter claim against Chongqing Longhai on the liquidated damages arising from the failure in completion of the processing contract and the amount of such counter claim was approximately RMB45,483,000. In December 2022, the court announced its judgement that Yanchang Zhejiang was required to bear the alleged damage (including processing fees, storage fee, interest and court processing fee) to Chongqing Longhai with a total of approximately RMB266,514,000 (equivalent to HK$297,350,000). In February 2023, Yanchang Zhejiang lodged appeal against the decision by the court.

Referring to the Company's announcements dated 2 June 2022, 9 June 2022, 8 July 2022, 22 July 2022, 3 August 2022, 12 August 2022, 19 August 2022, 14 September 2022, 15 September 2022, 28 October 2022, 14 November 2022 and 21 December 2022, various customers and suppliers of Yanchang Zhejiang sued for outstanding purchase procurement fees, transportation fees and purchase amounts.

The Directors of the Company are of the view that the above claims and the legal proceedings are likely to result in material outflows of economic benefit from the Group. For the year ended 31 December 2024, no additional provision for these litigations was made (31 December 2023: HK$84,274,000).

The following table reconciles the changes in the Group's provision for litigations during the year:

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| At 1 January | - | 453,330 |
| Additional provision in the year | - | 84,274 |
| Deconsolidation of a subsidiary (note 36) | - | (525,078) |
| Exchange differences | - | (12,526) |
| At 31 December | - | - |

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

36. DECONSOLIDATION OF A SUBSIDIARY

Yanchang Zhejiang was a 51% indirectly owned subsidiary of the Company which engaged in trading of fuel oil and oil related product in the PRC. On 7 November 2022, Yanchang Zhejiang filed the bankruptcy reorganisation application with the Intermediate People's Court of Guangzhou City (the "Court") in Guangdong Province of the PRC in order to revive its business and safeguard the interests of the Group against various claims. On 6 March 2023, Yanchang Zhejiang resubmitted a pre-restructuring application in accordance with the pre-restructuring procedures as proposed by the Court in order to have greater flexibilities in handling the debt restructuring of Yanchang Zhejiang. On 17 March 2023, Yancheng Zhejiang received the Court's civil ruling and the Court accepted the pre-restructuring application. On 7 June 2023, the Court ruled to formally accept the bankruptcy reorganisation of Yanchang Zhejiang and appointed Oriental Kunlun Law Firm* (東方崑崙律師事務所) to formally become the administrator of the bankruptcy reorganisation. According to the Enterprise Bankruptcy Law of the PRC, the time limit of the bankruptcy reorganisation is within six months from the date of the Court's approval of the bankruptcy reorganisation, which means it had already expired on 7 December 2023. During bankruptcy reorganisation period, a reorganisation plan proposed by an only intended investor was rejected by the creditors' meeting. Either the creditor(s) or the administrator did not locate other new investors to submit a new reorganisation plan to the Court, and also did not submit time extension request to the Court. Following the expiry of the bankruptcy reorganisation period, Yanchang Zhejiang would be subject to bankruptcy procedures.

In light of the above, the Board considered that the Company was unable to regain and recover the control of Yanchang Zhejiang and resolved to deconsolidate the financial statements of Yanchang Zhejiang from the Group's financial statements for the year ended 31 December 2023.

Further details of the bankruptcy reorganisation were set out in the announcements of the Company dated 7 November 2022, 17 March 2023 and 25 July 2023.

The net liabilities of Yanchang Zhejiang as at the date of deconsolidation were as follows:

| Net liabilities deconsolidated: | 2023
HK$'000 |
| --- | --- |
| Property, plant and equipment (note 17) | 209 |
| Inventories | 352,256 |
| Trade receivables | 106,856 |
| Prepayments, deposits and other receivables | 240,208 |
| Restricted cash | 262,119 |
| Trade and other payables | (1,201,724) |
| Current tax payables | (344) |
| Other loans (note 25(b)) | (105,879) |
| Provision for litigations (note 35) | (525,078) |
| Net liabilities deconsolidated of | (871,377) |
| Gain on deconsolidation of a subsidiary: | |
| Net liabilities deconsolidated of | 871,377 |
| Fair value of 51% retained interest which become a financial asset at fair value through other comprehensive income | – |
| Release of exchange reserves | 10,673 |
| Gain on deconsolidation | 882,050 |

For translation purpose only

121

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

37. MATERIAL RELATED PARTIES TRANSACTIONS AND BALANCES

Save as disclosed elsewhere in the consolidated financial statements, during the year the Group had the following transactions with related parties.

Remuneration for key management personnel, including emoluments paid to the Company's Directors and certain highest paid individuals, as disclosed in notes 11 and 12 to the consolidated financial statements, are as follows:

Key management personnel

| | | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- | --- |
| Salaries, bonus and allowances | | 13,633 | 13,485 |
| Share-based payment expenses | | - | - |
| Pension scheme contributions | | 106 | 105 |
| | | 13,739 | 13,590 |

Related party transactions

| Relationship | Nature of transactions | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- | --- |
| Ultimate holding company | Purchase of refined oil and by-products (note 1) | 7,219,739 | 14,843,751 |
| Fellow subsidiaries | Purchase of refined oil and by products (note 1) | 2,693,095 | - |
| Fellow associates | Purchase of refined oil and by products (note 1) | 29,370 | - |
| Fellow associates | Sales of refined oil and by-products (note 2) | 27,817 | 19,837 |
| Fellow subsidiary | Sales of refined oil and by-products (note 2) | - | 8,569 |
| Immediate holding company | Secured term loan interest expenses | 22,466 | 19,738 |
| Ultimate holding company | Other loan interest expenses | 5,882 | 5,700 |

Notes:
(1) The Group had connected transactions with ultimate holding company, fellow associates and fellow subsidiaries arising from the refined oil supply agreement dated 18 November 2022 and the supplemental agreements dated 27 November 2023 entered into between Henan Yanchang and Yanchang Petroleum Group in respect of the purchases of refined oil and by-products from Yanchang Petroleum Group by Henan Yanchang for the three years ending 31 December 2025.
(2) The Group had connected transactions with China Petroleum Yanchang Petroleum Trading Stock Limited Company ("China Petroleum Yanchang") and Yanchang Shell Henan Petroleum Limited ("Yanchang Shell Henan") arising from the sales agreements dated 27 November 2023 entered into between Henan Yanchang, China Petroleum Yanchang and Yanchang Shell Henan in respect of the sales of refined oil and by-products from Henan Yanchang to China Petroleum Yanchang and Yanchang Shell Henan, respectively, for the three years ending 31 December 2026.
(3) The above transactions constitute continuing connected transactions under Chapter 14A of the Listing Rules. The Company has complied with the requirements under Chapter 14A of the Listing Rules.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

37. MATERIAL RELATED PARTIES TRANSACTIONS AND BALANCES (Continued)

Following is a summary of related party balances as at 31 December 2024 and 31 December 2023.

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Trade receivables | | |
| - amount due from a fellow subsidiary | - | 190 |
| - amount due from a fellow associate | - | 706 |
| Prepayments to suppliers of refined oil products | | |
| - prepayment to ultimate holding company | 27,465 | 29,555 |
| - prepayment to a fellow subsidiary | 2,000 | 2,320 |
| Other receivables | | |
| - amount due from a fellow associate | 4 | 10 |
| - amount due from a fellow subsidiary | 522 | 713 |
| Trade payables | | |
| - amount due to ultimate holding company | (240,016) | (396,202) |
| - amount due to a fellow subsidiary | (22,907) | (444,170) |
| Other payables | | |
| - amount due to ultimate holding company | (4,120) | (21,696) |
| - amount due to immediate holding company | (6,886) | (6,854) |
| - amounts due to fellow subsidiaries | (986) | (686) |
| Other loan | | |
| - amount due to ultimate holding company (note 29) | (159,585) | (274,050) |
| Secured term loans | | |
| - amount due to immediate holding company (note 32) | (444,652) | (445,355) |

YANCHANG PETROLEUM INTERNATIONAL LIMITED

ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

38. PARTICULARS OF SUBSIDIARIES

(a) General information of subsidiaries

Particulars of the principal subsidiaries of the Company as at 31 December 2024 were as follows:

Name of subsidiary	Place of incorporation/establishment	Place of operation	Nominal value of issued and fully paid-up share/registered capital	Percentage of ownership interests and voting power held by the Company		Principal activities
				Directly	Indirectly
Forever Peace Investment Limited	Hong Kong	Hong Kong	HK$1	–	100	Investment holding
Henan Yanchang^	PRC	PRC	Registered and paid-up capital of RMB35,000,000	–	70	Wholesale, retail, storage and distribution of refined oil
Henan Yanchang Petroleum Energy Technology Limited (“Henan Yanchang Energy”)^	PRC	PRC	Registered and paid-up capital of RMB50,000,000	–	70	Distribution of refined oil
Noble Soar Limited	British Virgin Islands	Hong Kong	Ordinary US$1	100	–	Investment holding
Novus	Canada	Canada	Common CAD215,371,475	–	100	Acquiring, exploring for, developing and producing crude oil and natural gas
Yanchang International (Canada) Limited	Canada	Canada	Common CAD314,100,594	–	100	Investment holding
Yanchang Petroleum (Shenzhen) Limited^^	PRC	PRC	Registered and paid-up capital of RMB10,000,000	–	100	Fuel oil and oil related product trading
Yanchang Petroleum International Energy Trading Limited (“Yanchang Energy Trading”)	Hong Kong	Hong Kong	HK$10,000	–	51	Investment holding

These entities are established in the PRC in the form of Taiwan, Hong Kong, Macao and domestic joint venture.

This entity is established in the PRC in the form of solely funded by Taiwan, Hong Kong or Macao corporate body.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

38. PARTICULARS OF SUBSIDIARIES (Continued)

(a) General information of subsidiaries (Continued)

The above table lists the subsidiaries of the Company which, in the opinion of the Directors, principally affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the Directors, result in particulars of excessive length.

None of the subsidiaries had issued any debt securities at the end of the year.

(b) Details of non-wholly owned subsidiaries that have material non-controlling interests

The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests:

Name of subsidiary	Place of incorporation and principal place of business	Proportion of ownership interests and voting power held by non-controlling interests		Profit/(loss) allocated to non-controlling interests		Accumulated non-controlling interests
		2024	2023	2024 HK$'000	2023 HK$'000	2024 HK$'000	2023 HK$'000
Henan Yanchang	PRC	30%	30%	1,461	(9,874)	71,144	76,736
Henan Yanchang Energy	PRC	30%	30%	(11)	(9,359)	(18,918)	(19,481)
Yanchang Energy Trading and its subsidiary, Yanchang Zhejiang (note 36)	PRC	49%	49%	-	381,772	(2)	(2)
Total				1,450	362,539	52,224	57,253

Summarised financial information in respect of the Group's subsidiaries that have material non-controlling interests are set out below. The summarised financial information below represents amounts before intra-group eliminations.

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

38. PARTICULARS OF SUBSIDIARIES (Continued)

Henan Yanchang

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Current assets | 852,694 | 1,576,488 |
| Non-current assets | 201,493 | 234,039 |
| Current liabilities | (742,585) | (1,453,335) |
| Non-current liabilities | (74,455) | (101,404) |
| Equity attributable to the owners of the Company | 166,003 | 179,052 |
| Non-controlling interests | 71,144 | 76,736 |
| Revenue | 28,853,582 | 27,240,468 |
| Cost of sales | (28,782,973) | (27,145,002) |
| Expenses | (65,739) | (128,379) |
| Profit/(loss) for the year attributable to the owners of the Company | 3,409 | (23,039) |
| Profit/(loss) for the year attributable to the non-controlling interests | 1,461 | (9,874) |
| Profit/(loss) for the year | 4,870 | (32,913) |
| Other comprehensive income for the year attributable to
the owners of the Company | (5,251) | (6,338) |
| Other comprehensive income for the year attributable to
the non-controlling interests | (2,250) | (2,716) |
| Other comprehensive income for the year | (7,501) | (9,054) |
| Total comprehensive income for the year attributable to
the owners of the Company | (1,842) | (29,377) |
| Total comprehensive income for the year attributable to
the non-controlling interests | (789) | (12,590) |
| Total comprehensive income for the year | (2,631) | (41,967) |
| Dividend paid to non-controlling interests | (4,803) | (4,967) |
| Net cash inflows from operating activities | 25,961 | 54,928 |
| Net cash outflows from investing activities | (3,793) | (1,043) |
| Net cash outflows from financing activities | (127,969) | (166,045) |
| Net cash outflows | (105,801) | (112,160) |

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

38. PARTICULARS OF SUBSIDIARIES (Continued)

Henan Yanchang Energy

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Current assets | 23 | 155 |
| Non-current assets | – | – |
| Current liabilities | (63,084) | (65,093) |
| Equity attributable to the owners of the Company | (44,143) | (45,457) |
| Non-controlling interests | (18,918) | (19,481) |
| Revenue | – | – |
| Expenses | (37) | (31,197) |
| Loss for the year attributable to the owners of the Company | (26) | (21,838) |
| Loss for the year attributable to the non-controlling interests | (11) | (9,359) |
| Loss for the year | (37) | (31,197) |
| Other comprehensive income for the year attributable to
the owners of the Company | 1,339 | 609 |
| Other comprehensive income for the year attributable to
the non-controlling interests | 574 | 261 |
| Other comprehensive income for the year | 1,913 | 870 |
| Total comprehensive income for the year attributable to
the owners of the Company | 1,313 | (21,229) |
| Total comprehensive income for the year attributable to
the non-controlling interests | 563 | (9,098) |
| Total comprehensive income for the year | 1,876 | (30,327) |
| Net cash inflows from operating activities | 8 | – |
| Net cash outflows from investing activities | (45) | – |
| Net cash inflows from financing activities | – | – |
| Net cash outflows | (37) | – |

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

39. STATEMENT OF FINANCIAL POSITION AND RESERVES OF THE COMPANY

Statement of financial position of the Company

| | 2024
HK$'000 | 2023
HK$'000 |
| --- | --- | --- |
| Assets | | |
| Non-current assets | | |
| Interests in subsidiaries | 918,914 | 939,522 |
| Property, plant and equipment | 4 | 22 |
| Right-of-use assets | 781 | 2,654 |
| | 919,699 | 942,198 |
| Current assets | | |
| Prepayments and other receivables | 4,630 | 4,980 |
| Cash and bank balances | 21,219 | 19,131 |
| | 25,849 | 24,111 |
| Total assets | 945,548 | 966,309 |
| Equity | | |
| Capital and reserves attributable to the owners of the Company | | |
| Share capital | 440,041 | 440,041 |
| Reserves | 323,200 | 343,137 |
| Total equity | 763,241 | 783,178 |
| Liabilities | | |
| Current liabilities | | |
| Other payables | 8,318 | 7,194 |
| Secured term loan | - | 172,700 |
| Lease liabilities | 1,289 | 2,467 |
| | 9,607 | 182,361 |
| Non-current liabilities | | |
| Lease liabilities | - | 770 |
| Secured term loans | 172,700 | - |
| | 172,700 | 770 |
| Total liabilities | 182,307 | 183,131 |
| Total equity and liabilities | 945,548 | 966,309 |
| Net current assets/(liabilities) | 16,242 | (158,250) |
| Total assets less current liabilities | 935,941 | 783,948 |

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2024

39. STATEMENT OF FINANCIAL POSITION AND RESERVES OF THE COMPANY

(Continued)

Movement in the Company's reserves

	Share premium HK$'000	Contribution surplus HK$'000	Accumulated losses HK$'000	Total HK$'000
At 1 January 2023	2,115,311	6,454,818	(8,432,593)	137,536
Loss and total comprehensive income for the year	–	–	(1,952)	(1,952)
Share subscription	207,553	–	–	207,553
At 31 December 2023 and 1 January 2024	2,322,864	6,454,818	(8,434,545)	343,137
Loss and total comprehensive income for the year	–	–	(19,937)	(19,937)
At 31 December 2024	2,322,864	6,454,818	(8,454,482)	323,200

40. APPROVAL FOR CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements were approved and authorised for issue by the board of Directors on 27 March 2025.

129

YANCHANG PETROLEUM INTERNATIONAL LIMITED ANNUAL REPORT 2024

SCHEDULE OF INVESTMENT PROPERTIES

The particulars of the investment properties at 31 December 2024 are as follows:

Location	Type	Tenure	Attributable interest to the Group
No. 22 Xinjian North Road, Xinzheng City, Zhengzhou, Henan Province, The PRC	Building and land	Medium-term lease	70%
No. 1601–1609 on level 16 of Zijincheng, No. 16 Zijinshan Road, Jinshui District, Zhengzhou City, Henan Province, The PRC	Building and car park space	Medium-term lease	70%

AI assistant

Fibocom Wireless Inc. — Annual Report 2024

49358_rns_2025-04-23_67a878e6-76ba-48e5-837f-6ce3de78a3d4.pdf

2024

ANNUAL REPORT

CONTENTS

CORPORATE INFORMATION

EXECUTIVE DIRECTORS

NON-EXECUTIVE DIRECTOR

INDEPENDENT NON-EXECUTIVE DIRECTORS

COMPANY SECRETARY

AUDIT COMMITTEE

REMUNERATION COMMITTEE

NOMINATION COMMITTEE

AUTHORISED REPRESENTATIVES

AUDITORS

REGISTERED OFFICE

BERMUDA PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE

PRINCIPAL BANKERS

HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG

STOCK CODE

WEBSITE

UPSTREAM OIL AND GAS PRODUCTION BUSINESS IN CANADA

(I) Successfully achieving production targets

CHAIRMAN'S STATEMENT

(II) Remarkable improvements in production and operation

(III) Enhanced technological support

(IV) Continuous consolidation of resource reserves

CHAIRMAN'S STATEMENT

(V) Scientific preparation of development plans

(VI) Rigorous implementation of safety and compliance

DOWNSTREAM OIL AND BY-PRODUCTS SALES BUSINESS IN CHINA

(I) Steadily and orderly progressing business

CHAIRMAN'S STATEMENT

(II) Remarkable achievements in business expansion

(III) Robustly strengthening of business assurance

(IV) Consistent consolidation of the safety foundation

CHAIRMAN'S STATEMENT

OUTLOOK

FINANCIAL REVIEW

Highlights on financial results

Segment revenue and segment results

MANAGEMENT DISCUSSION AND ANALYSIS

FINANCIAL REVIEW (Continued)

Segment revenue and segment results (Continued)

Other revenue

Cost of revenue

Royalties

Field operation expenses

Exploration and evaluation expenses

Selling and distribution expenses

Administrative expenses

Depreciation, depletion and amortisation

Net reversal/(recognition) of impairment loss of property, plant and equipment

Provision for expected credit loss

FINANCIAL REVIEW (Continued)

Highlights on financial results (Continued)

Provision for litigations

Other gains and losses

Finance costs

Taxation

Profit for the year

Highlights on financial position

MANAGEMENT DISCUSSION AND ANALYSIS

FINANCIAL REVIEW (Continued)

Highlights on financial position (Continued)

Property, plant and equipment

Investment properties

Exploration and evaluation assets

Right-of-use assets

Goodwill and intangible asset

Inventories

Trade receivables

Prepayments, deposits and other receivables

Cash and bank balances

Trade and other payables

Bank borrowings and other loans

Decommissioning liabilities

FINANCIAL REVIEW (Continued)

Fibocom Wireless Inc. Annual Report 2024