2. Nature of Business

2.1 Establishment/ Changes/ Significant Development

The Company was incorporated on 20 June 1985 with the Petroleum
Authority of Thailand (now PTT Public Company Limited or PTT) as the
shareholders of 99.99% in accordance with the Cabinet’s resolution of
April 16, 1985 for the Government to be able to hold petroleum
concessions. And on February 16, 1988 the Cabinet gave resolution for
PTTEP to conduct its business without having to comply with the orders,
rules & regulation and the Cabinet’s resolution that enforced general
State Enterprises with exemption only to the solution concerning the
creating of the country’s debt of year 1985 and its amendment. This was
for the Company to conduct its business independently with effectiveness
and efficiency and be able to compete with other international oil
companies. On October 30, 1992, PTTEP became a public company and was
first trade in the market on June 10,1993.

2006 Significant Development

(1) PTTEP (Thailand) Limited or PTTEPT, the Operator, has awarded of
Petroleum Concessions Blocks G 9/48 and G 12/48. For Concession Block G
9/48, PTTEPT holds 44.4445% interest, and Unocal Andaman Limited holds
16% interest. For Concession Block 12/48, PTTEP holds 44.4445% interest,
and TOTAL E&P Thailand holds 33.3333% interest and Thai Energy holds
22.2222% interest.

(2) PTTEP adjusted the par value from 5 Baht to 1 Baht per share. The
number of registered common shares has increased from 664,400,000 shares
to 3,322,000,000 shares.

(3) PTTEP established 4 subsidiaries comprising of PTTEP Bahrain Company
Limited or PTTEP BH, PTTEP Holding Company Limited or PTTEPH, PTTEP
Indonesia Company Limited or PTTEP ID and PTTEP Bengara I Company
Limited or PTTEPB, in order to carry out petroleum exploration and
development activities.

(4) PTTEP Siam Limited or PTTEPS, the Operator, has awarded of Petroleum
Concessions Blocks L 21/48, L 28/48 and L 29/48 with 100% interest.

(5) PTTEP Bengara I Company Limited or PTTEPB has participated 40%
    interest in the Petroleum Exploration Block Bengara – 1, Indonesia,
    with PT Medco E&P. The participating interest for PT Medco E&P
    Bengara (the Operation) is 60%.

    (6) PTTEP and the consortia comprising Sipetrol International S.A.
    (“Sipetrol”), Edison International SpA (“Edison”), and Centrica
    Energy (“Centrica”) were accepted in principle by the Egyptian
    Natural Gas Holding Company (“EGAS”) as the winners of Block 2 and
    Block 8 in Arab Republic of Egypt for the EGAS International Bid
    Round 2006 subject to completion of necessary procedures and
    competent authorities’ approvals. The Concession Agreement of each
    block will be signed after obtaining necessary approvals and
    issuance of the Law of Concession Agreement by the Egyptian
    Government.

    2.2 Business Operation

2.2.1 Business Overview

PTTEP conducts its core business in petroleum exploration, development
and production. As of 31 December 2006, PTTEP has 11 petroleum
exploration and production projects currently under production out of a
total of 34 projects[1] and 4 additional investment projects as follows:
-

Exploration and Production Projects

(1) Thailand Projects: 13 projects

    -   PTTEP as the operator: Bongkot Project, S1 Project, PTTEP 1
        Project, Nang Nuan Project, Arthit Project, L22/43 Project and
        L53/43&L54/43 Project

  L 21, 28 & 29/48 Project

-   Joint investment projects: E5 Project, Unocal III Project, Pailin
    Project, G4/43 Project,

  Phu Hom Project and B 8/32& 9A Project

(2) Regional Projects: 12 projects

-   In Myanmar: PTTEP as the operator: Myanmar M7 & M 9 Project, Myanmar

  M3&M4 Project, Myanmar M11 Project

  Joint investment: Yadana Project, Yetagun Project

-   In Vietnam: Joint operator: Vietnam 9-2 Project, Vietnam16-1 Project

  Joint investment: Vietnam B & 48/95 Project, Vietnam 52/97 Project

-   In Indonesia: Joint investment: Indonesia Merangin-1 Project,
    Indonesia

  Bengara-1 Project

-   In Cambodia: PTTEP as the operator: Cambodia B Project

-   Overlapping Area: PTTEP as the operator: G 9/43 Project
    (Thailand/Cambodia)

  Joint-operator: MTJDA- B17 Project (Thailand/Malaysia)

(3) International Projects: 4 projects

-   In Oman: PTTEP as the operator: Oman 44 Project, Oman 58 Project

-   In Iran: PTTEP as the operator: Iran Saveh Project

-   In Algeria: Joint investment: Algeria 433 a & 416b Project

-   In Egypt: Joint investment: Rommana Project², Sidi Adb EI Rahman
    Offshore Project[2]

Investment Projects

(1) PTTEP Petroleum Development Support Base

(2) PTTEP Gas Pipeline Investment Project

(3) Energy Complex Investment Project

(4) PTT ICT Solutions Project

2.2.2 Structuring Policy for PTTEP Group

PTTEP is committed to its petroleum exploration and production business
and continuously expands its investments resulting in its organizational
structure growth. Most PTTEP’s subsidiaries are also related with
petroleum exploration and production business and in place in each
investment region. However, some subsidiaries are joint-investment among
PTT group in order to gain benefits from the synergy.

PTTEP has always stressed the high importance of systematic and
efficient management among its subsidiaries with clear directions and
policies on corporate strategy. Furthermore, a culture of boundaryless
organization is a critical for the future success factor of PTTEP

2.2.3 Shareholding Structure of PTTEP Group

On December 31, 2006, PTTEP invested the total of 25 companies,
comprising 19 subsidiaries and 6 associated companies.³ The shareholding
structure is presented as follows:

2.3 Revenue Structure

The petroleum exploration and production projects which generated
revenues for PTTEP and its subsidiaries comprised 11 projects: Bongkot,
Pailin, S1, Yadana, Yetagun, Unocal III, B8/32 & 9A, PTTEP1, E5, Nang
Nuan and Phu Horm. In addition, PTTEP and its subsidiaries recorded
revenues proportionately from gas pipeline transportation which MGTC and
TPC rendered to Myanmar Oil and Gas Enterprise (MOGE)

Revenue structure of PTTEP and its subsidiaries during 2004-2006

[]

[]

For the year 2006, total revenues of PTTEP and its subsidiaries amounted
to Baht 91,723 million, an increase of Baht 22,140 million or 32% when
compared with Baht 69,583 million for the previous year. This increase
was mainly due to an increase in sales of petroleum of Baht 19,981 or
30%, resulting from the higher average petroleum sales price to USD
36.52 per BOE when compared with last year at USD 29.37 per BOE and
sales volume increased to 169,348 BOED when compared with the last year
(153,531 BOED). The higher sales volume derived mainly from the crude
oil sales volume from the B8/32 & 9A and S1 projects and the natural gas
sales volume from the Pailin, Bongkot and Yadana projects.

For this year, the sales volume of the Yetagun project decreased in
relevant to the decrease in the benefit of cost recovery in portion of
production sharing since April 2006.

PTTEP and its subsidiaries received higher revenue from pipeline
transportation, which was proportionally recorded from gas pipeline
transportation in MGTC and TPC, and the rising interest income as a
result of a higher fixed deposit. In addition, the other income
increased mainly due to the revenue from the training center of PTTEP
Services, the service income from PTTEP Petroleum Development Support
Base and the management fee from Orange Energy Limited.

2.4 PTTEP Business Targets during 2006-2010

Notable aspects of PTTEP corporate business targets during 2006-2010 and
resulting corporate strategy execution are summarized here:

+----------------------------------+-----------------------------------+
| Quantitative Target              | Execution in 2006                 |
+----------------------------------+-----------------------------------+
| -   PTTEP had a sales volume     | -   The actual sales volume       |
|     target in 2005 of 172,000    |     turned out to be 169,348 BOED |
|     Barrels Oil Equivalent per   |     in 2006 which was higher than |
|     Day (BOED), PTTEP also       |     target. These decrease sales  |
|     forecasted a 2010 sales      |     mainly derived from the lower |
|     volume of 269,000 BOED with  |     petroleum sales from the Nang |
|     the CAGR (Cumulative Average |     Nuan project and postponement |
|     Growth Rate) at 9.5%.        |     of the Project Oman 44        |
|                                  |     production start up.          |
+----------------------------------+-----------------------------------+
| Qualitative Target               | Execution in 2006                 |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to be an operator | -   PTTEP aims to become an       |
|     with operational excellence  |     operator proud of its         |
|     in operation projects.       |     operational excellence. In    |
|                                  |     2006, PTTEP has strengthened  |
|                                  |     SSHE standards (Safety,       |
|                                  |     Security, Health, and         |
|                                  |     Environment) to be in the     |
|                                  |     heart of every PTTEP          |
|                                  |     personnel.                    |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to be a company   | -   PTTEP has continuously        |
|     recognized for its           |     improved its organizational   |
|     international best           |     capability. PTTEP has         |
|     practices, both in           |     strengthened Corporate        |
|     organizational development   |     Governance (CG) principles as |
|     and internal control system. |     a PTTEP main policy. In 2006, |
|                                  |     PTTEP was evaluated by TRIS   |
|                                  |     and received the rating of    |
|                                  |     “very good” in good corporate |
|                                  |     governance. PTTEP has also    |
|                                  |     improved its internal work    |
|                                  |     processes to be simplified    |
|                                  |     and efficient. Key process    |
|                                  |     capability improvements in    |
|                                  |     2006 were project management  |
|                                  |     process, procurement process, |
|                                  |     and investment evaluation     |
|                                  |     process. In addition, PTTEP   |
|                                  |     incorporated risk management  |
|                                  |     principle into the internal   |
|                                  |     control system to ensure      |
|                                  |     implementation of its         |
|                                  |     business plans.               |
+----------------------------------+-----------------------------------+

+----------------------------------+-----------------------------------+
| Qualitative Target (Continued)   | Execution in 2006(Continued)      |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to be a company   | -   PTTEP net profit was 28,047   |
|     acknowledged for its         |     million baht in 2006. Its     |
|     World-Class Competitive      |     annual performance yielded a  |
|     Strengths, outstandingly     |     Return on Capital Employed    |
|     competent and developed      |     (ROCE) of 31%.                |
|     management and staff, growth |                                   |
|     reserves as targeted in its  | -   PTTEP has continuously        |
|     planning, strong financial   |     expanded its investment both  |
|     performance and trustworthy  |     domestic and overseas. Key    |
|     internal and external        |     investment events in 2006     |
|     relationships.               |     included:                     |
|                                  |                                   |
|                                  |     -   Awarded concessions in    |
|                                  |         Thailand both onshore     |
|                                  |         blocks ( L21/48, L28/48   |
|                                  |         and L29/48) and offshore  |
|                                  |         Block B (G4/48 and        |
|                                  |         G12/48)                   |
|                                  |                                   |
|                                  |     -   Block 58 in Oman          |
|                                  |                                   |
|                                  |     -   Block Bengara I in        |
|                                  |         Indonesa.                 |
|                                  |                                   |
|                                  |     -   PTTEP has paid more       |
|                                  |         attention to the control  |
|                                  |         of expenditures against   |
|                                  |         budgets in order to build |
|                                  |         competitive cost          |
|                                  |         structures.               |
|                                  |                                   |
|                                  |     -   PTTEP has continuously    |
|                                  |         improved its capability   |
|                                  |         in term of human          |
|                                  |         resources. Key process    |
|                                  |         improvements are a high   |
|                                  |         potential development     |
|                                  |         system and a competency   |
|                                  |         management system.        |
|                                  |         Moreover, PTTEP has       |
|                                  |         redefined four PTTEP’s    |
|                                  |         corporate values as       |
|                                  |         follows, Adaptability and |
|                                  |         Will to Learn (A),        |
|                                  |         Boundaryless (B), Clear   |
|                                  |         Thinking leads to Clear   |
|                                  |         Communication (C),        |
|                                  |         Determination and         |
|                                  |         Dedication (D). There     |
|                                  |         have been various         |
|                                  |         campaigns to promote      |
|                                  |         awareness and             |
|                                  |         understanding among staff |
|                                  |         of these values, with an  |
|                                  |         aim to influence staffs’  |
|                                  |         working behaviors that    |
|                                  |         will lead to a            |
|                                  |         sustainable future        |
|                                  |         success of PTTEP.         |
+----------------------------------+-----------------------------------+

[1] Please see the details of participation interest of each project in
item 5.1.1

[2] These projects were accepted in principle by the Egyptian Natural
Gas Holding Company (“EGAS”). The Concession Agreement of each block
will be signed after obtaining necessary approvals and issuance of the
Law of Concession Agreement by the Egyptian Government.