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  5. Business Operation of PTTEP and its subsidiaries

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5.1 Nature of Petroleum Business Operation

PTTEP does its petroleum exploration and production in the Kingdom and
abroad. The investment in foreign countries shall comply with conditions
and concession laws of those countries i.e. Production Sharing
Agreement/Contract or Services Agreement. At the present time, PTTEP has
the petroleum exploration and production in Myanmar, Vietnam, Indonesia
and the Sultanate of Oman. Inside the Kingdom, PTTEP shall comply with
the Petroleum Act B.E. 2514 which sets out the details and procedures
for applying for and awarding petroleum concessions, and also provides
for various forms of benefits to the government as owner of its
petroleum resources. These forms of benefits include royalty, petroleum
income tax and other benefits. The important points in the Petroleum
Business Operation are :

5.1.1 Issue of Concession Areas

The Department of Mineral Fuels, Ministry of Energy, which is the
responsible agency, delineates exploration blocks, and then invites oil
companies to submit applications for concessions. The Petroleum
Committee considers applications for concessions. In this connection,
the sub-committee will initially screen the information stated in the
applications, and the Minister of Energy is empowered to award and sign
the concessions. The government considers the qualifications of each
applicant and will take into account the proposed work programmes,
adequacy of the investment funds to be brought in and used in the
exploration, the transfer of technology, employment of Thai nationals,
and also the utmost benefits offered to the Kingdom.

5.1.2 Role of the Operator

A petroleum concession may be awarded to one concessionaire or to a
joint venture of two or more co-concessionaires. Since the petroleum
exploration and production business is associated with relatively high
risk, it is common for companies to join together in joint ventures in
order to spread the risks. In a joint venture, one company will be
designated “operator” to conduct the exploration and production
operations on behalf of the other co-venturers under the supervision of
a management committee composed of representatives of each company.
Other companies who participate in the joint venture are called
“non-operators”. The operators manages operations and makes cash calls
on all co-venturers to finance the work programmes. Non-operators
through their representation on the management committee participate in
technical and financial decisions. Generally, an oil company as it grows
in experience, seeks to become an operator in order to assume a greater
role in management and operations.

5.1.3 Nature of Operations and Investment Decisions

Before an oil company decides to invest in petroleum exploration in the
Kingdom and abroad, it has to consider its chances of exploration
success as well as other investment risk factors.
A study of information available is made to determine whether the area
has high petroleum potential. In addition, there must be a chance of
finding a source of petroleum that has commercial viability. The success
ratio of drilling of exploration wells in neighboring areas is taken
into account. If the company decides to invest, it will apply for a
petroleum concession or will “farm in” to an existing petroleum
concession.

After the oil company is awarded a concession area for exploration of
petroleum, an exploration programme will be conducted, and may take 2-3
years. If the petroleum reserves are found, the amount of investment
funds required for the development stage and the value of sale of the
petroleum in the quantity of reserves expected to be recovered will be
evaluated. If such study indicates that the reserves are worth investing
in, that petroleum field will be considered to have sufficient
commercial viability to justify further investment in development. The
operator shall apply for an approval of petroleum production and shall
start its production at the same time. The operation is still able to
explore the rest of the existing areas if it is within the time frame of
exploration mentioned in the concession. At this stage, the operator
must have a certain degree of confidence about the investment because
the investment required for such development is very high. The operator
will normally identify buyers of petroleum in advance, and a long-term
sales agreement for petroleum to be produced will be signed. At present
the PTT is the biggest petroleum buyer in Thailand. The principal
elements of the sales agreement for petroleum are the method of
determination of the sales price and quantity of petroleum to be
delivered. In this regard, when the commencement period in the
contracted is reached, the buyer must be responsible the petroleum
produced immediately after the production commences. The sale of natural
gas from any domestic areas is presently made at the well-head while the
sale of natural gas from any foreign areas is made at the Thai borders,
in which case PTT must install gas pipe-lines sufficient for the
production amount specified in the gas sale agreement. The sale of the
crude oil is made at the buyer’s refinery while the sale of the
condensate is made at the Floating Storage Unit (FSU) near the
well-head.

5.1.4 Description of law relating to the business

At present, the operation of petroleum business in Thailand is governed
by two major enactments, namely, the Petroleum Act, B.E. 2514, and the
Petroleum Income Tax Act B.E. 2514, as amended. Several major features
of these laws are :

-   an applicant for a concession must be limited company or a juristic
    person which has the same status as a limited company established
    under the law of Thailand or foreign law. However the concessionaire
    must be a limited company established under the law of Thailand;

-   the concessionaire, the co-concessionaire(s) and the co-venturer(s)
    must pay royalty which is normally paid by cash. However, the
    Minister may authorize a payment in kind of petroleum by a notice of
    at least not less than 6 months. The royalty can be credited against
    income tax (Thailand I) or be deducted as expenses (Thailand III
    terms);

-   the rate of petroleum income tax may be prescribed not less than 50%
    but not over than 60% of the net interest from the petroleum
    business;

-   interest paid cannot be deducted as expenses for income tax
    purposes;

-   a concessionaire may not obtain concessions for more than 4
    exploration blocks except the case where the Minister considers
    appropriate to authorize an additional exploration block.

  Thailand I for the petroleum concessions issued by the Ministry of
  Industry¹ from B.E. 2514 to B.E. 2532 and the onshore petroleum
  concession issued before B.E. 2525

  Thailand II² for all onshore petroleum concessions issued by the
  Ministry of Industry from B.E. 2525 to B.E. 2532

  Thailand III for the petroleum concessions issued by the Ministry of
  Industry from B.E. 2533

  _________________________

1 now is the Ministry of Energy

  2 According to the Article 36 of the Petroleum Act (Issue 4) B.E. 2532
  , all the holders of the petroleum in Thailand II have already moved
  to Thailand III.

  5.1.5 Details of Thailand I, II and III Terms

  ----------------- ----------------- ----------------- -----------------
  Term              Thailand I        Thailand II       Thailand III

  Royalty Rates     12.5% of income   12.5% of income   progressive rate
                    from sale or      from sale or      at sliding scale
                    disposal of       disposal of       5-15%, deemed to
                    petroleum which   petroleum which   be expenses which
                    may be treated as may be treated as could be deducted
                    tax credit        tax credit        in tax
                                                        calculation

  Petroleum Income  50% of net profit 50% of net profit 50% of net profit
  Tax               from petroleum    from petroleum    from petroleum
                    business          business          business
                    operation         operation         operation

  Special Benefits  -                 annual benefits,  special
                                      and annual        remunerator
                                      production bonus  benefit which may
                                                        be taken as
                                                        deduction

  Exploration       8 years with 4    8 years with 4    6 years with 3
  Period            year extension    year extension    year extension

  Production Period not exceeding 30  not exceeding 30  not exceeding 20
                    years from expiry years from expiry years from expiry
                    date of           date of           date of
                    exploration, with exploration, with exploration, with
                    extension not     extension not     extension not
                    exceeding 10      exceeding 10      exceeding 10
                    years             years             years

  Concession areas  not exceeding     not exceeding     not exceeding
                    10,000 sq. km per 10,000 sq. km per 4,000 sq. km per
                    exploration       exploration       exploration
                    block, up to 5    block, up to 5    block, up to 5
                    exploration       exploration       exploration
                    blocks            blocks            blocks
  ----------------- ----------------- ----------------- -----------------

5.2 Description of petroleum products

5.2.1 Petroleum

PTTEP and its subsidiaries performed the petroleum exploration and
production business (crude oil, natural gas, LPG and condensate). On 31
December 2004 PTTEP and PTTEPO had 24 projects and 6 investment
projects³ as mentioned above. The definition of the products are as
follows :

Petroleum means crude oil, natural gas, condensate, related products and
other hydrocarbon products which are free in nature.

Crude oil means crude mineral oil and bitumen of all kinds which is
liquid in nature and is obtained from an oil well and may be obtained
through gas separation equipment but has not yet been refined or
purified

Natural gas means hydrocarbon which is gas or vapor at the normal
temperature and pressure, and which normally has methane as it major
constituent

Condensate means hydrocarbon which condenses in natural gas, and which,
when separated from natural gas, is transparent and has low specific
gravity (high API)

LPG means petroleum product which is obtained from crude oil refinery or
natural gas separation processes and which primarily consists of butane
and propane.

The characteristic of the crude oil and condensate is liquid in nature
and has a measurement in barrel while the natural gas is measured by
cubic foot. All petroleum products could be given into the heat
measurement in Barrel of Oil Equivalent (BOE). 1 cubic foot of natural
gas has approximately 1,000 BTU while 1 barrel of crude oil has
6,000,000 BTU

5.2.2 Gas Transportation Pipeline³ : PTTEPO has other major investment
in other companies as well such as a 25% of the investment in Moattama
Gas Transportation Co. (MGTC) and 19.31784% in Taninthayi Pipeline
Company (TPC) to conduct the business of pipeline laying from Yadana and
Yetagun projects from Myanmar to Thai borders.

- - - - - - - - - - - - - - -

³Please see the project classification on page 12 and 42 and details on
page 139

5.2.3 Electricity : The Annual General Shareholders Meeting of 2000 on
6^(th) March 2543 (2003) had a resolution that PTTEP by PTTEPO invested
for 26% in the electricity business of Thai Oil Power Company Limited
representing the amount of 35.88 million US Dollars or 1,400 million
Baht.

Thai Oil Power Company Limited has the 41 MW electricity purchase with
the Electricity Generating Authority of Thailand (EGAT) for 25 years
under small power producers (SPP) and has the electricity and the vapor
purchase with Thai Oil Limited and its affiliated companies for 70.5 MW
and 136 ton/h respectively. Beside, Thai Oil Power Company Limited owns
the 56% of shares in the Independent Electricity Generating (Thailand)
Limited operating the 700 MW electricity business and selling all
electricity to EGAT for 25 years under the contract of Independent Power
Producer (IPP)

5.3 Production

5.3.1 Exploration and Production Stages and Technology

Exploration and production stages may generally be divided into 4 major
stages as follows :

(1) Exploration Stage

-   Primary geology and geophysics survey

-   Seismic survey

-   Interpretation of information from seismic survey

-   Drilling

  (2) Appraisal/Delineation Stage

-   Studied petroleum geology in detail and additional seismic survey

-   Well log interpretation

(3) Development Stage

-   Set the plan for the appropriate development

-   Construct the platforms, provide production facilities and drill the
    development wells.

-   The development of the production facilities in the sea includes
    Well head Platform, Processing Platform, and Living Quarter

  (4) Production Stage

-   The production of crude oil or natural gas must be made through the
    Christmas tree and other production equipment including gauge so
    that the rate of production of each well may be ascertained

-   The follow up of the production proportion of the water and
    petroleum, proportion of crude oil and natural gas, the decline of
    pressure in the petroleum levels and the forecast of the production
    in the future

-   Workover must be performed regularly to improve the rate, the
    duration and effectiveness of the production

-   In the Gulf of Thailand, the natural gas which is produced will be
    sent to the natural gas refinery and electricity power plant while
    condensate will be sent to Floating Storage Unit before the
    refinery.

PTTEP is ready with its personnel, technology and equipment to do its
business effectively to achieve its company mission very well.

2.  Petroleum Reserves and Production

The total Proved Reserves of PTT Exploration and Production Public
Company Limited (PTTEP) and its Subsidiaries as of December 31, 2004 are
shown on table page 128. The Proved Reserves are reviewed annually by
company’s earth scientists and reservoir engineers to ensure rigorous
professional standards. The Proved Reserves are reported on a gross
basis, which includes the company’s net working interest and related
host country’s interest.

No reserve quantities have been recorded for the company on Blocks B,
48/95, 52/97, 9-2, and 16-1 Projects in offshore Vietnam because no
commercial arrangement has been established for the discoveries.

The total Proved Reserves (Consolidated Companies) as of December 31,
2004 of PTTEP and its subsidiaries are 139 Million Stock Tank Barrels
(MMSTB) for crude oil and condensate, and 5,011 Billion Standard Cubic
Feet (BSCF) for gas. The total Proved Reserves (Consolidated Companies)
in term of oil equivalent is 899 Million Barrels (MMBOE).

The total production in 2004 (Consolidated Companies) is 56 MMBOE or
equivalent to the production rate of approximately 154,000 Barrels of
Oil Equivalent per Day (BOED) , approximately 34,000 BOED or 28%
increase from last year. The production increase was mainly attributed
to the increase of petroleum production from Bongkot, Yadana, and
Yetagun projects and the increased interest in S1 project.

PTTEP indirectly holds 34.20% interest in PT. Medco Energi Internasional
Tbk. (Medco), an Indonesia upstream oil and gas exploration and
production company. PTTEP’s share of Medco’s Proved Reserves are 36
MMSTB for crude and condensate, and 165 BSCF for gas. The total Proved
Reserves in term of oil equivalent is 64 Million Barrels (MMBOE).
(Medco’s Proved Reserves were based on Gaffney, Cline & Associates
(Consultants) Pte. Ltd.(GCA)’s estimated as of January 1, 2004
subtracted by total 2004 production. GCA’s estimation for end of 2004
has not been completed.)

The total PTTEP’s worldwide Proved Reserves as of December 31, 2004,
including investment in Medco are 175 MMSTB for crude and condensate,
and 5,176 BSCF for gas, or approximately 963 MMBOE.

3.  Projects Operation in Year 2004

The operating of PTTEP projects of which the Company is the operator or
the joint-venture is very successful and contented with the following
progress in year 2004:

Projects with PTTEP as Operator

1. Bongkot Project

-   Maintained field gas production potential as per the gas sales
    obligation with PTT Plc. Average production rates for natural gas
    and liquid hydrocarbons (condensate and oil) were 573 MMSCFD and
    18,000 BPD respectively.

-   Maintained re-injection of produced water at over 99%

-   Drilled 2 appraisal wells and successfully proved up an additional
    50 BSCF of gas reserves

-   Completed the Basic Engineering for 3 new wellhead platforms for
    Phase 3E. Project phase will start in 2Q 2005 and be ready for
    production in 4Q 2006

-   Continued the construction phase of the new Sour Processing Platform
    (SPP). Gas production is planned for July 2005.

2. Arthit Project

-   On 23 January 2004, PTT and Arthit co-venture partners signed a Gas
    Sale Agreement (GSA) with a daily contract quantity (DCQ) at 330
    MMSCFD. The 1^(st) Gas Delivery shall commence within 45 months
    (deadline October 2007).

-   On 23 September 2004, PTT and Arthit co-venture partners agreed the
    180-day DCD window for the first production start-up would be during
    1 December 2006 – 29 May 2007.

-   Overall 1^(st) phase development has progressed well in line with
    the said DCD window, so the 1^(st) production will commence as
    planned during December 2006 – May 2007.

-   The result of the 3^(rd) exploration and appraisal drilling campaign
    in the first half of the year 2004 resulted in the 1^(st) phase
    development start up of 6 wellhead platforms and 80 development
    wells to ensure the GSA commitment. The Smedvig Rig T-3 development
    drilling will start in Q4’05 and will complete 80 wells in Q4’06.

-   Detailed engineering designs of central processing facilities are
    on-going and will be complete in Q1’05. The fabrication will
    commence in Q2’05 as well and the installation will be complete in
    Q4’06.

-   Detailed engineering designs of 6 wellhead platforms was completed.
    The fabrication of the first 3 wellhead platforms, AWP1,2 and 3
    started in December 2004. AWP1 and AWP3 are expected to be installed
    in August and September 2005 to accommodate the start of the
    development drilling. AWP2 will be installed in Q1’06. For another 3
    wellhead platforms, the fabrication will start in Q2’05 and the
    installation will complete in Q1’06.

-   The offshore personnel development plan is based on a ‘Multi (Dual)
    Skilled Workforce Model, which targets operation of offshore
    production with the least staff and in the most efficient manner.
    The training will start in Q4’05 at the PTTEP Corporate Training
    Center in Hat-Yai, Songkhla province.

3. S1 Project

-   PTTEP acquired all shares of Thai Shell E&P Co., Ltd., and became
    the operator of the S1 project. Thai Shell E&P was renamed PTTEP
    Siam Limited and all existing personnel were transferred to PTTEP.

-   The ultimate objective was to implement a single work system across
    all projects in PTTEP by January 1, 2005, while maintaining best
    practices from the old management structure. The first half of 2004
    therefore focused on the integration of the two organizations, while
    the second half of 2004 saw the integration of systems, processes,
    and procedures. On July 1, 2004, the project management structure
    was changed into an asset-corporate structure similar to other major
    assets in PTTEP.

-   Throughout 2004, to transfer and exchange skills and experience, S1
    personnel were successfully seconded to corporate functions and
    other projects. Equipment, expertise, and personnel from the S1
    project supported production optimization of PTTEP1 project.

-   A number of critical gas compressor malfunctions occurred in 2004,
    which contributed to the year’s production shortage. These
    malfunctions indicated the need to significantly enhance the
    maintenance program for critical equipment in the future.

-   Meanwhile, engineering construction and modification projects were
    completed as planned, most of which were aimed at supporting the
    overall production optimization effort of the S1 project.

-   The project achieved an excellent safety performance in 2004 with no
    lost-time injury. Although a few operational incidents resulted in
    spills of oil or other process fluids, the spills were properly
    cleaned up with no contamination to the environment. In addition,
    the LPG plant was re-certified for ISO 9001 manufacturing quality.
    Discussed with a few external parties, the use of continuously
    flared gas at a remote production site will translate into a
    workable project during 2005.

-   Because of a significant delay in the startup of the drilling
    campaign and the longer-than-planned drilling time per well, the
    project failed to meet its 2004 production and sales targets. S1 oil
    sales in 2004 averaged 17,384 BPD, or about 1.2% lower than the
    original target. Gas sales averaged 39 MMSCFD, 7% lower than
    planned, as there was insufficient new gas to compensate for the
    depletion of existing reserves. LPG production averaged 273 TPD,
    7.8% lower than planned, as the gas composition than was leaner than
    expected.

-   Incorporating lessons learned from the year’s shortcomings, the work
    program for 2005 plans to sustain an average oil production rate of
    20,000 BPD for the year with a total of 30 new wells to be drilled.

4. Nang Nuan Project

-   Selected the most justifiable production model.

-   Conducted timely community visits to build sound relation ships, ie.
    Chumporn Governor , Head of District etc.

-   Provided relevant support for smooth production operations ie.
    Safety, Logistics etc.

-   Developed “Oil Spill Response Plan” with consultant from EARL

Ensured readiness of production wells by performing Well Data
Acquisition and Well Plugging safely.

5. PTTEP1 Project

-   The PTTEP1 project has been combined under the same management as
    the S1 project since the middle of 2004 in order to benefit from the
    synergy of resources that will be provided by the larger and more
    experienced S1 project team.

-   Activities in 2004 were aimed at enhancing the production capability
    of existing oil wells with no drilling of new wells.

-   Averaged oil production from PTTEP1 project was 540 barrels per day;
    lower than planned due mainly to the loss of production from one
    major well in Sangkajai field early in the year.

-   This loss was partially compensated for by the production system
    optimization activities implemented as a result of the collaboration
    between the S1 and PTTEP1 production teams.

-   Well performance measurements, carried out using measuring equipment
    supplied from the S1 project, were used effectively for designing
    these optimization activities.

-   Further optimization activities have been identified and scheduled
    into the 2005 work plan for PTTEP1.

-   The subsurface study work for the oilfields in the PTTEP1 project
    has also been transferred to the S1 subsurface team in order to
    provide a better focus on development planning for the project.

-   This has made possible the 5-year planning horizon for PTTEP1 that
    includes up to 5 new development wells to be drilled in Sangkajai
    and U-thong oilfields during the next two years.

-   The integration with the S1 project team has also resulted in a
    significant saving in operating costs for the PTTEP1 project.

6. CTJDA Project

-   Awaiting further developments on discussions clarifying

  Territorial border claims between countries

7. Myanmar M3 & M4 Project

-   Signed two Production Sharing Contracts with Myanmar Oil and Gas
    Enterprise on August 7, 2004 to become the operator of the two
    blocks with 100% participation interest.

-   To study and assess the petroleum potential under the PSC
    obligations during a one-year study period (November 2004- November
    2005).

8. Myanmar M7 & M9 Project

-   Completed 3D seismic interpretation and mapping for two exploration
    well locations.

9. Oman 44 project

-   Completed 3D seismic processing and reprocessing

-   Prepared the first exploration drilling campaign and possible
    appraisal and development wells for Shams gas project

-   Drilled the first exploration well (Shams-3) in December 2004

-   Received approval from the Ministry of Oil and Gas (MOG) on the
    provisional Shams Conceptual Development Plan

-   Prepared project cost estimation for further Gas Sales Agreement
    (GSA) negotiation

Projects with Joints Operations

1. Vietnam 16-1 Project

-   Acquired 462 sq.km. of 3D seismic data covering the eastern part of
    the Block in the 2^(nd) quarter of 2004.

-   Prepared and procured long-lead items such as casing, wellheads,
    rigs, etc to be ready for the 2005 drilling campaign.

-   Interpreted 3D seismic data to locate TGT-1X well location that is
    expected to be drilled in the 2^(nd) quarter of 2005.

2. Vietnam 9-2 Project

-   Acquired 186 sq.km. of 3D seismic data covering the south-eastern
    part of the Block that combined this program with Block 16-1 in the
    2^(nd) quarter of 2004.

-   Prepared and procured long-lead items such as casing, wellheads,
    rigs, etc to be ready for the 2005 drilling campaign.

-   Interpreted 3D seismic data to locate the CNV-3X well location that
    is expected to be drilled in the 1^(st) quarter of 2005.

3. MTJDA Project

-   Submitted JDA B-17 Integrated Field Development Plan, Contracting
    Strategy, and Basic Engineering Design bidding process/criteria were
    approved by the Malaysia-Thailand Joint Authority

-   Prepared for the Basic Engineering Design

-   Acquired JDA B-17-01 and subsequently the Production Sharing
    Contract was awarded and signed on 30 September 2004

Projects with PTTEP as Non-Operator

1. L22/43 Project

-   Prepared the 3D seismic acquisition work planned to be executed
    during the first quarter of 2005 in the new exploration block
    L22/43.

-   An Environmental Impact Assessment (EIA) report, which was an
    extension of the EIA work carried out in an adjacent area in block
    S1 for the 2000 3D seismic campaign, was prepared and approved in
    record time.

-   Prepared 3D seismic acquisition contract to be signed. The
    explosives import, storage and usage license applications were
    submitted.

-   A work plan for 2005 was approved for acquisition of 30 square
    kilometers of 3D seismic in the area called Pru Krathiam South as
    well as a geochemical survey campaign covering an area of
    approximately 200 square kilometers.

2. L53/43 & L54/43 Project

-   Prepared the 3D seismic acquisition work planned to be executed
    during the second quarter of 2005 in the new exploration blocks
    L53/43 & L54/43

-   An Environmental Impact Assessment (EIA0 report was completed and
    submitted for approval.

-   Towards the end of 2004, a contract for 3D seismic acquisition was
    being prepared to be signed the explosives import, storage and usage
    license applications were also prepared for submission.

-   A work plan for 2005 was approved for acquisition of 70 square
    kilometers of 3D seismic in the areas called Sangkajai North and
    Phai Kwang.

3. Yadana Project

-   Average Gas Sale is 645 MMSCFD.

-   Installation of new wellhead platform is in progress for the first
    domestic gas in the 1^(st) quarter of 2006.

4. Yetagun Project

-   Average gas and condensate sales were 280 MMSCFD and 8,000 barrels
    per day (BPD) respectively.

-   Successfully completed drilling of four Infill wells and facilities
    installation for gas delivery from 260 MMSCFD to 400 MMSCFD in the
    year 2005

5. Pailin Project

-   Average gas and condensate sales are 353 MMSCFD and 13,711 BPD,
    respectively.

-   Drilled 46 development wells.

-   Completed installation of 2 additional wellhead platforms and linked
    pipelines to Central Processing Platform.

6. Unocal III Project

-   Average gas and liquid petroleum (oil and condensate) sales are 380
    MMSCFD and 27,845 BPD, respectively.

-   Drilled 5 delineation wells, and 77 development wells.

-   Completed installation of 6 additional wellhead platforms and
    pipelines.

-   The second phase of oil development to increase production by July
    2005 is ongoing.

7. G4/43 Project

-   Successful drilling of 2 exploration wells: Lanta 1&2 and found at
    280 and 194 feet mostly oil paying formations layers respectively.

-   To acquire the 3D approximately 1,000 sq.km. of seismic data

-   On 4^(th) October 2004, Mitsui Oil Exploration Co., Ltd (“MOECO”)
    was approved by the Ministry of Energy to farm in the block with a
    25% interest. COTL (“Chevron Offshore (Thailand) Limited”) holds a
    60% participating interest and remains the operator, while PTTEPI
    holds 15% participating interest.

8. E5 Project

-   Average gas sale was 35 MMSCFD (as of September 2004)

-   Concluded and signed 6^(th) amendment to E5 GSA to reduce DCQ from
    33 to 27 MMCFD which resulted PTTEP receiving a 15 MMBHT shortfall
    refund

9. Phu Horm Project

-   Successful drilling of two appraisal wells

-   Production License awarded for E5N and EU-1 on 19th May 2004

-   Final draft of EIA was submitted to ONEP on 13^(th) August 2004

-   Supplementary Petroleum Concession No. 4 of PC No. 1/2524/19 was
    submitted to cabinet for approval on 31^(st) January 2005

  E5N

-   Completed Novation and Amendment No.2 of block E5 North JOA on 1st
    October 2004

EU-1

-   Concluded past cost negotiation

-   Completed Novation and Amendment No.2 of block EU-1 JOA on 17th
    November 2004

-   Received Cabinet approval to hold 20% equity in the Phu Horm Project
    in Udon Thani area on the supplementary concession number 1/2524/19
    on 28^(th) December 2004

10. Vietnam B and 48/95 Project

-   Drilled one delineation well.

-   Reviewed the Pre-Unitization Agreement and Pre-Joint Development
    Agreement with all partners.

-   Completed the Feasibility Study of O-Mon2 Power Plant Project.

11. Vietnam 52/97 Project

-   Drilled four exploration and delineation wells

-   Reviewed the Pre-Unitization Agreement and Pre-Joint Development
    Agreement with all partners.

-   Completed the Feasibility Study of O-Mon2 Power Plant Project.

12. Algeria 433a & 416b Project

-   PTTEP Algeria signed a Joint Operating Agreement (JOA) with
    Petrovietnam Investment & Development Company (PIDC) on February 25,
    2004.

-   PTTEP Algeria signed a PSC addendum with PIDC on March 15, 2004 and
    Algeria’s national oil company (SONATRACH) signed it on June 1,
    2004.

-   The Algerian Government published in the Official Gazette regarding
    approval for PTTEP Algeria to become a partner in Block 433a & 416b
    on September 15, 2004.

-   312 km 2D seismic acquisition, processing, and interpretation were
    completed.

Investments 

1. Medco Energi Investment Project

-   In June 2004, the credit rating agency, Moody’s Investor Service,
    upgraded the rating of Medco to B3 with positive outlook.

-   In June 2004, PTTEPO received USD 5.6 million or Baht 246 million,
    in dividends from New Links Energy Resources.

-   In August 2004, Medco successfully acquired 100% of the shares of
    Novus Petroleum Limited, an oil & gas exploration and production
    company listed on the Australian Stock Exchange. This is in line
    with Medco’s plan to increase its production and reserves as Novus
    has 26 assets in 7 countries, i.e. Indonesia, Australia, Middle East
    and U.S.A.

-   In November 2004, Medco won a tender for an exploration block,
    Nunukan PSC. The block covers an area of 4,917 square kilometers and
    is located offshore East Kalimantan near Medco’s methanol plant on
    Bunyu Island which is a potential market for future discoveries of
    natural gas.

-   In 2004, Medco acquired interests in 2 power plants, namely, a 54%
    stake in 55 MW Batam Power Plant and a 5% stake in 200 MW Sengkang
    Power Plant.

2. Thaioil Power Investment Project

-   PTTEPI received Baht 73.06 million in dividend from Thaioil Power
    Company Limited in May 2004.

3. Thai Offshore Base Project

-   Completed construction of Jetty, Buildings, access road and
    marshalling area.

-   Monitored the environmental impact of the project to conform to EIA
    report.

-   Achieved the goal of Zero Lost Time Accidents.

4. Yanada Gas Pipeline Transportation Project / Yetagun Gas Pipeline
Transportation Project

PTTEP received revenue from the gas transportation services to Myanmar
Oil and Gas Enterprise as according to share holding in MGTC and TPC.
The revenue increased Baht 444 million as to the increase in service
price and amount of service used as to higher volume of MOGE gas sales.

5. Energy Complex Investment Project

-   PTT Exploration and Production Public Company Limited (PTTEP) wishes
    to announce that PTTEP and PTT Public Company Limited (PTT) have
    established Energy Complex Company Limited, with shareholdings of
    50% and 50% respectively. Energy Complex Co., Ltd. has a fully
    paid-up registered capital of 1,000,000 Baht, consisting of 100,000
    ordinary shares at 10 Baht each.

-   In response to the ever increasing demand for office space , Energy
    Complex Co., Ltd. will develop and manage "the Energy Complex
    Development Project". The Complex will be located on the The State
    Railway of Thailand's property behind the present head offices of
    PTTEP and PTT. It will be the center for office buildings of
    Governemt agencies and companies in the energy industry.

5.3.4 Environmental Impact

For Petroleum Exploration and Production operation, an effective
environmental management system is considered to be an integral part of
environmental impact reductions in several aspects as follows: -

(1) Land use and marine organism impact from sound vibration, which is
    the main environmental impact during seismic surveys.

(2) Water and soil contamination from discharges of drilling fluid and
    produced water, release of sludge and contaminated solid wastes and
    accidental spills of oil and condensate during drilling and
    production activities.

(3) Air pollution from hydrocarbon release and atmospheric emission from
    gas flaring, gas venting and fuel gas combustion during drilling and
    production activities.

Currently, above environmental impacts are directly under control of the
Department of Mineral Fuel under Ministry of Energy who is the direct
permitting agency, and the Office of Natural Resources and Environmental
Policy and Planning (ONEP) under the Ministry of Natural Resources and
Environment who announces the requirement that an environmental impact
assessment must be conducted prior to any commencements of exploration
and production projects

Thus, the initiative to reduce environmental impacts has been
established constantly and continuously improved by PTTEP, including the
following:

(1) Implementation of the ISO14001 Environmental Management System (EMS)
    Standard for all operational sites and the PTTEP office building. In
    accordance with ISO14001 requirements, environmental management
    system are followed in compliance with company policy, legislations
    and other requirements in order to prevent pollution to environment,
    and continuously improve to ensure effective company performance. As
    a result, PTTEP became the first petroleum exploration and
    production company in Thailand and the Southeast Asian region to
    achieve ISO 14001 Certification.

(4) Study of environmental impact assessment prior to commencements of
    new exploration and production projects which is legally required in
    order to ensure on-going monitoring and measurement programs to
    mitigate any environmental impacts.

(5) Developments and utilizations of depleted wells for re-injection of
    produced water (wastewater separated from the production process)
    into subsurface reservoirs to ensure no overboard discharging which
    might affect the environment.

(6) Monitoring of discharged wastewater quality from the production
    process and the quality of seawater, sediment, benthic fauna and
    fish around platform vicinity to ensure of no exposures to health
    and environmental hazards.

(7) Provisions of Safety, Security, Health and Environmental training
    for all staff to ensure and increase competency in performing their
    jobs.

(8) Promotions of Safety, Security, Health and Environmental awareness
    through number of means e.g., training, and monthly SSHE bulletins,
    etc.

(9) Coordination and provisions of supports to other exploration and
    production companies, the Petroleum Institute of Thailand,
    government agencies and related associations in order to expand
    experience and solve environmental problems for further improvement.

In the past year, PTTEP strictly complied with both Thai and
International legislations and other requirements concerning Safety,
Security, Health and Environment. It was found also that there were no
major incidents affecting to the environment of any kinds. In addition,
PTTEP has been continuously improving sound environmental practices in
maintaining, developing and reducing environmental impacts by achieving
the ISO 14001 certification for Environmental Management System Standard
from AJA Registrars LTD. under UKAS (United Kingdom Accreditation
Service) accreditation, for all operational sites as follows:

1.  PTTEP1 Project in the scope of “Exploration and production”

2.  PTTEP Building in the scope of “Building management and maintenance
    services”

3.  Bongkot Project in the scope of “Exploration and production of
    natural gas and condensate”

4.  Songkhla Logistics Base in the scope of “Provision of logistics
    services to offshore oil and gas operations”

5.  S1 Project in the scope of “Exploration and production of petroleum”

In addition, last year PTTEP core research center (under PTTEP Building
management) has successfully achieved ISO 14001 certification in the
scope of “Core research centre and logistics support for storage of core
slab samples, back-up data and archives of company documents”.

In 2004 the Lost Time Injury Frequency Rate (The number of Lost Time
Injury per 1,000,000 hours worked) was 1.03. PTTEP planned to
continuously mitigate the consequence of any accident through regular
drills and exercises and providing specific training courses for all
staff to ensure better understanding and awareness in prevention of
accidents and incidents and prompt response. As a commitment to protect
the environment, PTTEP spent approximately 14.7 million baht in 2004 on
environmental improvement program.

5.4 Marketing

PTTEP and its subsidiaries derived their total revenue from selling
crude oil, natural gas, LPG, and condensate of 46,199 Million Baht with
the following summaries on sales and revenue.

  Unit : Million Baht

  ------------------------------------------------- ----------- ----------
  Product                                           2004        

                                                    Volume      Value

  Crude Oil (MMBOE)                                 6.85        9,201

  Natural Gas (MMSCF)                               255,478     27,262

  LPG (Metric Tons)                                 100,038     1,123

  Condensate (MMBBL)                                5.80        8,612
  ------------------------------------------------- ----------- ----------

1.  Marketing Policy and the Product Market

Petroleum production in Thailand is conducted under the petroleum
concession system with the State. PTTEP sells its products to PTT Plc.,
which in turn sells them to power generators, petrochemical operators,
industries, and households (in the form of cooking gas).

Natural Gas

Gas sales agreements generally consist of long term contracts, with its
contract periods normally taken for at least 20 - 30 years from the
signing date, with minimum annual contractual purchase volumes
commitments. Producers have to produce and deliver Natural Gas at least
up to the annual contractual committed volumes to ensure the buyer that
Natural Gas will be available throughout the contract period, and also
to guarantee seller revenue, the buyer must take on the annual
contractual volumes of Natural Gas. Regarding the gas pricing, the
contract price will be agreed and defined in the formula terms which
contains indices of reference fuel oil, economics index and foreign
exchange for periodical adjustment according to the contract. The
pricing structure enables Natural Gas to compete with other alternative
fuels.

In 2004, the Thai gas market expanded along with the recovering of the
domestic economy. The following are the major marketing movements.

Bongkot project which is the largest gas field that operated by PTTEP,
produced and sold Natural Gas with an average up to 583 MMSCFD in 2004,
which was higher than the minimum annual committed quantity of 550
MMSCFD. In addition, the Natural Gas produced from Yadana and Yetagun,
gas fields in Myanmar produced and sold at the average rate of 893
MMSCFD in 2004 which increased from the average gas sold of 880 MMSCFD
in 2003.

As for the new Arthit Project in the Gulf of Thailand, in which PTTEP is
the major shareholder (80%) and the operator, the Gas Sales Agreement
was signed with PTT on January 23, 2004. It is scheduled to produce its
First Gas for deliver during 2006 to the beginning of 2007 at a rate of
330 MMSCFD. Since the end of 2003, PTTEP has been negotiating with
buyers to sell Natural Gas from fields B-17 & C-19 and B-17-01 in the
Joint Development Area (JDA) and expects to conclude the Gas Sales
Agreement by the first quarter of 2005. The engagement of this gas
contract has undoubtedly further enhanced the long-term security of
energy supply for Thailand. The Natural Gas from the JDA gas field has
been targeted to supply gas to the Kingdom of Thailand during the second
half of 2008 at a rate of 270 MMSCFD. Natural gas from these two fields,
Arthit and JDA, will be delivered to PTT through the new third trunk
line in the Gulf of Thailand, which is under construction and is
expected to be completed by the year end of 2006 or the beginning of
2007.

Crude Oil and Condensate

All oil and condensate products from PTTEP are under long-term sales
agreements with PTT. Both crude oil and condensate sales price are
referenced with the prices of world crude oil of comparable quality, so
as to reflect the market values of the products. Due to the global
economic growth in the 2004, especially in China and India, energy
demand in these countries increased dramatically, inducing the oil
products price to remain in higher ranges than ever before. In addition,
oil price speculation and terrorist attack anxiety in some countries
were other psychological factors resulting in world oil prices to become
abnormally high, which contributed to and increased the company’s
product prices and revenues.

On January 1^(st), 2004, PTTEP purchased 100 percent of Thai Shell
Exploration and Production Co., Ltd., which included 100% ownership of
the S1 concession (also known as the Sirikit Oil Field) In consequence,
the PTTEP group is now the sole shareholder and operator of Thailand’s
largest onshore oil field. The acquisition of Thai Shell and its oil
production assets has generated immediate increased income for PTTEP.
The increase in PTTEP’s crude and condensate revenue stemmed mainly from
two factors, the world oil price and the increase in sales volume.

As for the crude oil entitlement from the Rimau production-sharing
contract (PSC) in Indonesia, arising from PTTEP’s shares in Medco
Energie, PTTEP requested that PTT serve as its marketing agent. During
the past year, PTT has signed a one-year term contract with its
customer, as a means to guarantee a flow of positive revenue and a
secured market. It is PTTEP’s policy to collaborate with PTT in using
crude oil derived from its overseas investments to enhance Thailand’s
security of energy supply.

 5.4.2 Competition Environment

-   Exploration and Production Business, and Natural Gas Transportation

While it is a fact that there are several petroleum producers in
Thailand, such as PTTEP, Unocal, Chevron, Exxonmobil, Total E&P, all
concessionaires had joint-venture partners in the different concessions
as cross-shareholding partners. One can say that the petroleum
exploration and production business has several investors, but only
moderate competition among all producers, since the domestic gas demand
always exceeds supply from all producer capacities.

Nevertheless, during 2004 and 2005 issues regarding PTT’s limitations on
gas offtake arose, as both gas trunk lines in the Gulf of Thailand had
reached their maximum capacities. In the meantime, a third gas pipeline
is under construction and is due to be commissioned by the end of 2006,
or the first quarter of 2007. Clearly, with the current situation in the
gas market demanding expansion and the existence of spare capacities at
producing facilities from all gas producers because of pipeline
limitation constraints, competition among producers in order to take
whatever the remaining market share before the third gas pipeline comes
into operation.

-   Power Business

In accordance with to the government’s policy in restructuring the
Electricity Supply Industry (ESI) and privatizing state enterprises in
the power sector to improve efficiency, to increase competition, and to
promote private investment, the Cabinet on December 9, 2003 approved the
new ESI structure named Enhanced Single Buyer (ESB) Model as proposed by
the Ministry of Energy. The ESB Model still maintains the Electricity
Generating Authority of Thailand (EGAT) as the single power buyer,
selling power to the Metropolitan Electricity Authority (MEA) and the
Provincial Electricity Authority (PEA). Some regulatory work of EGAT
will be transferred to a newly established Regulatory Body to oversee
the power industry. It will determine, for example, power tariffs,
bidding on new power plants, fuel types, and locations of the power
plants. In the future, EGAT will be just another power producer who can
participate in the bidding of new power plants to sell power into the
grid, just the same as other private power producers. The Regulatory
Body’s Board of Commission will be under the supervision of the Ministry
of Energy consisting of 7 members from both public and private sectors
who have expertise in energy, economics, finance, and legal fields.

Regarding the privatization of the state enterprises in the power
sector, namely, EGAT, MEA, and PEA, it is still being studied whether
they will be transformed into limited liability companies and listed on
the Stock Exchange of Thailand (SET).

In 2005, the government will announce a new round of IPP bidding to
select IPP projects which will sell power to EGAT in order to meet
Thailand’s power demand in 2011. The bidding details are being studied
in terms of the bidding power capacity and the ratio of renewable energy
and they are expected to be considered by the National Energy Policy
Committee (NEPC) soon.

Such policies would create more competition in the power market.
However, the existing SPP and IPP projects including Thaioil Power Co.,
Ltd and Independent Power (Thailand) Co., Ltd. which are owned by PTTEPI
will be protected by the long-term Power Purchase Agreements (PPAs),
along with EGAT and other industrial customers. Therefore, the revenues
of these power companies will not be impacted throughout the project
lives.

On the other hand, such policies will also open up opportunities for
Independent Power (Thailand) Co., Ltd. to be able to expand investment
by participating the IPP bid to sell another 1,400 MW to EGAT.