2. Nature of Business

2.1 Establishment/ Changes/ Significant Development

2.2.1 Establishment

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 16
April 1985 for the Government to be able to hold petroleum concessions.
And on 16 February 1988 the Cabinet gave resolution for PTTEP to conduct
its business without having to comply with the orders, rules &
regulations and the Cabinet’s resolutions that enforced general State
Enterprises with exemption only to the resolution 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 30 October 1992, PTTEP became a public company and was
first trade in the market on 10 June 1993.

2.1.2 2008 Changes and Significant Development

(1) PTTEP established 5 subsidiaries to carry out petroleum exploration
and development activities in international countries, namely PTTEP
Myanmar Limited (PTTEP MYA), PTTEP New Zealand Limited (PTTEP NZ), PTTEP
Semai II Limited (PTTEP SM), PTTEP Australia Perth Pty Ltd (PTTEP AP)
and PTTEP Australia Browse Basin Pty Ltd (PTTEP AB). In addition, PTTEP
has closed down Diamond Petroleum Company Limited (DPC), considering
that DPC has not engaged in any activities.

(2) PTTEP Bangladesh Limited (a subsidiary of PTTEP) has entered into
farm-in agreement for Blocks 17 and 18, located offshore People’s
Republic of Bangladesh. The joint venture partners consist of PTTEP
Bangladesh Limited, Total E&P Bangladesh (the operator), Tullow
Bangladesh Limited, Okland Bangladesh Limited and Rexwood Offshore
Holdings Limited with participation interest of 30%, 30%, 32%, 4% and 4%
respectively.

(3) PTTEP has swapped its 20% participation interest in the production
sharing contract (PSC) in block M3 and M4 with CNOOC Myanmar Limited’s
A4 and C1. The PSC participation interest swap is a strategic move to
manage risk and create diversified investment opportunities. The swap
will be fully effective upon receiving approval from the Myanmar
government.

(4) PTTEP Australia Offshore Pty Ltd. together with Murphy Australia Oil
Pty Ltd. (Operator) has entered into in the concession block WA-423-P in
Australia with the participating interests of 30% and 70% respectively.

(5) PTTEP SM together with Murphy Oil Corporation and INPEX Corporation
has entered into the petroleum exploration block Semai II, Indonesia
with an equal participating interest of 33.33%

(6) PTTEP AB has signed the Share Sale Agreement to purchase 100%
shareholders’ equity in Coogee Resources Limited to engage in investment
and development of oil and gas exploration and production businesses in
Australia. The purchase price is approximately USD 170 million. The
completion of the acquisition is subject to the satisfaction of
Conditions Precedent.

2.2 Business Operation

2.2.1 Business Overview

PTTEP conducts its core business in petroleum exploration, development
and production. As of 31 December 2008, PTTEP has 15 petroleum
exploration and production projects currently under production (please
see item 2.3) out of a total of 42 petroleum exploration and production
projects and
4 additional investment projects as follows:

Exploration and Production Projects

(1) Thailand Projects: 15 projects

  -------------- -----------------------------------------------------------
  Thailand       

  Operator       Bongkot Project, S1 Project, PTTEP 1 Project, Nang Nuan
                 Project, Arthit Project, L 22/43 Project, L53/43&54/43
                 Project, L 21/48, L28/48 & 29/48 Project, A 4,5 & 6/48
                 Project

  Non-Operator   E5 Project, Unocal III Project, Pailin Project, G 4/43
                 Project, Sinphuhorm Project, B 8/32& 9A Project
  -------------- -----------------------------------------------------------

(2) Regional Projects: 16 projects

  -------------- -----------------------------------------------------------
  Myanmar        

  Operator       Myanmar M9 & M11 Project, Myanmar M3, M4 & M7 Project

  Non-Operator   Yadana Project, Yetagun Project, Myanmar A4 Project,
                 Myanmar C1 Project
  -------------- -----------------------------------------------------------

+----------+-----------------------------------------------------------+
| Vietnam  |                                                           |
+----------+-----------------------------------------------------------+
| Joint    | Vietnam 9-2 Project, Vietnam 16-1 Project                 |
| O        |                                                           |
| peration |                                                           |
+----------+-----------------------------------------------------------+
| Non-     | Vietnam B& 48/95 Project, Vietnam 52/97 Project           |
| Operator |                                                           |
+----------+-----------------------------------------------------------+
| I        |                                                           |
| ndonesia |                                                           |
+----------+-----------------------------------------------------------+
| Non-     | Indonesia Merangin-1 Project, Indonesia Bengara-1 Project |
| Operator |                                                           |
|          | Indonesia Semai II Project                                |
+----------+-----------------------------------------------------------+
| Cambodia |                                                           |
+----------+-----------------------------------------------------------+
| Operator | Cambodia B Project                                        |
+----------+-----------------------------------------------------------+
| Ove      |                                                           |
| rlapping |                                                           |
| Area     |                                                           |
+----------+-----------------------------------------------------------+
| Operator | G 9/43 Project (Thailand/Cambodia)                        |
+----------+-----------------------------------------------------------+
| Joint    | MTJDA – B17 Project (Thailand/Malaysia)                   |
| O        |                                                           |
| peration |                                                           |
+----------+-----------------------------------------------------------+

(3) International Projects: 11 projects

  -------------- ---------- ----------------------------------------------------------
  Oman                      

  Operator       Oman 44    
                 Project,   
                 Oman 58    
                 Project    

  Iran                      

  Operator       Iran Saveh 
                 Project    

  Algeria                   

  Non-Operator   Algeria    
                 433a& 416b 
                 Project    

  Egypt                     

  Non-Operator   Rommana    
                 Project,   
                 Sidi Abd   
                 Rahman     
                 Offshore   
                 Project    

  New Zealand               

  Non-Operator   New        
                 Zealand    
                 Great      
                 South      
                 Project    

  Bahrain                   

  Operator       Bahrain 2  
                 Project    

  Australia                 

  Non-Operator              Australia AC/P36 Project, Australia WA-423-P Project

  Bangladesh                

  Non-Operator              Bangladesh 17& 18 Project
  -------------- ---------- ----------------------------------------------------------

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 establishes subsidiaries and associated companies mainly to
conduct the petroleum exploration and production business. PTTEP
continuous expansion in domestic and overseas countries necessitates the
establishment of subsidiaries and/or associated companies in respective
regions for flexible and efficient business operations. To establish a
new subsidiary or associated company, PTTEP considers a number of
factors, including rules & regulations as well as financial and tax
regimes of the invested region or country, risk management, etc. with
key objectives of achieving a competitive advantage comparable with
other international oil companies.

PTTEP’s policy is to manage PTTEP subsidiaries as “One Company” with the
clear direction of its subsidiaries following PTTEP’s business direction
and strategy and being managed as one team by PTTEP executives. In
addition, the PTTEP management and internal control systems are also to
be adopted and implemented in all PTTEP subsidiaries in the same way
that they are standardized at PTTEP. To manage associated companies,
PTTEP shall nominate a representative to serve as a Shareholder or a
Member of the Board of Director’s to participate in defining overall
business strategy and policy for the company. To manage the PTTEP
subsidiaries and associated companies, PTTEP always also adheres to its
Corporate Governance principles as its compelling philosophy with the
objectives of ensuring a fair, effective, and transparent organization
enabled to achieve its business goals.

2.2.3 Shareholding Structure of PTTEP Group

On 31 December 2008, PTTEP invested the total of 37 companies,
comprising 31 subsidiaries and 6 associated companies^(#), detailed as
in item 5.2. The shareholding structure is presented as follows:

^(#) Defined according to the notification of the Securities and
Exchange Commission kor jor 40/2540 no. 2 (1)

3.  Revenue Structure

The petroleum exploration and production projects which generated
revenues for PTTEP and its subsidiaries comprised 15 projects: the
Bongkot, Pailin, S1, Yadana, Yetagun, Unocal III, B8/32 & 9A, PTTEP1,
E5, Nang Nuan, Sinphuhorm, G4/43, Oman 44, Arthit and Vietnam 9-2
projects. 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 2006-2008

[TABLE]

[TABLE]

* Share of loss from investment under equity method amounted of 12.0
million Bath was presented under Expenses.

¹ PTTEPO holds Orange Energy Limited and B8/32 Partners Limited

² Hold by PTTEPO

³ Hold by PTTEPT 75%

⁴ Hold by PTTEPI 51% and PTTEP OM 49%

⁵ Hold by PTTEPO 51%

⁶ Hold by PTTEPO and DPC was relinquished on 3^(rd) November, 2008

⁷ Hold by PTTEPOM 100%

⁸ Hold by PTTEP ID 100%

For 2008, total revenues of PTTEP and its subsidiaries amounted to Baht
140,007 million, an increase of Baht 43,234 million or 45% when compared
with last year (Baht 96,773 million). This increase was mainly due to
higher sales of petroleum of Baht 41,857 million or 46%, resulting from
(1) the higher average petroleum sales price for the year 2008, which
rose to USD 49.69 per BOE compared with last year at USD 39.78 per BOE;
however the average sales exchange rate for this year decreased to Baht
33.25 per USD from last year’s Baht 34.77 per USD as a result of the
strengthened Baht, and (2) the higher sales volume for the this year to
219,314 BOED compared with the last year of 179,767 BOED. This increased
volume mainly came from (1) petroleum sales volume from the Arthit,
G4/43 and Vietnam 9-2 projects, which started production this year (2)
increased petroleum sales volumes from the Oman 44 project, while (3)
the crude oil sales of the B8/32&9A project and natural gas sales of the
Yadana and Yetagun projects decreased.

PTTEP and its subsidiaries collected higher revenue from pipeline
transportation, which was proportionally recorded from Moattama Gas
Transportation Company (MGTC) and Taninthayi Pipeline Company LLC (TPC).
Also, there was increased other income from construction service on the
Arthit gas export pipeline to customers.

4.  PTTEP Business Target during 2009-2013

Notable aspects of PTTEP corporate business targets during 2008-2012 and
results of corporate strategy execution are summarized as follows:

+----------------------------------+-----------------------------------+
| Quantitative Target              | Execution in 2008                 |
+==================================+===================================+
| -   PTTEP sales volume target in | -   PTTEP’s sales volume averaged |
|     2008 was 223,334 Barrels of  |     219,314 barrels of oil        |
|     oil equivalent per day       |     equivalent per day (BOED) in  |
|     (BOED). PTTEP projected the  |     2008, higher than the average |
|     sales volume for 2012 would  |     sales volume of 2007 of       |
|     be 251,778 BOED with the     |     179,767 BOED by approximately |
|     CAGR (Cumulative Average     |     22%. The increase mainly      |
|     Growth Rate) at 6 %.         |     resulted from 3 new producing |
|                                  |     assets and an increased sales |
|                                  |     volume from Oman 44 Project.  |
|                                  |                                   |
|                                  | -   However, the average sales    |
|                                  |     volume of 2008, 219,314 BOED, |
|                                  |     was still lower by 2% than    |
|                                  |     the sales target of 223,334   |
|                                  |     BOED which was initially set  |
|                                  |     at the beginning of 2008. The |
|                                  |     reason for the deviation from |
|                                  |     the sales target was due to   |
|                                  |     the delay in Arthit North     |
|                                  |     production start up which was |
|                                  |     shifted to 2009.              |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to maximize value | -   In 2008, PTTEP strive to      |
|     from the existing projects   |     optimize value from existing  |
|     and assets.                  |     assets as demonstrated in     |
|                                  |     2008 total revenue of 140,007 |
|                                  |     Million Baht, the sales       |
|                                  |     revenue of 132,621 Million    |
|                                  |     Baht, and the net profit      |
|                                  |     amounted 28,455 Million Baht. |
|                                  |                                   |
|                                  | -   Exploration: PTTEP succeeded  |
|                                  |     in discovering petroleum in   |
|                                  |     28 out of a total of 43       |
|                                  |     exploration and appraisal     |
|                                  |     wells drilled in 2008 which   |
|                                  |     is equivalent to the drilling |
|                                  |     success ratio 28:43 or 65%.   |
|                                  |                                   |
|                                  | -   Development: PTTEP            |
|                                  |     accelerated the development   |
|                                  |     of various projects to start  |
|                                  |     up as planned including MTJDA |
|                                  |     B-17, Greater Bongkot South,  |
|                                  |     and Myanmar M9 & M11, ect.    |
|                                  |                                   |
|                                  | -   Production: PTTEP managed     |
|                                  |     projects to meet its          |
|                                  |     production targets. In 2008,  |
|                                  |     PTTEP officially started the  |
|                                  |     production from 3 projects    |
|                                  |     including Arthit, Vietnam     |
|                                  |     9-2, and G4/43.               |
|                                  |                                   |
|                                  | -   In addition, to create value  |
|                                  |     from existing assets, PTTEP   |
|                                  |     and Myanmar Oil & Gas         |
|                                  |     Enterprise signed the Heads   |
|                                  |     of Agreement (HOA) with PTT.  |
|                                  |                                   |
|                                  | -   To optimize value from        |
|                                  |     existing assets, PTTEP also   |
|                                  |     focused on operating cost     |
|                                  |     optimization through various  |
|                                  |     initiatives/ activities:      |
|                                  |                                   |
|                                  |     -   Optimizing procurement    |
|                                  |         spending by effectively   |
|                                  |         defining product quantity |
|                                  |         and time to procure to    |
|                                  |         fit with the market       |
|                                  |         situations.               |
|                                  |                                   |
|                                  |     -   Applied the “Capital      |
|                                  |         Project Management”       |
|                                  |         initiative for high       |
|                                  |         investment projects to    |
|                                  |         improve project           |
|                                  |         management performance.   |
|                                  |                                   |
|                                  |     -   Adopted the “Operational  |
|                                  |         Excellence” concept to    |
|                                  |         improve overall           |
|                                  |         efficiency of production  |
|                                  |         and operation activities. |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to constantly     | -   PTTEP continued to expand its |
|     expand the investment both   |     investment in various regions |
|     in domestic and overseas     |     aligned with the investment   |
|     countries to enhance         |     strategy with key achievement |
|     nation’s energy security     |     in 2008 as follows:           |
|                                  |                                   |
|                                  |     -   Farmed in Blocks 17 & 18  |
|                                  |         offshore of the People’s  |
|                                  |         Republic of Bangladesh    |
|                                  |         with a 30% participation  |
|                                  |         interest.                 |
|                                  |                                   |
|                                  |     -   Awarded the block Semai   |
|                                  |         II in Indonesia with a    |
|                                  |         33.33% participation      |
|                                  |         interest.                 |
|                                  |                                   |
|                                  |     -   Awarded the block         |
|                                  |         WA-423-P in Australia.    |
|                                  |         The JV comprises Murphy   |
|                                  |         Australia Oil Pty Ltd.    |
|                                  |         (Operator) and PTTEP with |
|                                  |         the participation         |
|                                  |         interests of 70% and 30%  |
|                                  |         respectively.             |
|                                  |                                   |
|                                  |     -   Signed the Share Sales    |
|                                  |         Agreement to purchase     |
|                                  |         100% shareholders’ equity |
|                                  |         in Coogee Resources       |
|                                  |         Limited or CRL.           |
|                                  |                                   |
|                                  |     -   Signed MOU with Golar LNG |
|                                  |         Limited to                |
|                                  |         collaboratively conduct   |
|                                  |         study on the investment   |
|                                  |         in stranded gas fields    |
|                                  |         which could deploy the    |
|                                  |         FLNG (Floating Liquefied  |
|                                  |         Natural Gas production)   |
|                                  |         technology to             |
|                                  |         commercialize stranded    |
|                                  |         gas economically.         |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to develop        | -   In 2008, PTTEP continuously   |
|     organization capability up   |     strived to improve human      |
|     to international standards   |     resources capabilities        |
|     in order to support current  |     through various initiatives   |
|     activities and long term     |     with details as follows:      |
|     growth.                      |                                   |
|                                  |     -   Adopt Activity Based      |
|                                  |         Manpower Planning in      |
|                                  |         preparing a long term     |
|                                  |         manpower plan for key     |
|                                  |         operating assets to align |
|                                  |         manpower plan well with   |
|                                  |         the work plans and        |
|                                  |         activities.               |
|                                  |                                   |
|                                  |     -   Active personnel          |
|                                  |         recruitment to support    |
|                                  |         company growth.           |
|                                  |                                   |
|                                  |     -   Extensively used          |
|                                  |         Competency Management     |
|                                  |         System as a tool to       |
|                                  |         assess and design         |
|                                  |         comprehensive programs to |
|                                  |         develop its people.       |
|                                  |                                   |
|                                  |     -   Introduced Technical      |
|                                  |         Career Ladder (TCL)       |
|                                  |         system which helps        |
|                                  |         improve the career        |
|                                  |         development of technical  |
|                                  |         personnel to be able to   |
|                                  |         progress on their         |
|                                  |         professional career path  |
|                                  |         to the equivalent of      |
|                                  |         Management positions.     |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to develop        | -   PTTEP implemented a number of |
|     organization capability up   |     changes to strengthen         |
|     to international standards   |     organization capability as    |
|     in order to support current  |     follow:                       |
|     activities and long term     |                                   |
|     growth (Continued)           |     -   Revised its organization  |
|                                  |         structure to correspond   |
|                                  |         with the Company          |
|                                  |         strategy. This included   |
|                                  |         the set up of Business    |
|                                  |         Development Group to      |
|                                  |         drive Company’s growth    |
|                                  |         and the restructure       |
|                                  |         within the Asset          |
|                                  |         Divisions for integrated  |
|                                  |         work planning &           |
|                                  |         optimizing resource       |
|                                  |         allocation.               |
|                                  |                                   |
|                                  |     -   PTTEP Executives          |
|                                  |         collectively reviewed and |
|                                  |         further refined corporate |
|                                  |         directions and strategy   |
|                                  |         up to 2020. They also     |
|                                  |         constantly reviewed and   |
|                                  |         adjusted the strategy and |
|                                  |         work plan to correspond   |
|                                  |         with the changing working |
|                                  |         environment.              |
|                                  |                                   |
|                                  |     -   Strengthened work         |
|                                  |         planning and the KPI      |
|                                  |         setting processes to      |
|                                  |         effectively monitor and   |
|                                  |         adjust the performance to |
|                                  |         achieve the set direction |
|                                  |         and target.               |
|                                  |                                   |
|                                  |     -   Periodically reviewed     |
|                                  |         portfolio management and  |
|                                  |         aligned the country       |
|                                  |         strategy to set           |
|                                  |         comprehensive investment  |
|                                  |         strategies in each        |
|                                  |         region.                   |
|                                  |                                   |
|                                  | -   PTTEP always adheres to       |
|                                  |     Corporate Governance          |
|                                  |     principles and constantly     |
|                                  |     improved its CG practices     |
|                                  |     through series of activities  |
|                                  |     to embed CG practice within   |
|                                  |     organization.                 |
|                                  |                                   |
|                                  | -   PTTEP continuously promote    |
|                                  |     Corporate Values of           |
|                                  |     Adaptability and Will to      |
|                                  |     Learn (A), Boundaryless (B),  |
|                                  |     Clear Thinking Leads to clear |
|                                  |     Communication (C), and        |
|                                  |     Dedication and                |
|                                  |     Determination (D) to embed    |
|                                  |     them within organization via  |
|                                  |     series of activities e.g. use |
|                                  |     ABCD as criteria in           |
|                                  |     performance appraisal, etc.   |
+----------------------------------+-----------------------------------+