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.

2007 Significant Development

(1) PTTEP established 8 subsidiaries companies to carry out petroleum
exploration and production activities in Thailand and international
countries, namely PTTEP Thai Projects Company Limited (PTTEP TP), PTTEP
Andaman Company Limited (PTTEP Andaman), PTTEP Australia Pty Limited
(PTTEP AU), PTTEP Australia Offshore Pty Limited (PTTEP AO), PTTEP Egypt
Company Limited (PTTEP EG), PTTEP Rommana Company Limited (PTTEPR),
PTTEP Sidi Abd El Rahman Company Limited (PTTEP SAER) and PTTEP
Bangladesh Limited (PTTEP BD).

(2) PTTEP was approved by the Cabinet to extend Production Period for 10
years for Bongkot Project. Subsequently, the production period of Block
15 and Block 16&17 will expire on April 23, 2022 and March 7, 2023,
respectively. Additionally, PTTEP (Seller) has signed the Gas Sales
Agreement with PTT (Buyer), in which PTTEP will supply an additional
volume of natural gas approximately at 120 million standard cubic feet
per day from Arthit North Project, for approximately 3 year. Moreover,
PTTEP received official notification from the National Oil and Gas
Authority (NOGA) of the Kingdom of Bahrain, regarding its successful bid
for the exploration project Block 2 as the operator with 100%
participation interest.

(3) PTTEPI (Operator) and other joint venture partners in Cambodia Block
B (namely Resourceful Petroleum Limited (RPL) and SPC Cambodia Limited
(SPC), have exercised their pre-emption rights to purchase the entire
10% participation interest of CE Cambodia B Limited. After the
acquisition, the participation interest of PTTEPI, RPL and SPC will be
increased from 30% to 33.333334%, 33.333333% and 33.333333%
respectively. In addition, PTTEPI increased its participation interest
in Block G 4/43, located in the Gulf of Thailand, from 15% to 21.375%.
After the approvals of the Supplementary Concession, the joint venture
partners will consist of Chevron Offshore (Thailand) Ltd. (Chevron),
PTTEPI, Mitsui Oil Exploration Co., Ltd. (MOECO) and Palang Sophon Two
Ltd. 51%, 21.375%, 21.25% and 6.375% participation interests
respectively.

(4) PTTEPO and other joint venture partner comprising OMV New Zealand
Limited (Operator) and Mitsui E&P Australia Pty Limited have been
confirmed as successful bidders of 6 petroleum blocks 11, 12, 13, 5, 6,
and 14 in New Zealand with the participating interests of 36%, 36% and
28% respectively. This is another major step of PTTEP in expanding its
investment in the Asia Pacific region and PTTEP’s first investment in
New Zealand. Furthermore, PTTEPO was awarded 100% participation interest
and is the operator in Petroleum Concessions Blocks A4/48, A5/48 and
A6/48, located in the deep water Andaman Sea, in the North Sumatra basin
and Mergui Basin.

(5) PTTEPS (Operator), signed on an Assignment Agreement in Blocks
L21/48, L28/48 and L 29/48 with Resourceful Petroleum (Thailand) Limited
(RPL) to optimize the petroleum exploration risk. This has resulted in
the change from PTTEPS as the sole shareholder to PTTEPS and RPL 70% and
30% participation interest respectively. Moreover, PTTEPS changed its
participation interest in the Nang Nuan Project (Block B6/27) from 100%
to 60%; PTTEPS remains the operator, and transferring the participating
interest of 40% to Nippon Oil Exploration Limited (NOEX). This Nang Nuan
Project’s transaction will be effective after receiving an approval from
the Thai government and the Supplement Concession is signed.

(6) PTTEP AO has entered into the Joint Participation Agreement to
invest in Petroleum Permit AC/P36 in Australia. The joint venture
partners consist of PTTEP AO, Finder Exploration Pty Limited and Murphy
Australia Oil Pty Limited (Operator) with 20%, 40% and 40% participation
interest respectively. This agreement will be effective after receiving
approvals from Australian government.

(7) PTTEP TP and other joint venture partners were granted the Petroleum
Concession in the Gulf of Thailand, as following details:

(7.1) Chevron (Operator), MOECO and PTTEP TP hold 71.25%, 23.75% and 5%
interest respectively in Concession Block G6/50, adjacent to Unocal III
Project.

(7.2) PTTEP TP, Chevron and Hess Exploration (Thailand) Company Limited
hold 45%, 35%, 15% and 5% interest respectively in Concession Block G
7/50, adjacent to Pailin Project.

(7.3) PTTEP TP (Operator), Chevron and MOECO hold 80%, 16% and 4%
interest respectively in Concession Block G8/50, adjacent to Arthit
Project.

2.2 Business Operation

2.2.1 Business Overview

PTTEP conducts its core business in petroleum exploration, development
and production. As of 31 December 2007, PTTEP has 13 petroleum
exploration and production projects currently under production out of a
total of 39 petroleum exploration and production projects and 4
additional investment projects as follows: - (For more detail, please
see item 5.1.1)

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, Phuhorm Project, B 8/32& 9A Project
  -------------- -----------------------------------------------------------

(2) Regional Projects: 14 projects

+----------+-----------------------------------------------------------+
| Myanmar  |                                                           |
+----------+-----------------------------------------------------------+
| Operator | Myanmar M 7& M 9 Project, Myanmar M 3& M 4 Project,       |
|          |                                                           |
|          | Myanmar M 11 Project                                      |
+----------+-----------------------------------------------------------+
| Non-     | Yadana Project, Yetagun Project                           |
| Operator |                                                           |
+----------+-----------------------------------------------------------+
| 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 |                                                           |
+----------+-----------------------------------------------------------+
| Cambodia |                                                           |
+----------+-----------------------------------------------------------+
| Operator | Cambodia B Project                                        |
+----------+-----------------------------------------------------------+
| Ove      |                                                           |
| rlapping |                                                           |
| Area     |                                                           |
+----------+-----------------------------------------------------------+
| Operator | G 9/43 Project (Thailand/Cambodia)                        |
+----------+-----------------------------------------------------------+
| Joint    | MTJDA – B17 Project (Thailand/Malaysia)                   |
| O        |                                                           |
| peration |                                                           |
+----------+-----------------------------------------------------------+

(2) International Projects: 10 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 ^(*)

  Bangladesh     

  Non-Operator   Bangladesh 17& 18 Project^(**)
  -------------- -----------------------------------------------------------

^(*) The joint venture agreement will be effective only after the
approval from Australia Government.

  ^(**) The joint venture agreement will be effective only after the
  approval from Bangladesh Government and the Joint Ventures.

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 principle 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 December 31, 2007, PTTEP invested the total of 33 companies,
comprising 27 subsidiaries and 6 associated companies.^(#) 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 13 projects: the
Bongkot, Pailin, S1, Yadana, Yetagun, Unocal III, B8/32 & 9A, PTTEP1,
E5, Nang Nuan, Phu Horm, G4/43 and Oman 44 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 2005-2007

[]

[]

For the year 2007, total revenues of PTTEP and its subsidiaries amounted
to Baht 96,773 million, an increase of Baht 5,050 million or 6% when
compared with Baht 91,723 million for the last year. This increase was
mainly due to an increase in sales of petroleum of Baht 4,425, resulting
from the average petroleum sales price in USD currency in this year rose
to USD 39.78 per barrel of oil equivalent (BOE), which resulted from the
higher world market price, against last year at USD36.52 BOE; however,
the average sales exchange rate for this year decreased to Baht 34.77
per USD against last year’s Baht 38.24 per USD as a result of the
strengthened Baht; and the higher sales volume for the year 2007 rose to
179,767 barrels of oil equivalent per day (BOED) compared with last year
(169,348 BOED). This increased sales volume mainly came from petroleum
production sales from the Oman 44 and Phu Horm projects (first
production began last year) including the crude sales from the S1
project and the natural gas sales from the Pailin and Yadana projects.
However, there was a decrease in petroleum production sales from the
B8/32&9A project.

PTTEP and its subsidiaries received higher revenue from pipeline
transportation, which was proportionally recorded from gas pipeline
transportation in Moattama Gas Transportation Company (MGTC) and
Taninthayi Pipeline Company LLC (TPC); and the lower interest income as
a result of the decreased interest rate return from fixed deposits and
short-term financial instruments. In addition, the other income
increased mainly as a result of construction service from the Arthit gas
export pipeline to customers.

2.4 PTTEP Business Target during 2008-2012

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

+----------------------------------+-----------------------------------+
| Quantitative Target in 2008 -    | Execution in 2007                 |
| 2012                             |                                   |
+==================================+===================================+
| -   PTTEP sales volume target of | -   The actual sales volume of    |
|     2008 – 2012 averaged         |     2007 averaged 179,767 barrels |
|     223,000, 250,000, 261,000,   |     of oil equivalent per day     |
|     278,000 and 252,000 Barrels  |     (BOED) lower than the sales   |
|     of oil equivalent per day    |     target of 187,713 BOED, which |
|     (BOED) with the CAGR         |     was initially set at the      |
|     (Cumulative Average Growth   |     beginning of 2007. The        |
|     Rate) at 7%.                 |     reasons for the deviation     |
|                                  |     from the sales target were    |
|                                  |     due to technical problems in  |
|                                  |     the gas/condensate separation |
|                                  |     plant of Oman 44 Project and  |
|                                  |     to the temporarily suspended  |
|                                  |     production from Nang Nuan     |
|                                  |     Project due to well technical |
|                                  |     problems.                     |
+----------------------------------+-----------------------------------+
| Quantitative Target in 2008 -    | Execution in 2007                 |
| 2012                             |                                   |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to maximize value | -   To create value from assets,  |
|     from the existing projects   |     in 2007, PTTEP has            |
|     and assets.                  |     accelerated the activities to |
|                                  |     add more reserves and         |
|                                  |     maximize production from the  |
|                                  |     existing projects. In 2007,   |
|                                  |     PTTEP’s total revenue was     |
|                                  |     96,773 Million Baht with the  |
|                                  |     total sales revenue of 90,764 |
|                                  |     Million Baht. The net profit  |
|                                  |     amounted 28,455 Million Baht. |
|                                  |                                   |
|                                  | -   In 2007, PTTEP was successful |
|                                  |     in exploration activities as  |
|                                  |     there were 36 successful      |
|                                  |     wells out of a total of 51    |
|                                  |     exploration and appraisal     |
|                                  |     wells drilled in 2007. In     |
|                                  |     addition, PTTEP also speeded  |
|                                  |     up the development activities |
|                                  |     to turn reserve into          |
|                                  |     production as determined in   |
|                                  |     the official production       |
|                                  |     start-up of Sin Phu Horm and  |
|                                  |     Oman in 2007.                 |
|                                  |                                   |
|                                  | -   On cost side, PTTEP           |
|                                  |     continuously strived to       |
|                                  |     improve the project           |
|                                  |     efficiency by adjusting       |
|                                  |     working process and           |
|                                  |     methodology and by            |
|                                  |     implementing concepts of      |
|                                  |     synergy and resource sharing  |
|                                  |     with objectives of operating  |
|                                  |     cost reduction.               |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to maximize value | -   In addition, PTTEP            |
|     from the existing projects   |     continuously promoted and     |
|     and assets (Cont’d)          |     strengthened SSHE (Safety,    |
|                                  |     Security, Health, and         |
|                                  |     Environment) practices up to  |
|                                  |     international standards.      |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to constantly     | -   In 2007, PTTEP continued to   |
|     expand the investment both   |     expand its investment in the  |
|     in domestic and overseas     |     petroleum exploration and     |
|     countries to enhance         |     production business in both   |
|     nation’s energy security     |     domestic and overseas         |
|                                  |     countries in line with PTTEP  |
|                                  |     investment strategy with      |
|                                  |     details as follows:           |
|                                  |                                   |
|                                  |     -   Awarded the concession in |
|                                  |         Thailand blocks A4/48,    |
|                                  |         A5/48, and A6/48 in the   |
|                                  |         Andaman Sea and the       |
|                                  |         blocks G6/50, G7/50, and  |
|                                  |         G8/50 in the Gulf of      |
|                                  |         Thailand.                 |
|                                  |                                   |
|                                  |     -   Succeeded in bidding for  |
|                                  |         6 petroleum blocks        |
|                                  |         offshore south of New     |
|                                  |         Zealand South Island      |
|                                  |                                   |
|                                  |     -   Awarded the exploration   |
|                                  |         of Block 2 offshore in    |
|                                  |         the north of Bahrain.     |
|                                  |                                   |
|                                  |     -   Participated as a joint   |
|                                  |         venture partner in        |
|                                  |         Petroleum Permit AC/P36   |
|                                  |         located offshore of       |
|                                  |         northwestern Australia.   |
|                                  |                                   |
|                                  |     -   Increased participating   |
|                                  |         interests in three        |
|                                  |         existing projects,        |
|                                  |         namely, 1) the G4/43      |
|                                  |         Project in which PTTEP’s  |
|                                  |         participation interests   |
|                                  |         was increased from 15 to  |
|                                  |         21.375, 2) the Cambodia B |
|                                  |         Project in which PTTEP    |
|                                  |         participation interests   |
|                                  |         was increased from 30% to |
|                                  |         33.333334%, and 3)        |
|                                  |         Merangin-I Project in     |
|                                  |         which PTTEP participation |
|                                  |         interests was increased   |
|                                  |         from 39% to 40%.          |
+----------------------------------+-----------------------------------+

+----------------------------------+-----------------------------------+
| Quantitative Target in 2008 -    | Execution in 2007                 |
| 2012                             |                                   |
+==================================+===================================+
| -   PTTEP aims to develop        | -   PTTEP continuously strived to |
|     organization capability up   |     improve organization          |
|     to international standards   |     capability. In 2007, PTTEP    |
|     in order to support current  |     accelerated both recruitment  |
|     activities and long term     |     and development of its people |
|     growth.                      |     to support Company growth. To |
|                                  |     fulfill manpower              |
|                                  |     requirements, PTTEP looked    |
|                                  |     for potential candidates from |
|                                  |     both domestic and             |
|                                  |     international sources. In     |
|                                  |     addition, PTTEP has been      |
|                                  |     using different tools for     |
|                                  |     fast track development of its |
|                                  |     people, e.g., Competency      |
|                                  |     Management System, High       |
|                                  |     Potential Staff Development   |
|                                  |     System, and also Management   |
|                                  |     Development System.           |
|                                  |                                   |
|                                  | -   PTTEP revised its             |
|                                  |     organization structure and    |
|                                  |     manpower allocation models to |
|                                  |     be more efficient and to      |
|                                  |     correspond with corporate     |
|                                  |     strategy. In addition, PTTEP  |
|                                  |     also streamlined its internal |
|                                  |     work processes, to be more    |
|                                  |     efficient, precise, and       |
|                                  |     flexible for both domestic    |
|                                  |     and international operations. |
|                                  |                                   |
|                                  | -   PTTEP continuously promotes   |
|                                  |     Knowledge Management across   |
|                                  |     the organization including    |
|                                  |     effective database management |
|                                  |     and creation of a knowledge   |
|                                  |     base culture to promote       |
|                                  |     learning and transferring of  |
|                                  |     knowledge/expertise within    |
|                                  |     the organization. The overall |
|                                  |     objective is to turn related  |
|                                  |     knowledge into wisdom and to  |
|                                  |     use related information to    |
|                                  |     improve overall decision      |
|                                  |     making.                       |
|                                  |                                   |
|                                  | -   PTTEP always adheres to       |
|                                  |     Corporate Governance          |
|                                  |     principles and is determined  |
|                                  |     to constantly improve its CG  |
|                                  |     practices. In 2007, it was    |
|                                  |     rated by the Thai Rating      |
|                                  |     Information Services Co.,     |
|                                  |     Ltd. (TRIS) as 8.37 out of    |
|                                  |     10, which is considered as    |
|                                  |     being “very good” regarding   |
|                                  |     CG practices. The score was   |
|                                  |     higher than 8.31 and 8.14 in  |
|                                  |     2006 and 2004 respectively.   |
+----------------------------------+-----------------------------------+