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  4. Nature of the Business

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4.1 Establishment / Changes / Significant Development

The Company was incorporated on 20 June 1985 with the Petroleum
Authority of Thailand (now PTT Public Company Limited) 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 with approval from the
Shareholders’ Meeting to raise fund from the general public. The Company
was given approval by the Office of the Securities and Exchange
Commission to offer its 39.96 million shares to investors both in and
outside the country and by the Stock Exchange of Thailand to be a listed
company in the stock market; and was first trade in the market on June
10,1993. The Company raised capital from Baht 3,100 million to Baht
3,272 million on May 12, 1999 with paid-up capital of Bath 3,260 million
from the new offering of 16 million common shares and reserve of 1.2
million common shares for the exercise of warrants to purchase the
Company’s common shares for management and employees. On September 20,
2000 the Company changed its par value from Baht 10 to Baht 5 with
registered capital still remaining at Baht 3,272 million. In 2002 the
Company increased its registered capital to Baht 3,322 million to
reserve for the exercise of warrants to purchase the Company’s common
shares for the management and employees, a program of 5-year period
amounting 10 million shares with paid-up capital still remaining at Baht
3,260 million with 652 million shares. At the end of 2004, PTTEP’s
paid-up capital was Baht 3,266,662,000 with paid-up registered capital
of 653,332,400 shares. The increased paid-up capital was from the
exercise of warrants of the directors, management and employees under
the ESOP Program of year 2002 and 2003. On December 31, 2004 PTT held
65.98 percent of PTTEP’s shares.

The Company and its subsidiaries conducted E&P business through
investment strategic plan by join-investing with international E&P
companies to shares their risk and experiences. At present, the Company
and its subsidiaries joint-invested in many E&P projects, increasing
their investment opportunity both in and outside Thailand such as in
Myanmar, Vietnam, Malaysia, Indonesia and entering the Middle East into
Oman. In 2004, PTTEP was awarded 5 blocks in 3 countries: block 433a &
433b in Algeria, block M7&M9 in Myanmar and block B-17-01 in the joint
development area Malaysia and Thailand (MTJA).

4.2 Business Overview

4.2.1 Business Objective: PTTEP has the following business objectives:

(1) To carry out petroleum exploration and production for the maximum
benefit of the nation’s economy;

(2) To be the government’s vehicle in joint investment for exploration
and production both domestic and oversea with international oil
companies which help decrease the load of petroleum import; and for high
strategic related business;

(3) To be an organization with independent, flexible and efficient
management to enable it to compete efficiently with private companies;

(4) To develop its personnel to have qualifications, high capability in
petroleum exploration and production technology and necessary experience
for PTTEP’s various projects at all times;

(5) To carry out operations in the area designated by the Government;

(6) To stimulate investment in business related to petroleum exploration
and production in a manner which will yield maximum benefits to the
Kingdom.

1.  PTTEP Shareholding Structure

As at December 31, 2004, PTTEP shareholding structure comprised 11
subsidiary companies¹, 3 associated companies and 3 joint controlled
entities. Details are presented as follows:

4.2.3 Project Investment Structure: PTTEP has 8 petroleum exploration
and production projects currently under production out of a total of 24
projects as mentioned in the Summary Information. Please see additional
details of PTTEP and its subsidiaries’ project in page 131

[]

3.  Revenue Structure

The petroleum exploration and production projects which generated
revenues for PTTEP and its subsidiaries comprised 8 projects: Bongkot,
Pailin, S1, E5, Unocal III, PTTEP1, Yadana and Yetagun. 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 2002-2004

  ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                             % of                                 2002                            2003                                2004                        
                                             PTTEP                                                                                                                                
                                             Shares                                                                                                                               
  --------------------- ---------- --------- -------- --------- ------- --------- ---------- ------- ------ ----- ---------- --------- ------ ------- ---------- --------- ------ -------
  Product               Operated             2003               2004              Revenue            %            Revenue              %              Revenue              %      
                        by                                                        (million                        (million                            (million                    
                                                                                  Baht)                           Baht)                               Baht)                       

  Petroleum Exploration                                                                                                                                                           
  and Production                                                                                                                                                                  
  Segment                                                                                                                                                                         

  Crude oil             PTTEP                -                  -                 1,957.1            6.2          2,169.3              5.9            2,590.3              5.4    

                        PTTEPI               99.99              99.99             192.3              0.6          251.0                0.7            238.3                0.5    

                        PTTEPS               -                  49.00             -                  -            -                    -              6,372.8              13.2   

  Natural gas           PTTEP                -                  -                 16,556.4           52.1         18,910.0             51.1           20,363.1             42.1   

                        PTTEPI               99.99              99.99             5,893.5            18.5         6,394.0              17.3           6,203.9              12.8   

                        PTTEPS               -                  49.00             -                  -            -                    -              695.2                1.4    

  LPG                   PTTEP                -                  -                 246.4              0.8          260.0                0.7            280.8                0.6    

                        PTTEPS               -                  49.00             -                  -            -                    -              842.4                1.7    

  Condensate            PTTEP                -                  -                 4,514.3            14.2         5,603.0              15.1           7,915.7              16.3   

                        PTTEPI               99.99              99.99             227.0              0.7          450.2                1.2            696.1                1.4    

  Share of profit from  PTTEPO               75.00              75.00             529.9              1.7          480.4                1.3            153.5                0.3    
  investments under                                                                                                                                                               
  equity method                                                                                                                                                                   

  Total                                                                           30,116.9           94.8         34,517.9             93.3           46,352.1             95.7   

  Overseas Pipeline                                                                                                                                                                
  Segment                                                                                                                                                                         

  Gas Pipeline                     MGTC ¹             25.50             25.50                506.0          1.6              857.2            2.3                1,302.0          2.7
  transportation                                                                                                                                                                  

                                   TPC ¹              19.3178           19.3178              139.4          0.4              232.0            0.6                294.1            0.6

  Total                                                                                      645.4          2.0              1,089.2          2.9                1,596.1          3.3

  Other Segment                                                                                                                                                                    

  Share of profit from             PTTEP              99.99             99.99                126.3          0.4              269.7            0.7                55.6             0.1
  investments under                                                                                                                                                               
  equity method                                                                                                                                                                   

  Total                                                                                      126.3          0.4              269.7            0.7                55.6             0.1

  Other revenues                   PTTEP              -                 -                    349.9          1.1              1,157.8          3.1                309.3            0.6

                                   PTTEPI             99.99             99.99                124.5          0.4              ( 512.1 )        (1.4)              ( 73.1 )         (0.1)

                                   PTTEPO             75.00             75.00                410.3          1.3              306.3            0.8                28.3             0.1

                                   PTTEPKV ¹          100.00            100.00               ( 9.6 )        ( 0.0            30.3             0.1                5.9              0.0
                                                                                                            )                                                                     

                                   PTTEPSV ¹          100.00            100.00               0.6            0.0              18.9             0.1                4.3              0.0

                                   PTTEPHV ¹          100.00            100.00               ( 0.1 )        ( 0.0            77.8             0.2                34.1             0.1
                                                                                                            )                                                                     

                                   PTTEPHL ¹          100.00            100.00               ( 1.9 )        ( 0.0            41.5             0.1                15.9             0.1
                                                                                                            )                                                                     

                                   PTTEPME ¹          100.00            100.00               -              -                12.9             0.0                13.2             0.0

                                   PTTEPAG ¹          100.00            100.00               -              -                ( 0.1 )          ( 0.0 )            10.1             0.0
  ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

  ------------------ ---------- --------- --------- ---------- ------- ---------- ------- ---------- -------
                                % of                2002               2003               2004       
                                PTTEP                                                                
                                Shares                                                               

  Product            Operated   2003      2004      Revenue    %       Revenue    %       Revenue    %
                     by                             (million           (million           (million   
                                                    baht)              baht)              baht)      

  Other revenues     MGTC ¹     25.50     25.50     7.2        0.0     3.6        0.0     3.6        0.0
  (continued)                                                                                        

                     TPC ¹      19.3178   19.3178   4.1        0.0     -          -       -          -

                     PTTEP      -         25.00     -          -       -          -       9.7        0.0
                     SVSC²                                                                           

                     PEEEPT³    -         -         -          -       -          -       -          -

                     PTTEPS⁴    -         49.00     -          -       -          -       51.5       0.1

  Total                                             885.0      2.8     1,136.9    3.1     412.8      0.9

  รวม                                               31,773.6   100.0   37,013.7   100.0   48,416.6   100.0

  ¹ Hold by PTTEPO                                                                                   

  ² Hold by PTTEPT                                                                                   
  75%                                                                                                

  ³ Hold by PTTEPI                                                                                   
  51% และ PTTEP ME                                                                                   
  49%                                                                                                

  ⁴ Hold by PTTEPO                                                                                   
  51%                                                                                                
  ------------------ ---------- --------- --------- ---------- ------- ---------- ------- ---------- -------

For year 2004, the total revenues of PTTEP and subsidiaries amounted to
Baht 48,417 million, an increase of Baht 11,403 million or 31% when
compared with Baht 37,014 million last year. This increase was mainly
due to an increase in sales of Baht 12,161 million or 36%, resulting
from the higher sales volume at 134,070 BOED this year, compared with
107,299 BOED last year. In addition, the average petroleum price
increased to USD 23.38 per BOE when compared with USD 20.62 per BOE for
last year. The increased sales volume derived mainly from (1) the sales
volume of crude oil from the S1 project as a result of the additional
stakes from the acquisition, (2) an increase sales volume of natural gas
and condensate from the Bongkot project, and (3) an increase sales
volume of natural gas from the Yetagun and the Pailin project. However,
the sales of the Yadana project decreased due to the decline in the
benefits of cost recovery for the production sharing since the third
quarter of 2003.

Revenue from pipeline transportation, which was proportionately recorded
from gas pipeline transportation that MGTC and TPC rendered to Myanma
Oil and Gas Enterprise (MOGE), increased due to the higher gas transport
volume of MOGE.

PTTEP and subsidiaries realized their share of net income from
associated companies for year 2004 by Baht 209 million, consisting of
the net income from Medco Energi through New Links of Baht 154 million,
and the net income from Thai Oil Power Co., Ltd., of Baht 55 million.

4.4 Business Corporate Targets in 2004-2008

Notable aspects of PTTEP corporate targets in 2003-2007 per corporate
strategy are summarized here:

+----------------------------------+-----------------------------------+
| Quantitative Target              | Execution in 2004                 |
+==================================+===================================+
| -   PTTEP had a sales volume     | -   The actual sales volume       |
|     target in 2004 of 129,119    |     turned out to be 134,070 BOED |
|     Barrels Oil Equivalent per   |     in 2004, higher than target   |
|     Day (BOED), excluding the    |     due to higher sales volume in |
|     sales volume in the Medco    |     the Bongkot, Pailin, and      |
|     Energi Investment project.   |     Yetagun projects.             |
|     PTTEP also forecasted a 2008 |                                   |
|     sales volume of 188,000 BOED |                                   |
|     with the CAGR (Cumulative    |                                   |
|     Average Growth Rate) at 9%   |                                   |
|     per annual.                  |                                   |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to be an operator | -   In 2004, for projects in      |
|     with operational excellence  |     which PTTEP is the operator,  |
|     in operation projects. In    |     the company aims to become an |
|     addition, PTTEP aims to be   |     operator proud of its         |
|     an operator in oversea       |     operational excellence along  |
|     exploration projects by 2003 |     with a keen awareness of      |
|     and in overseas production   |     Safety Security Health and    |
|     projects by 2010.            |     Environment (SSHE) issues.    |
|                                  |                                   |
|                                  | -   Oman project, the first       |
|                                  |     overseas project in which     |
|                                  |     PTTEP served as the operator  |
|                                  |     on December 17, 2004, was     |
|                                  |     planned to begin its first    |
|                                  |     gas production in 2005.       |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to be a company   | -   PTTEP has introduced          |
|     recognized for its           |     Corporate Governance          |
|     international best           |     principles and developed an   |
|     practices, both in           |     Internal Control System,      |
|     organizational development   |     including Risk Management, to |
|     and active safety, security, |     ensure implementation of its  |
|     health, and environment      |     business plans.               |
|     policy implementation.       |                                   |
|                                  | -   In 2004, PTTEP in its         |
|                                  |     continued effort on corporate |
|                                  |     governance, the Company       |
|                                  |     participated in an external   |
|                                  |     appraisal on corporate        |
|                                  |     governance conducted by TRIS  |
|                                  |     (Thai Rating and Information  |
|                                  |     Services Co., Ltd.), and      |
|                                  |     received a “Very Good” CG     |
|                                  |     rating, or a score of 8.14    |
|                                  |     (Total score = 10).           |
|                                  |                                   |
|                                  | -   PTTEP has also incorporated   |
|                                  |     the principles of             |
|                                  |     organizational management     |
|                                  |     approaches such as Learning   |
|                                  |     Organization Knowledge        |
|                                  |     Management, Efficiency Based  |
|                                  |     Organization and Organization |
|                                  |     Capabilities to guarantee     |
|                                  |     continued organizational      |
|                                  |     development.                  |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to be a company   | -   PTTEP net profit was 15,866   |
|     acknowledged for its         |     million baht in 2004. Its     |
|     World-Class Competitive      |     annual performance yielded a  |
|     Strengths, outstandingly     |     Return on Capital Employed    |
|     competent and developed      |     (ROCE) of 24.4%, which was    |
|     management and staff, growth |     higher than its target of     |
|     reserves as targeted in its  |     23%.                          |
|     planning, strong financial   |                                   |
|     performance and trustworthy  | -   Regarding long term           |
|     internal and external        |     Debt-to-Equity ratio, PTTEP’s |
|     relationships.               |     ratio was 0.4 time, lower     |
|                                  |     than the limit of 1.0 time.   |
|                                  |                                   |
|                                  | -   All PTTEP investment          |
|                                  |     expansions have been in line  |
|                                  |     with corporate strategy. Key  |
|                                  |     investment events in 2004     |
|                                  |     included:                     |
|                                  |                                   |
|                                  |     -   Purchasing all issued     |
|                                  |         shares of capital for     |
|                                  |         Thai Shell Company and    |
|                                  |         becoming the operator in  |
|                                  |         the S1, Nang Nual and     |
|                                  |         L22/43 projects.          |
|                                  |                                   |
|                                  |     -   Joining the investment in |
|                                  |         petroleum exploration     |
|                                  |         project block 17-01, part |
|                                  |         of the Malaysia-Thailand  |
|                                  |         Joint Development         |
|                                  |         Area(MTJDA), with MTJA    |
|                                  |         (Malaysia Thailand Joint  |
|                                  |         Authority)                |
|                                  |                                   |
|                                  |     -   Being awarded the         |
|                                  |         concession blocks and     |
|                                  |         becoming a single         |
|                                  |         concessionaire operator   |
|                                  |         in Blocks L53/43 & L54    |
|                                  |         /43 in Thailand, and M3 & |
|                                  |         M4 in Myanmar.            |
|                                  |                                   |
|                                  |     -   Signing a Memorandum of   |
|                                  |         Understanding (MOU) with  |
|                                  |         the Ministry of           |
|                                  |         Petroleum, The Islamic    |
|                                  |         Republic of Iran, in      |
|                                  |         addition to bidding on    |
|                                  |         petroleum exploration and |
|                                  |         production concessions in |
|                                  |         Iran.                     |
+----------------------------------+-----------------------------------+