4. Business Operation

1.  Products Features

4.1.1 Petroleum

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. Bitumen is another form of crude oil, which is sticky, black,
opaque, and highly viscous (low API).

Natural gas means hydrocarbon which is gas or vapor at the atmospheric
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.

Crude oil, condensate, LPG and bitumen are measured in barrel while the
natural gas is measured in cubic foot at standard conditions (1 atm and
60 Degree Fahrenheit). All petroleum products could be converted into
Barrel of Oil Equivalent (BOE) based on their heat contents. 1 cubic
foot of natural gas has the heating value of approximately 1,000 BTU
while 1 barrel of crude oil has the heating value of approximately
6,000,000 BTU.

2.  Gas Transportation Pipeline:

PTTEPO has other major investment in other companies as well such as a
80% of the investment in Andaman Transportation Limited (ATL), 25.5% in
Moattama Gas Transportation Company (MGTC) and 19.31784% in Taninthayi
Pipeline Company (TPC) to conduct the business of pipeline laying from
Zawtika (under construction), Yadana and Yetagun projects from the
Republic of the Union of Myanmar to Thai borders.

4.1.3 Jetty, Workshop and Warehouse

Petroleum Development Support Base (PSB) of PTTEP is established as a
hub to support the development of petroleum in the Gulf of Thailand and
the Andaman Sea. The main service is to support logistics operation for
the petroleum exploration and production platforms off the coast as well
as being a coordination centre in case of emergency for the petroleum
production platforms in the Gulf of Thailand and Andaman Sea by aircraft
and marine vessels. Moreover, PSB’s additional service is included the
warehouse storage for petroleum exploration and production’s equipments
for PTT EP projects and thereby perform total service of logistics
activities for other offshore concessions including the inspection
service for the equipment and tools to a standard prior to the shipment
to offshore petroleum exploration and production platforms.

The onshore facilities are construction on 30 Rai (48,000 sq.m.) with an
additional of 28.12 Rai (44,992 sq.m.) on long lease, and consist of:

(1) Jetty: it has a total length of 380 metres and is divided into six
    berths, each approximately 65 metres. The deck of the jetty is +2.3
    metres above Mean Sea Level (MSL). The approaches and the water
    depth of the Jetty are maintained at a minimum 8 metres below Chart
    Datum. The facilities on the Jetty include bulk silos for H₂S,
    Scavenger, Barite, Base Oil and Cement. The Jetty is fully ISPS CODE
    compliant (International Code for the Security of Ships and of Port
    Facilities) and is approved as a port facility by the Marine Safety
    and Environment Bureau, Marine Department, Thailand.

(2) Workshops: three established workshops with an approximate total
    area of 9,800 sq.m. support all and project construction, equipment
    maintenance and inspection and well service work.

(3) Warehouse and Yard Area: there are two warehouses (1,200 and 900
    sq.m.) and an open storage yard which is used for the safe storage
    of petroleum materials and equipment such as tubular, drilling and
    valves. Also free zone area has been provided for partners who
    import the materials and equipment from abroad.

All above parts have been managed working practices in accordance with
company SSHE rules and regulations and received two external
certification namely ISO14001:2004 and OHSAS18001:2007. The site wider
security system; CCTV surveillance is installed at strategic locations
throughout the Base and is monitored 24 hours a day at the Operations
Centre.

4.1.4 Energy Complex Limited (Energy Complex)

PTT and PTTEP has jointly established energy complex to construct and
manage Energy Complex Investment Project, the energy business center of
the country, in which the ministry of energy, the company of PTT group
and the energy private companies is situated.

4.1.5 PTT ICT Solution Company Limited (PTT ICT)

PTT ICT Solution Co., Ltd, a PTTEP 20% own company, has been hired to
providing all PTTEP information technology and communication services
according to the resolution of PTTEP Board meeting no. 10/2549/254 on 29
September 2006. This includes infrastructure design and implementation
services, consultancy services, procurement services, and outsourcing
services to support PTTEP information technology and communication
needs. The 5 year contract period started on 1 July 2006 according to
PTT Group ICT Policy Strategy to create synergy drive in the group.

4.1.6 PTTEP Services Limited (PTTEP Services)

The concept that became PTTEP Services originated from PTTEP Board
meeting No. 12/2003/216. The stated objective that PTTEP Services was
created to achieve is to supply manpower for both local and overseas
subsidiary companies belonging to PTTEP and cater for the fact that
 PTTEP requires a large number of staff who are sufficiently capable and
of a high caliber with the primary objective of supporting PTTEP’s
extensive and rapid growth.

In order to fulfill these requirements, PTTEP Services has recruited and
hired staff for PTTEP since 1 July 2004 and has developed, improved, and
implemented compensation and benefits policies and practices to ensure
that standardized welfare benefits, including requisite training are
provided.

To build and enhance staff proficiency to enable prompt and appropriate
support of customer operations (PTTEP) effectively through structured
training and a training roadmap. The training courses are as follows:

(1) Compulsory courses for new staff

(1) Standard English courses

(2) Standard / Selected soft skills courses

4.2 Factors affecting the opportunity or restriction in business

PTTEP does its petroleum exploration and production in domestic 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 while investment in Thailand,
PTTEP shall comply with the Petroleum Act B.E. 2514 which sets out the
details and procedures for applying for and awarding petroleum
concessions, the period of production 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
as follows:

4.2.1 Issue of Concession Areas

The Department of Mineral Fuels, Ministry of Energy as the responsible
agency delineates exploration blocks, and then invites oil companies to
submit applications for concessions. The Petroleum Committee considers
applications for concessions which are initially screened by the
sub-committee. The Energy Minister with the approval by the Cabinet has
the power to award and sign the concessions. The government considers
the qualifications of each applicant and will take into account the
proposed work program, 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.

4.2.2 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 diversify the risks. In a joint venture, one company will be
designated as “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 which participate in the joint venture are called
“non-operators”. The operator sets the cash call on all co-venturers to
finance the project. The non-operators through their representation in
the management committee participate in technical and financial
decisions. Generally, an oil company will become an operator of any
project, depending on the investment conditions, its readiness and
business strategies in that project.

4.2.3 Nature of Operations and Investment Decisions

Before any oil company decides to invest in petroleum exploration in the
Kingdom and abroad, it has to carefully 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 and is commercial for production. The success ratio
of drilling of exploration wells in neighboring areas as well as the
risk factors of the investment countries are taken into account. In case
it found the project commercial to produce, then 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 program will be conducted which is normally
taking 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.

4.2.4 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, and its amendment. Several major
features of these laws are:

(1) 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;

(2) 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 may be used as credit
    against income tax (Thailand I) or be deducted as expenses (Thailand
    III);

(3) 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;

(4) interest paid cannot be deducted as expenses for income tax
    purposes;

(5) a concessionaire has right to obtain concessions for exploration
    blocks without limitation of number of exploration blocks.

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

Thailand II** 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

Thailand IV for the petroleum concessions issued by the Ministry of
Energy*** from B.E. 2550

*Now is the Ministry of Energy

**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.

***the Petroleum Act (Issue 6) B.E. 2550 has come into force 18 October
B.E. 2550

Details of Thailand I, II, III and IV Terms

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

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

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

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

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

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

  Concession    not exceeding   not exceeding   not exceeding   not exceeding
  areas         10,000 sq. km   10,000 sq. km   4,000 sq. km    4,000 sq. km
                per exploration per exploration per exploration per exploration
                block, up to 5  block, up to 5  block, up to 5  block without
                exploration     exploration     exploration     limitation of
                blocks          blocks          blocks          number of
                                                                exploration
                                                                blocks
  ------------- --------------- --------------- --------------- ---------------

4.3 Marketing and Competition

PTTEP has invested in 41 E&P activities, with 17 domestic projects and
24 overseas projects (including those in the Malaysia-Thailand and the
Cambodia-Thailand overlapping areas). Its policy is to supply products,
namely natural gas, crude oil, condensate, and LPG (a by-product of gas
and oil) from both domestic and external sources primarily to the
domestic market. Its overseas expansion of E&P and sales activities
represents an additional means of forging energy security and generating
income for Thailand.

In 2011, sales by PTTEP and its subsidiaries averaged 265,047 BOED, a
few rise from the previous year. Most of the incremental sales of this
year came from the diluted bitumen (Dilbit) from Canada Oil Sands KKD
Project, on stream since late 2010 and averaging 14,300 BPD this year.
Supporting this rise were crude oil and gas outputs from Vietnam 16-1
Project, on stream since August 2011 initially at 15,000 BPD and 30
MMSCFD. Finally, contributing were additional gas and condensate outputs
from Block B17 of the Malaysia-Thailand Joint Development Area.

For the year 2011, the total sales ratio was 71% natural gas to 29%
crude oil and condensate by volume, or 45% to 55% by sales revenue, as
shown in the following table.

  ----------------------- ----------------------- ------------------------
  Product                 Volume                  Value

  Natural Gas             417,090.97 MMSCF        2,429.23 Million USD

  Condensate              12.92 MMBBL             1,354.20 Million USD

  Crude Oil               14.16 MMBBL             1,480.07 Million USD

  LPG                     86,292.37 Metric Tons   26.33 Million USD

  Diluted Bitumen         1.42 MMBBL              149.89 Million USD
  ----------------------- ----------------------- ------------------------

4.3.1 Marketing Characteristics

PTTEP, by and large, sells its outputs from domestic and regional
projects to the Thai market through PTT Plc, the major buyer and
processor of all products which are then supplied to power plants, the
petrochemical industry, the transportation sector, industries, and
households. A portion of the indigenous crude oil whose composition does
not match domestic refinery configuration is exported.

Including its Yadana and Yetagun field outputs, PTTEP ranked first among
18 domestic sellers of petroleum products.

Sales of petroleum products from international fields vary from country
to country as detailed below:

(1) Yadana and Yetagun Projects in Myanmar: The gas produced from both
    projects is primarily sold to Thailand (through PTT Plc, the buyer),
    and some is sold to Myanmar for its domestic power generation.
    Yetagun condensate is sold and consumed in that country, with the
    excess volume sold in regional spot markets.

(2) MTJDA-B17 Project: All the gas output is currently sold to PTT Plc
    for consumption in Thailand. Starting in 2015, however, it is to be
    divided equally with Petronas for consumption in Malaysia. The
    condensate output will be sold by PTT Plc and Petco Trading Labuan
    Company Limited (Petronas’s subsidiary), as marketing agents in spot
    markets.

(3) Oman 44 Project: The gas output is sold to the Sultanate of Oman,
    whereas the condensate is sold to PTT Plc for consumption in
    Thailand.

(4) Vietnam 9-2 and Vietnam 16-1 Projects: The oil output is sold in
    spot markets and by short-term contracts, whereas the gas is sold to
    Vietnam Oil and Gas Group, a state enterprise, for consumption in
    that country.

(5) Canada Oil Sands KKD Project: All the diluted bitumen (Dilbit)
    output was initially sold to Statoil Canada Limited for distribution
    in North America. PTTEP is entitled to sell its share of oil in a
    later date under the conditions of the joint venture agreement

Marketing of petroleum products varies with their characteristics, which
in turn differentiate market structures and sales price structures, as
captured below.

(1) Natural gas

Due to the capital-intensive investment in developing gas fields, gas
sales agreements (GSAs) must become effective or signed before any major
investment is made. GSAs are typically long-term, ranging from 15 to 30
years. Prices, volumes, and points of sale are stipulated for each
contract. The designated transfer points for all domestically sold gas
are at the wellhead, from which the buyer will invest in the
transmission system. However, the delivery point of the gas sold from
Myanmar to Thailand is at the border. The seller is responsible for
investment in the transmission pipelines from the wellhead to the
border. Gas prices are usually tied to fuel oil and economic indices, so
that the cost of production can reflect the investment and be
competitive with competing fuels for the GSA period.

Sales volumes are based on the assessed reserves on the negotiation
date. GSAs stipulate buyer and seller obligations for the committed
amount according to each year’s take-or-pay conditions. If the buyer
does not take the volume of gas as committed to in the GSA, it must pay
for the committed volume whether the gas is taken or not. As a
consequence, the buyer is entitled to take delivery of “make-up gas”
free of charge in subsequent years. On the other hand, should the seller
fail to deliver as nominated (shortfall), the buyer is entitled to an
agreed discount price of the undelivered volumes as stipulated in each
agreement.

(2) Condensate and crude oil

As a rule, the Company bases the prices of its condensate and crude oil
on regional benchmark prices, meaning those predominantly sold in the
region, which is the industry’s common practice. Contracts are either
short-term or long-term, and some are sold in spot markets.

(3) LPG

LPG produced from S1 Project is sold to PTT Plc under a long-term
contract at a price referenced to the ex-refinery prices announced by
the government.

4.3.2 Competition

Competition in the E&P industry of Thailand—PTTEP’s key market—is by and
large non-threatening, since demand always exceeds supply. Contracts are
predominantly long-term, with take-or-pay clauses for gas to guarantee
its market.

The year 2011 saw steady growth in energy consumption. According to a
report by the Office of the National Economic and Social Development
Board, during the first half, 1,028 KBOED of primary commercial energy
was produced (a 3.9% rise from that of the previous year), in line with
consumption, which averaged 1,898 KBOED (a 5.8% rise from that of the
previous year). Natural gas consumption took the lion’s share (44%) of
total consumption.

To meet this demand, energy imports were the answer. During the first
half of the year, such imports rose by 2.8%. The year saw, however, 56%
dependence on energy imports, a slight drop from 58% in the same period
of the previous year, which showed that indigenous energy resources can
displace some imports.

For the latter half of the year, energy demand (especially that in the
fourth quarter) plummeted with the onset of severe floods in many
regions of the country, particularly Bangkok and its perimeter—the
domestic economic nucleus—while several industrial estates sustained
production disruption. These factors sharply eroded energy demand during
the period. Still, by the first quarter of 2012, energy demand is
expected to pick up and return to pre-flood levels, with the restoration
of transport routes and plant operation in the industrial estates.

As for the market situation in 2012, Thailand’s economy will likely be
propelled by spending and public investment programs, which will play a
key role because of new construction investment acceleration, together
with repairs to the inundated infrastructure. Meanwhile, public policy
implementation focusing on growing public income through restoration of
the agricultural sector, industrial sector, and service sector will keep
domestic demand growing. Supporting this growth will be private
investment in the purchasing of new machinery and repairs to flooded
machinery. All these will buoy domestic energy demand growth.

Meanwhile, the price of oil is likely to remain high due to demand
growth and speculation in the world market, which will inflate the
price. So, to accommodate a steady rise in demand and reduce import
dependency, PTTEP is committed to finding new energy resources
(indigenous and otherwise) to expand its output base and foster energy
security for Thailand over the long run.

4.4 Production

4.4.1 Exploration and Production Stages and Technology

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

(1) Exploration Stage

-   Primary geological and geophysical surveys

-   Seismic acquisition, processing and interpretation

-   Exploration wells Drilling

(2) Appraisal/Delineation Stage

-   Detailed Study of petroleum geology and additional seismic survey

-   Reservoir Formation Evaluation and Conceptual Development Design

(3) Development Stage

-   Construct and optimize the Field Development Plan

-   Design, construct and install production facilities

-   Drill development wells

(4) Production Stage

-   Oil and natural gas productions are controlled by the wellhead
    pressure and flow through processing facilities, including the
    production measuring equipment.

-   Petroleum production rates, proportion of produced water, pressure
    decline rate and future reservoir performance are closely monitored.

-   Well work-over and facilities maintenance are regularly performed to
    improve the petroleum production performance.

PTTEP is ready in terms of manpower, technology and equipments to run
the business efficiently according to the company’s target.

4.4.2 Petroleum Reserves

Petroleum Reserves can be divided into 2 categories according to the
level of confidence, which are Proved Reserves and Unproved Reserves.
Unproved Reserves can be further divided into 2 categories which are
Probable Reserves and Possible Reserves.

(1) Proved Reserves are those quantities of petroleum which, by analysis
of geological and engineering data, can be estimated with reasonable
certainty to be commercially recoverable, from a given date forward,
from known reservoirs and under current economic conditions, operating
methods, and government regulations. Proved Reserves means the petroleum
in reservoirs that can be commercially produced, relying on supporting
data of production rate testing. In some cases, Proved Reserves obtain
from well testing and/or analyzing of source rocks in that area or the
neighboring area already produced or having tendency to be able to
produce. Moreover, Proved Reserves will be able to produce by using the
existing equipment or the equipment installed in the future.

  (2) Unproved Reserves

-   Probable Reserves are those quantities of petroleum obtained from an
    analysis of geological and engineering data as same as Proved
    Reserves but having less possibility to produce due to the
    technology, rules, or economic conditions.

-   Possible reserves are those quantities of petroleum obtained from an
    analysis of geological and engineering data as same as Probable
    Reserves but having less possibility to produce due to the
    technology, rules, or economic conditions.

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. As
of 31 December 2011, the total Proved Reserves of all PTTEP and
subsidiary’ projects are 275 Million Stock Tank Barrels (MMSTB) for
crude oil and condensate[1], and 4,529 Billion Standard Cubic Feet
(BSCF) for gas. The total Proved Reserves (Consolidated Companies) in
term of oil equivalent is 969 Million Barrels (MMBOE).

4.4.3 PTTEP Petroleum Production

In 2011, the total production of PTTEP and its subsidiaries is 110.0
MMBOE or equivalent to the production rate of approximately 301,367
Barrels of Oil Equivalent per Day (BOED), approximately 2,656 BOED or
0.87% decrease from last year. The production decrease was attributed to
the unexpected inundation in the Northern and Central region of Thailand
in the fourth quarter of 2011, resulting in lower oil production from
Thailand Onshore fields as well as lower gas nominations from gas
projects in the Gulf of Thailand and the Gulf of Martaban due to lower
demand. However, these production decreases were offset by 2 new
overseas projects, namely Canada KKD Oil Sands and Vietnam 16-1 projects
that were put on production in 2011.

4.5 Environmental Impact

An effective environmental management system is developed and
implemented for petroleum exploration and production operations to
minimize the following potential environmental impacts.

(1) Impacts on land use and marine organisms during seismic surveys from
    sound vibrations.

(2) Water and soil contamination from discharges of drilling fluids,
    produced water, releases of sludge, contaminated solid wastes,
    accidental spills of hydrocarbons (oil and condensate) during
    drilling and production activities in to the environment, and
    accidental chemical spills..

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

Currently, the mitigation and monitoring of the above environmental
impacts are controlled and regulated by local government agencies. In
Thailand there are two main agencies: the Department of Mineral Fuels,
Ministry of Energy which plays a major role in regulating environmental
impacts from exploration and production companies; and the Office of
Natural Resources and Environmental Policy and Planning (ONEP), Ministry
of Natural Resources and Environment which issues directives and
approvals for organizations to conduct environmental impact assessments
and prior to the commencement of exploration and production projects.

In effort to reduce environmental impacts, PTTEP introduced and
implemented, with continuous improvement and monitoring, the following
environmental initiatives below:

(1) Implementation of the ISO14001:2004 Environmental Management System
    (EMS) Standard by PTTEP’s domestic operational projects: In
    accordance with the ISO14001 requirements, an environmental
    management system should be in compliance with company policy and
    standards, national legislations, and other national and
    international standards/requirements to prevent environmental
    pollution and degradation, promote energy conservation, and ensure
    the improvement of company performance. As a result, PTTEP is the
    first petroleum exploration and production company in Thailand and
    in the Southeast Asian region to achieve the ISO14001 Certification.

(2) Study of environmental impact assessment prior to commencing new
    exploration and production projects, which is legally required to
    ensure that the environmental mitigation and monitoring programs are
    in place in order to minimize environmental impacts arising from
    operations for both domestic and international projects. A
    compliance audit for EIA monitoring and mitigation is also conducted
    for each project during each phase to ensure that the environmental
    programs issued in the environmental impact assessment are
    implemented and up to standards.

(3) Re-injection of produced water (wastewater that is 'produced' to the
    surface from hydrocarbon reservoir along with the oil and gas) into
    subsurface reservoirs to ensure no overboard discharging which might
    affect the environment.

(4) Monitoring of discharged wastewater quality from production process,
    seawater quality, sediment quality, benthos, and ground fish with
    habitats around the vicinity of the operation platform to ensure the
    limited exposure to environmental hazard.

(5) Recovery of flare gas to generate electricity and reprocess in the
    system.

(6) Oil Spill Response Plan: oil spill equipments and response plans are
    provided to ensure environmentally sound operations from any oil
    spill incident Tier 1 (<20 tonnes). PTTEP also registered as a
    member in the Oil Industrial Environmental Safety Group (IESG) for
    Tier 2 oil spill response incident (20-1000 tonnes). As for Tier 3
    oil spill response (more than 1000 tonnes), PTTEP is also a
    registered member of the EARL /OSRL (East Asia Response Limited/ Oil
    Spill Response Limited). Concerning the spill case of the Montara
    Oil Field in Australia, PTTEP coordinated with EARL in Singapore in
    compliance to the oil spill response plan for Tier 3 to mitigate
    environmental impacts and implement remedial actions which has been
    authorized by the Australian Government.

(7) Provision of appropriate technologies for waste management system
    (disposal, storage, treatment, and transport) for hazardous and
    non-hazardous wastes (e.g. mercury contaminated waste, oil
    contaminated wastes, chemical wastes, and other wastes from
    production process) for environmental impact abatement. PTTEP also
    complies with the Basel Convention for the transportation and
    disposal of mercury contaminated wastes, and mercury wastes as well
    as local legislations & requirements concerning waste management.
    PTTEP also complies with company standards and procedures on waste
    management control, monitoring and storage.

(8) PTTEP promotes and strengthen safety, security, health and
    environmental (SSHE) awareness and culture for all staff including
    top management via training, conference, SSHE monthly bulletins and
    SSHE games and activities within the organization.  Throughout the
    past years, PTTEP has made every possible attempt to ensure that our
    operations do not result in harmful events to either people or the
    environment. This is the foundation of our SSHE Management System
    (SSHE MS), which was adapted from the OGP (International Association
    of Oil and Gas Producers) that stipulates that risk assessment of
    all activities must be carried out and adequate control systems be
    implemented to reduce the risks to the As Low As Reasonably
    Practicable (ALARP). This effort also complies with the relevant
    legislation, regulations, and the international industry guidelines
    for the development and application of our SSHE MS. PTTEP SSHE MS
    also contains our SSHE Standards, which outline the development of
    specific work procedures for all work activities.  Implementation of
    the SSHE MS has resulted in a continual improvement of the Company
    SSHE performance during the past years.

The PTTEP SSHE MS consists of 7 key elements as shown below:

1)  Leadership and commitment

2)  Policy and strategic objectives

3)  Organization, resources and documentation

4)  Evaluation and risk management

5)  Implementation and operational control

6)  Monitoring and measurement

7)  Audit and review

(9) Promotion of the program “Step Change in SSHE” In Q2-2011, an
    initiative called "Step Change in SSHE" was introduced in PTTEP. The
    prime objective of the initiative is to move our SSHE performance
    towards SSHE Excellence by the enforcement of the SSHE MS and
    strengthening of our SSHE culture.

The objective is to become an LTI-Free organization by 2013 and an
Incident-Free organization by 2015.

There are five acts in the “Step Change in SSHE"

Act1: SSHE moment in all meetings

All meetings must kick off with a dynamic thought-provoking message
about any element of SSHE. This is made by members in rotation to share
their story to increase SSHE awareness of all PTTEP personnel.

Act2: Safe and happy workplace

This act aims to improve the promotion of a safe and happy work
surroundings which result in awareness and realization of SSHE in every
move PTTEP personnel make.

Act 3: SSHE cares, SSHE shares

This act is intended to convey care to PTTEP personnel by improving SSHE
communication through various media, including websites, exhibitions,
supporting campaigns, and other relevant activities.

Act 4: SSHE is a license to operate

Since our organization is an oil and gas organization, we cannot
tolerate any mistakes because it may jeopardize the future prosperity of
the organization. Hence, strengthening the SSHE MS is necessary.

Act 5: SSHE in mindset

SSHE is actually a part of daily life. All PTTEP personnel should have
SSHE in their sub conscious mind and act habitually both at work and
home.

(10) Provision of appropriate support and coordination with other
     exploration and production companies, government agencies, the
     Petroleum Institute of Thailand and other related
     agencies/associations, in order to encourage knowledge sharing and
     experiences with the abatement of environmental impacts and
     problems, and to allow for further continuous improvement such as
     the “Oil and Gas Decommissioning Guideline”.

(11) With regards to PTTEP’s shift towards sustainable development and
     the impact of global warming, environmental conservation, social
     development, and economic growth; PTTEP established “PTTEP
     Sustainable Development Committee” comprised of numerous top
     executives from different fields of expertise. This committee
     ensures the that all three areas of sustainable development which
     are social, economic and environmental aspect are addressed and
     incorporated into the business strategy and that PTTEP will
     continue to grow in a sustainable manner with limited impacts on
     environment, people, and society. The Committee also ensures that
     PTTEP and its stakeholders have a common understanding of PTTEP’s
     view on sustainable development, its targets, goals, policies,
     standards, guidelines and that sustainable development programs are
     communicated and implemented within the company effectively.

During the past 3 years, PTTEP has strictly complied with both Thai and
International legislations and other regulations and requirements
concerning the area of safety, security, health and environment. In
addition, PTTEP has been continuously improving its environmental
practices in maintaining, developing and reducing environmental impacts
by achieving the ISO 14001: 2004 certification for Environmental
Management System Standard from AJA Registrars LTD. Under UKAS (United
Kingdom Accreditation Service) accreditation for PTTEP’s operational
units with details as of below:

(1) Bongkot Project – with the scope of “exploration and production of
    natural gas and condensate”.

(2) S1 Project – with the scope of “exploration and production of
    petroleum”

(3) PTTEP 1 Project – with the scope of “ exploration and production”

(4) PTTEP’s Petroleum Support Base, Songkhla – with the scope of
    “Provision of logistic services to offshore oil and gas operations”.

(5) PTTEP Core Research Center – with the scope of “building management
    and maintenance service, core research center and logistic support
    for storage of core and slab samples and archive of company
    document”.

(6) Arthit Project – with the scope of “exploration and production of
    petroleum”

Consequently, PTTEP is constantly improving and developing its
Environmental Management System Standard to comply with international
standards ISO 14001 revised edition and ISO14001:2004 for all of PTTEP’s
operational units in Thailand. In 2011, PTTEP implemented the ISO 14001
one common system for all certified sites to improve the efficiency of
the environmental management system. In addition, PTTEP plans to apply
the environmental management system that complies with the ISO14001
standard for its operating units in international assets in the near
future as well as have a common ISO 14001 standard for all of PTTEP’s
operating units both domestically and internationally.

Other than the ISO14001 certification, PTTEP also received the OHSAS
18001:2007 Occupational Health and Safety Standard which specifies
requirements for an occupational health and safety management system, to
enable an organization to control its occupational health and safety
risks and improve its performance. PTTEP received this certification for
two of PTTEP’s operating sites which are the Petroleum Support Base on
October 2011 and at PTTEP1 Project on September 2011.

With regards to spill incidents in years 2009, 2010, and 2011, spills
were accounted for 1.19, 1.63 and 0.54 tonnes per million tonnes of
production respectively, excluding the spill case of the Montara Field
in which if it were to be included in the year 2009, the spill rate will
account for 318.75 tonnes per million tones of production. Concerning
the spill case in the Montara Field, PTTEP undertook immediate response
and had already implemented mitigation and corrective measures as was
approved by the Australian Government. Currently, PTTEP is conducting an
investigation on the incident. From these figures, it indicates that the
level of spillage in the year 2011 is within estimated target which is
approximately 4.00 tonnes per million tonnes of production and is also
lower than the average spill rate of the International Association of
Oil and Gas (OGP) in years 2010 with spill rates of 20.03 tonnes per
million tonnes of production respectively.

PTTEP is committed to its SSHE policy where it focuses on minimizing
negative impacts on personnel, and properties (both of the company and
contractors) with numerous indicators such as PTTEP’s Lost Time Injury
Frequency (LTIF) rate or the number of lost time injuries per one
million (1,000,000) hours, where for the setting target of 2011 is at
0.63 and the tendency of LTIF rate was reduced from 0.81 in 2009, 0.63
in 2010 and 0.38 in 2011 respectively. Fortunately,
in 2011, there were no fatal accidents reported in PTTEP.

Although the company’s LTIF rate in the past 3 years presented our
continuous improvement in our SSHE management system, PTTEP still took
immediate response action and investigation into the root of the problem
to create preventive action plans in the affected areas.

In response to PTTEP’s rapid growth in terms of investment, operations
and company size in recent years, in 2011 there were numerous SSHE
aspects that PTTEP endorsed. PTTEP consistently cultivates a strong
uniform SSHE culture across the organization by implementing the
campaign “Step Change in SSHE” as mentioned earlier, to reinforce staff
awareness by stressing the importance of behavior based safety (BBS)
with the aims of improving the frequency and openness of SSHE
communication at all organizational levels by influencing the behavior
of personnel through observation, communication and feedback process; as
well as setting the target for zero lost time incident by year 2013. The
implementation and improvement of the SSHE Management System was
reinforced in all areas and operational units of the company both
domestic and international units alike, to encourage same standard
practice throughout the company. Response plans and strategies were also
endorsed to minimize, eliminate accidents and lost time injury for all
aspects of the organization with an ultimate goal of zero injury.

As part of PTTEP’s commitment to protect and conserve the environment,
PTTEP has increased its domestic assets’ spending on environmental
improvement programs by 116.3 million Thai Baht to 188.3 million Thai
Baht to 133.4 million Thai Baht for the years2009, 2010 and 2011
respectively.

According to the Kyoto Protocol under the United Nations Framework
Convention on Climate Change (UNFCCC), it is not mandatory for Thailand
to reduce green house gases as much as Annex I countries (since Thailand
does not belong to this group). However with PTTEP’s commitment to
sustainable development, PTTEP is voluntarily encouraging green house
gas emissions reductions in its operations through Clean Development
Mechanism (CDM) and other projects that have economical and
environmental opportunities.

The development of “Flare Gas Recovery” Project which is located at the
Saotien A in Sirikit Field situated in the Sukhothai province helped
further facilitate the utilization of flare gas by using the Clean
Development Mechanism (CDM) approach as a basis for operation in the S1
project area as it is estimated to be economically viable with an
initial approximation of carbon dioxide reduction emission of up to at
least 31,000 tonnes of carbon dioxide per year.

[1] Included the Proved Reserves of LPG and Bitumen