13. Significant Financial Information

Since January 1, 2011, PTTEP has determined the USD to be our functional
currency in accordance with Thai Accounting Standard No. 21 (revised
2009) “The Effects of Changes in Foreign Exchange Rates”. However, in
submission of our financial statements to the Stock Exchange of Thailand
and the Department of Business Development, the Company is also required
to convert the financial statements from USD to the presentation
currency, which is THB.

Summary of Financial Information

[]

[]

[]

[]

[]

Summary significant financial ratio table

[]

14. Management Discussion and Analysis of Operating Results

1.  Executive Summary

During the first half of the year, crude oil traded in a narrow price
range averaging USD 105 per barrel. Crude oil prices peaked at USD 111
per barrel in June due to the concerns over violence in the Republic of
Iraq (Iraq) and the State of Libya (Libya), but began a rapid decline
during the third quarter as a result of increased shale oil production
in the United States of America and lower than expected economic growth
figures in the Europe, the People's Republic of China (China) and Japan.
Moreover, OPEC’s decision not to decrease production spawned concerns of
oversupply leading to increased downward pressure on prices. During the
fourth quarter, oil prices reached a five-year low, and averaged USD 74
per barrel, resulting in the full year average Dubai crude oil price of
USD 96.64 per barrel, lower than the previous year’s average of USD
105.4 per barrel.

Thailand’s economy in 2014 is expected to have grown by 0.8% due to
political events during the beginning of the year. As the political
situation eased in the middle of the year, the economy began a gradual
and continuous recovery, and domestic consumption increased
respectively. The Ministry of Energy estimated domestic energy demand
from January to November 2014 to have averaged 2.05 Million Barrels of
Oil Equivalent per Day (MMBOED); a 1.93% increase over the same period
last year.

The weak oil price environment during the second half of 2014 had a
slight impact on PTTEP’s core performance. This is because natural gas
volume, which represents a majority of the Company’s product, is subject
to pricing formula that is only 30 - 50% indexed to the oil price and is
adjusted on a three-month to one-year basis based on past oil prices;
the impact from the recent decrease in oil prices has therefore a
relatively subdued impact on PTTEP’s 2014 natural gas prices. In respect
of crude oil and condensate, PTTEP has hedged, to a certain extent, its
liquid product prices which are directly affected by oil price
volatility. Nonetheless, as a result of the lower oil price outlook and
in compliance with international accounting standards, PTTEP has
conducted re-assessments on the asset values based on revised price
projections. As a result, per the accounting standards, during the
fourth quarter of 2014, PTTEP recognized non-cash impairment charges
amounting to USD 997 million.

The result of the business for the year ended 2014, PTTEP and its
subsidiaries had a net income of USD 677 million, a decrease of USD
1,170 million or 63% when compared to the net income for the year ended
2013 of USD 1,847 million. The decrease was primarily due to the
recognition of impairment loss of assets in PTTEP Australasia Project
and Mariana Oil Sands Project and the increases of depreciation,
depletion and amortization expenses and exploration expenses. However,
the Group recorded a decrease in income tax expenses and an increase in
sales revenues as a result of increase in average sales volume to
321,886 barrels of oil equivalent per day (BOED) (2013: 292,629 BOED),
while the average petroleum sales price decreased to USD 63.38 per
barrels of oil equivalent (BOE) (2013: 65.58 per BOE).

  ------------------------------- ----------- -------------- -------------
  (Unit : Million USD)            2014        2013           % Inc. (Dec.)
                                              (Restated)     YTD

  Total Revenue                   8,017       7,445          8

  Sales Revenue                   7,496       7,172          5

  EBITDA                          5,295       5,168          2

  Profit for the period           677         1,847          (63)

  Diluted earnings per share      0.16        0.46           (65)
  (USD)                                                      

  Profit from normal operation    1,538       2,114          (27)

  Gain (loss) from non-recurring  (861)       (267)          >(100)
  items                                                      
  ------------------------------- ----------- -------------- -------------

14.2 Financial Performance

Average Sales Volume

[]

14.2.1 Summary of Operating Results segregated by segments

+------------------------------+-----------+-------------+------------+
| Average selling price and    | 2014      | 2013        | % Inc.     |
|                              |           | (Restated)  | (Dec.) YTD |
| Dubai crude oil price (Unit  |           |             |            |
| : USD)                       |           |             |            |
+------------------------------+-----------+-------------+------------+
| Average selling price (/BOE) | 63.38     | 65.58       | (3)        |
+------------------------------+-----------+-------------+------------+
| Average Dubai crude (/BBL)   | 96.60     | 105.52      | (8)        |
+------------------------------+-----------+-------------+------------+

+--------------------------------+-----------+-----------+-----------+
| Net income (loss)              | 2014      | 2013      | % Inc.    |
|                                |           |           | (Dec.)    |
| (Unit : Million USD)           |           | (         |           |
|                                |           | Restated) | YTD       |
+--------------------------------+-----------+-----------+-----------+
| Exploration and production     | 471       | 2,080     | (77)      |
+--------------------------------+-----------+-----------+-----------+
| Thailand                       | 1,498     | 1,872     | (20)      |
+--------------------------------+-----------+-----------+-----------+
| Overseas                       | (1,027)   | 208       | >(100)    |
+--------------------------------+-----------+-----------+-----------+
| - Other Southeast Asia         | 289       | 276       | 5         |
+--------------------------------+-----------+-----------+-----------+
| - Australia                    | (599)     | 20        | >(100)    |
+--------------------------------+-----------+-----------+-----------+
| - America                      | (657)     | (37)      | >(100)    |
+--------------------------------+-----------+-----------+-----------+
| - Africa                       | (82)      | (58)      | (41)      |
+--------------------------------+-----------+-----------+-----------+
| - Middle East                  | 22        | 7         | >100      |
+--------------------------------+-----------+-----------+-----------+
| Pipeline transportation        | 298       | 229       | 30        |
+--------------------------------+-----------+-----------+-----------+
| Head office and others         | (92)      | (462)     | 80        |
+--------------------------------+-----------+-----------+-----------+
| Total                          | 677       | 1,847     | (63)      |
+--------------------------------+-----------+-----------+-----------+

14.2.2 Year to Year Comparison of the Results of Operations

  1) Overall Results of Operation

For the results of operation for year ended 2014, PTTEP and its
subsidiaries had a net income of USD 677 million (earning of USD 0.16
per share-diluted), a decrease of USD 1,170 million or 63% when compared
with the net income for the year ended 2013 of USD 1,847 million
(earning of USD 0.46 per share-diluted). The decrease was primarily due
to the recognition of impairment losses of assets in PTTEP Australasia
Project, and Mariana Oil Sands Project of USD 997 million as well as the
increment in depreciation expenses of USD 926 million due to the higher
completed assets and production volume of PTTEP Australasia Project
which began its offload crude oil sales in August 2013 and had
recognized full year sales in 2014. In addition, the depreciation
expenses were increased from the commencement of domestic gas sales in
March 2014, and export gas sales in August 2014 from Zawtika Project and
from the higher completed assets and production volume of Contract 4
Project. Moreover, there was an increase in the exploration expenses of
USD 161 million due to the exploratory well write-off expense in PTTEP
Australasia, Kenya L10 A and L28/48 projects. However, a decrement in
income tax expenses of USD 421 million were primarily from lower
petroleum income taxes as a result of lower net petroleum income and
from a reduction in income tax expenses affected by the functional
currency as a result of the less depreciation of THB against USD.

However, the revenue from sales were increased by the amount of USD 324
million due to an increment in average sales volume of 321,886 BOED
(2013: 292,629 BOED) primarily from full year sales in 2014 of PTTEP
Australasia (began its first oil sales in August 2013) and from Zawtika
Project which commenced its domestic gas sales in March 2014 and export
gas sales in August 2014. The revenue from sales also increased from
acquiring additional 15% in participating interests of Contract 4
Project, while the average petroleum sales price decreased to USD 63.38
per Barrels of Oil Equivalent (BOE) (2013: 65.58 per BOE).

For the year ended 2014, the Group reported loss from non-recurring
items in the amount of USD 861 million, an increase in loss of USD 594
million when compared with the year ended 2013 that reported losses from
non-recurring items in the amount of USD 267 million. The increase in
loss from non-recurring items were primarily due to the recognition of
impairment losses of assets in PTTEP Australasia Project, and Mariana
Oil Sands Project of USD 997 million while the Group had recognized a
gain on financial derivatives from oil price hedging of USD 197 million
due to the market price as of December 31, 2014 gone below the price
hedging level. In addition, income tax expenses affected by the
functional currency for the year ended 2014 decreased when compared to
the year ended 2013 due to less depreciation of THB against USD.

  2) Results of Operation by Segments

Net income for the year ended 2014 decreased in the amount of USD 1,170
million or 63% to net income of USD 677 million when compared with the
net income for the year ended of 2013 of USD 1,847 million. The decrease
in net income was primarily due to the decrease in net income from the
exploration and production segment of USD 1,609 million or 77%, while
the head office and others segments had a decrease in net loss of USD
370 million or 80%.

  2.1) Exploration and Production Segment

  2.1.1) Thailand

Net income for the year ended 2014 decreased in the amount of USD 374
million or 20% to net income of USD 1,498 million when compared with the
net income for the year ended 2013 of USD 1,872 million. The decrease in
net income primarily due to an increase in depreciation, depletion and
amortization of Contract 4 Project, which were in lined with the
increases in production volume and completed assets. In addition, the
decrease in net income resulted from decrease in sales revenue due to
the reduction in oil price. However, the Group’s income tax expenses
were decreased due to lower petroleum income taxes and lower income tax
expenses affected by the functional currency, as a result of the less
depreciation of THB against USD.

  2.1.2) Overseas

The Group reported net loss for the year ended 2014 of USD 1,027
million, a decrease of net profit of USD 1,235 million or a decrease
over 100% when compared to the net profit for the year ended 2013 of USD
208 million. The decrease in net income was primarily due to an increase
in net loss from Australia segment and America.

Australia reported a net loss for the year ended 2014 of USD 599
million, a decrease of income amount of USD 619 million when compared
with the net income for the year ended 2013 of USD 20 million. Although
the sales revenue of PTTEP Australasia Project was recognized full year
in 2014 (began its offload crude oil sales in August 2013), resulted in
higher sales revenue compared to year ended 2013, its depreciation,
depletion and amortization was also much higher from the additional
completed asset and higher production volume. Furthermore, PTTEP
Australasia had recognized a loss on impairment of assets as a result of
the decrease in the crude oil price. The operating expense also
increased mainly due to the increase in production volume and the excess
cost incurred from drilling H5 development well.

The America reported a net loss for the year ended 2014 of USD 657
million, an increase in net loss of USD 620 million or increased over
100% when compared with the net loss for the year ended 2013 of USD 37
million. This was primarily due to the recognition of impairment loss of
assets due to a decrease in crude oil price which resulted in the
revision of the production plan.

  2.2) Head office and Other Segments

Head office and other segments reported a net loss for the year ended
2014 of USD 92 million, a decrease in net loss of USD 370 million or 80%
when compared with the net loss for the year ended 2013 of USD 462
million. The decrease in net loss was primarily resulted from the
recognition of gains of USD 197 million on financial derivatives from
oil price hedging due to the market price as of December 31, 2014 gone
below the price hedging level. In addition, the decrease of net loss was
resulted from the decrement in loss from foreign exchange as well as the
reduction of the income tax expenses affected by the functional currency
for the year ended 2014 compared to the year ended 2013 due to less
depreciation of THB against USD.

14.2.3 Financial Position

[]

  1) Assets

As at December 31, 2014, PTTEP and its subsidiaries had total assets in
the amount of USD 23,290 million (equivalent to THB 767,725 million), an
increase of USD 1,718 million when compared with the total assets as of
December 31, 2013 of USD 21,572 million (equivalent to THB 707,868
million), primarily due to;

1.1) Increases of USD 1,480 million in current assets which primarily
comprise of cash and cash equivalent, account receivable – parent
company, and materials and supplies, were primarily from an increase in
cash and cash equivalent of USD 1,579 million, while account receivable
– parent company decreased of USD 250 million.

1.2) Increases of USD 238 million in non-current assets which primarily
comprise of exploration and production assets in joint venture projects
that are recognized as part of the property, plant and equipment – net,
intangible assets – net, goodwill and deferred tax assets, were from an
acquisition of shares of Hess Corporation’s subsidiaries and additional
investment in production phase projects such as Arthit, Zawtika, and
Bongkot projects. However, the Group has recognized impairment loss on
assets for PTTEP Australasia and Mariana Oil Sands projects.

  2) Liabilities

As at December 31, 2014, PTTEP and its subsidiaries had total
liabilities of USD 10,742 million (equivalent to THB 323,332 million)
which include interest bearing debt of USD 4,229 million, an increase of
USD 889 million when compared with total liabilities as at December 31,
2013 of USD 9,853 million (equivalent to THB 323,332 million), primarily
due to;

2.1) Increases of USD 247 million in current liabilities which primarily
comprise of current portion of long-term debts, accrued expenses and
income tax payable, mainly came from;

2.1.1) The current portion of long-term debts increased from a
reclassification of USD debenture in the amount of USD 700 million and
long-term loan from a financial institution of USD 50 million which will
be due within 1 year from non-current liabilities to current liabilities
coupled with the payment of THB debenture of THB 11,700 million
(equivalent to USD 360 million).

2.1.2) Decreased in income tax payable resulted from lower petroleum
income tax for the year 2014.

2.1.3) Decreased in other current liabilities, primarily from the
decrease in other accounts payable of the joint venture projects.

2.2) Decreases of USD 642 million in non-current liabilities which
primarily comprise of debentures and loans from financial institution,
deferred tax liabilities, and provision for decommissioning costs,
primarily due to;

2.2.1) Increased in provision for decommissioning costs due to higher
estimated decommissioning cost and additional production facilities and
wells. The amount was offset by;

2.2.2) Decreased in deferred tax liabilities, primarily from the
decrease in deferred tax liability of Canada Oil Sands KKD Project
(renamed as Mariana Oil Sands Project) as a result of entering into the
PURA to restructure the ownership interests in the Canada Oil Sands KKD
Project. However, the deferred tax liability was increased due to the
acquisition of share of Hess Corporation’s subsidiaries.

2.2.3) Decreased in debentures and log-term loans from financial
institutions from the reclassification of USD debenture in the amount of
USD 700 million and long term loan from financial institution of USD 50
million which will be due within 1 year from non-current liabilities to
be presented as current liabilities under the current portion of
long-term debts, net offset with the issuance of unsecured and
unsubordinated debentures of THB 19,600 million or approximately USD 600
million.

Interest bearing debts as of December 31, 2014 amounted to USD 4,229
million, carrying an average cost of debt of 4.14% per annum, with an
average loan life of 7.05 years. In terms of currency mix, 90% of
PTTEP’s interests bearing debts were denominated in USD while 10% were
denominated in Canadian Dollar. The currency mix of PTTEP’s debt is in
line with PTTEP’s asset and revenue structures, and is mainly in the USD
currency, with only a relatively small portion is in the Canadian Dollar
currency to support operations in the Mariana Oil Sands Project in
Canada. The proportion between fixed and floating interest rate debt was
77:23.

  3) Shareholders’ Equity

As at December 31, 2014, PTTEP and its subsidiaries had total
shareholders’ equity in the amount of USD 12,548 million (equivalent to
THB 413,620 million). The amount primarily comprises of share capital
and share premium, subordinated capital debentures, retained earnings
and other components of shareholders’ equity. The amount was increased
of USD 829 million when compared with the shareholders’ equity as at
December 31, 2013 of USD 11,719 million (equivalent to THB 384,536
million). The increases were primarily due to in the second quarter of
2014, the Group has issued the subordinated capital debentures in the
amount of USD 1,000 million and an increase in the retained earnings
from the net income for the year 2014 of USD 677 million which offset
with the dividend payment for the second half of 2013 and first half of
2014 operations of USD 736 million.

14.2.4 Cash Flows

[]

1) As at December 31, 2014, PTTEP and its subsidiaries had cash and cash
equivalent of USD 3,936 million, an increase of USD 1,579 million when
compared to cash and cash equivalent as at December 31, 2013 of USD
2,357 million. Source of cash receipts of USD 6,319 million primarily
came from;

1.1) Net cash received from operating activities as a result of net
positive cash flows from revenue from sales, offset with cash payments
for expenditures and income tax expenses.

1.2) Net cash received from the restructuring of the ownership interest
in Canada Oil Sands KKD Project (renamed as Mariana Oil Sands Project)

1.3) Cash received from the issuance of subordinated capital debenture
and THB debenture.

2) Source of cash payments made of USD 4,740 million primarily due to;

2.1) Increase in net cash used in investment activities for the
exploration and production assets and intangible assets, primarily from
an investment in Zawtika, Arthit and Bongkot projects.

2.2) Dividend payments for the six months period for the second half of
2013 and six months period for the first half of 2014.

2.3) Cash used in financing activities primarily due to the repayment of
THB debenture and interest.

2.4) Cash payment for the acquisition of share of Hess Corporation’s
subsidiaries.

14.2.5 Key Financial Ratios

  -------------------------------------------- ------------- -------------
                                               2014          2013

  Profitability Ratios                                       

  EBITDA to revenue from sales                 69            71

  Return on equity                             6             16

  Net profit margin                            8             25

  Leverage Ratios                                             

  Debt to equity                               0.34          0.34

  Debt to EBITDA                               0.80          0.78
  -------------------------------------------- ------------- -------------

Remark:

  ---------------------- --- --------------------------------------------
  EBITDA to revenue from =   Profit before deduction of interest, tax,
  sales                      and depreciation to revenue from sales
                             including revenue from pipeline
                             transportation

  Net profit margin      =   Net profit to total revenue

  Return on equity       =   Net profit to weighted average shareholders’
                             equity

  Debt to equity         =   Interest Bearing Debt to total shareholders’
                             equity

  Debt to EBITDA         =   Interest Bearing Debt to profit before
                             deduction of interest, tax, and depreciation
  ---------------------- --- --------------------------------------------

14.3 Operational Highlights

As of the end of 2014, PTTEP’s domestic and international operations
altogether sum to 43 projects in 11 countries. The following are key
project highlights.

1.  Projects in Thailand

PTTEP has 17 projects in Thailand, the majority of which are projects in
the producing phase, and are located in the Gulf of Thailand and
onshore. Production operations were continuously carried out over the
course of the year to fulfill Thailand’s energy needs. The company also
expanded its domestic production capacity through its acquisition of
Hess Corporation’s 15% and 35% stakes in the Contract 4 and Sinphuhorm
projects, respectively. The Contract 4 Project is located in the Gulf of
Thailand while the Sinphuhorm Project is located onshore in Northeastern
Thailand. The acquisitions were completed in April 2014.

With regards to projects in the exploration phase, key activities during
2014 include the drilling of the NKW-N01 exploration well in Project
B6/27. The drilling made no commercial discovery, and the project
currently continues to study the petroleum geology.

2.  Projects in Southeast Asia

PTTEP has 15 projects in this region which are located in the Union of
the Republic of Myanmar (Myanmar), the Socialist Republic of Vietnam
(Vietnam) and the Republic of Indonesia (Indonesia).

Key highlights of projects in the producing phase within this region
include the Zawtika Project, which, in March 2014, began delivering
natural gas to the Myanma Oil and Gas Enterprise (MOGE) for domestic use
in Myanmar; and in August 2014, began delivering natural gas to PTT Plc.
for use in Thailand. Since then, the project, which is located offshore
in the Gulf of Moattama, was able to maintain the planned production
rate of approximately 310 million standard cubic feet per day (MMSCFD)
(approximately 47,950 Barrels of Oil equivalent per Day, BOED), and is
now in the process of constructing additional wellhead platforms to
maintain the production plateau. Additionally, during the third quarter
of 2014, a drilling campaign for additional 10 appraisal wells was
launched with an objective to prove up additional petroleum reserves and
support long term production. The drilling of these wells is expected to
complete within 2015.

The Vietnam 16-1 Project, located offshore in the southeast of Vietnam,
successfully appraised the H5 area situated in the south of the Te Glac
Trang Field (TGT) and is preparing to install a production platform to
support production from this area, with first production expected during
2015. Once comes onstream, the field will help at sustaining the overall
production level from the project. In 2014, the project produced crude
oil at an average rate of 34,000 Barrels per Day (BPD), and natural gas
at an average rate of 22 MMSCFD (approximately 5,500 BOED).

For projects in the exploration phase, important highlights include the
drilling campaign for six additional appraisal wells in the Myanmar M3
Project which commenced during the third quarter of 2014 and expect to
complete in the first half of 2015. The project is located offshore in
the Gulf of Moattama.

The exploration campaign of the PSC G and EP 2 Project, which is located
onshore in the Central Myanmar Basin, is currently studying the
geological structures and drilling the first of four planned exploration
wells.

The MOGE 3 Project is another onshore project located in the Central
Myanmar Basin. PTTEP holds an 85% interest and is the operator of this
project. Production Sharing Contract of MOGE 3 was signed in August 2014
between PTTEP South Asia Limited (PTTEP SA, a subsidiary of PTTEP) and
MOGE. The project is carrying out the Environmental Impact Assessment
(EIA) which it expects to complete in the first quarter of 2015.

3.  Project in Australasia

PTTEP has 1 project in this region which is located in the Commonwealth
of Australia (Australia) and comprises 15 concession permits.

Highlights of fields in the producing phase include the Montara Field
which produced at an average rate of 18,000 BPD during 2014. Since the
onset of the Montara Incident through to the end of 2014, PTTEP has
received total compensation claims amounting to USD 244 million from the
insurers. In relation to the claims submitted by the Government of
Indonesia seeking compensation for the oil spill from the Montara
incident, PTTEP is ready to continue discussions with the Government of
Indonesia to determine the impact (if any) using scientific evidence.

For fields in the exploration phase, notable activities during 2014
include the drilling of the Maple-East exploration well in the Cash
Maple Field, which was completed without commercial discoveries. The
project is currently undergoing geological and geophysical review,
engineering study as well as commercial assessment to determine
development concepts for the gas field.

  14.3.4 Projects in the American Continent

PTTEP has 3 projects in this region located in Canada and the Federal
Republic of Brazil (Brazil), all of which are in the exploration phase.
The following are significant activities related to PTTEP in 2014 in
this region.

The Mariana Oil Sands Project (formerly known as the Canada Oil Sands
KKD Project), in May 2014, PTTEP completed the asset swap transaction as
stipulated in the Partnership Units Redemption Agreement (PURA) with
Statoil Canada Limited (SCL) resulting in PTTEP Canada Limited (PTTEP
CA) having 100% ownership of the Thornbury, Hangingstone, and South
Leismer fields, and receiving USD 419 million in cash. The project is
currently proceeding with the Winter Delineation Campaign (WDC),
studying development plans and carrying out Pre-FEED activities for
Thornbury Phase 1.

In Brazil, during April 2014, PTTEP Brazil Investments in Oil and Gas
Exploration and Production Limitada (PTTEP BL, a subsidiary of PTTEP)
farmed-in to the Barreirinhas AP1 Project to hold a 25% interest. The
project comprises four exploration blocks called BAR-M-215, BAR-M-217,
BAR-M-252 and BAR-M-254 located in the Barreirinhas Basin, offshore to
the east of Brazil. The Brazilian government approved the transaction in
August 2014, and the project is currently undertaking the EIA and making
preparations for 3D seismic acquisition which is expected to begin in
the second quarter of 2015.

Also in Brazil, PTTEP BL acquired a 20% stake in the BM-ES-23 Project in
the Espirito Santo basin, offshore to the east of Brazil. The Brazilian
government approved the acquisition in November 2014. During 2014, the
project drilled two exploration wells, one of which discovered oil. Two
more exploration wells are planned for 2015.

  14.3.5 Projects in Africa and the Middle East

PTTEP has 7 projects in this region, located in the Sultanate of Oman
(Oman), the People's Democratic Republic of Algeria (Algeria), the
Republic of Mozambique (Mozambique) and the Republic of Kenya (Kenya).

Significant activities for projects in the development phase include
construction of production facilities and pipeline systems in the
Algeria 433a and 416b Project which is located onshore northeast of
Algeria. Production is expected to begin in the second half of 2015 with
a capacity of 20,000 BPD.

Notable activities for projects in the exploration phase include the
Second Drilling Campaign of the Algeria Hassi Bir Rekaiz Project located
onshore, in the eastern part of Algeria. In 2014, the project carried
out 2D and 3D seismic acquisition and plans to follow up with the 5 well
exploration and appraisal drilling campaign. The drilling began in the
third quarter of 2014.

The Mozambique Rovuma Offshore Area 1 Project, which is also in the
exploration phase, is a large gas project located offshore Mozambique.
In 2014, the project completed drilling five of six planned exploration
and appraisal wells, and successfully discovered an additional gas field
from the Tubarao Tigre-1 well. In the fourth quarter of 2014, the
project began drilling the Tubarao Tigre-2 appraisal well with
completion expected during the first quarter of 2015. The project
continues to advance its LNG Engineering and Construction Development
activities with first production and sales of LNG expected in 2019.

The Mozambique Rovuma Onshore Project is located onshore in the north of
Mozambique. During 2014, the project finished drilling the Tembo-1 well,
which is one of two planned exploration wells in 2014. Drilling results
for Tembo-1 are being evaluated, while the second exploration well
called Kifaru-1 was spud at the end of 2014 with completion expected
during the first quarter of 2015.

The Kenya L10A Project, located offshore Kenya, completed the Sunbird-1
exploration well which showed no commercial discoveries. Post-well
result will be used to evaluate remaining geological potential in the
area.

The Kenya L5, L7, L11A, L11B and L12 Project is carrying out geological
and geophysics studies to identify and select an exploration prospect
with a plan to drill in 2015.

  14.3.6 Portfolio Management

PTTEP continues to undertake portfolio management activities to achieve
an optimal balance between project value-added and risk management, as
well as to ensure that the Company’s long term strategic objectives can
be achieved. PTTEP consistently studies and analyses pertinent
investment factors in addition to the impact of investments, to keep
abreast of the constant changes in the social, economic, and political
landscape, and to incorporate these variables into investment
considerations and decisions. The Company also reviews its list of
target countries for expanding its investments (Focused Countries) by
grouping the countries according to petroleum potential and suitability
with the Company’s strategic directions and goals. The analysis covers
factors such as geography, government-share, operational and political
risks, as well as PTTEP’s competitive advantage.

The following are key portfolio management activities undertaken by
PTTEP in 2014:

1) The restructuring of ownership in the Mariana Oil Sands Project
(formerly known as Canada Oil Sands KKD Project) to give PTTEP the
flexibility to adjust its portfolio and the timing of its capital
expenditures, based on the current market situations, to achieve optimal
investment returns.

2) The acquisition of Hess Corporation’s subsidiaries which own
interests in natural gas projects onshore and offshore Thailand
(aforementioned) representing a strategic fit to PTTEP’s growth strategy
of adding producing assets that contribute immediate revenue stream,
accretion of volume growth and reserves and enhance the Company’s
position in Thailand.

3) The signing of the Production Sharing Contract for the Myanmar MOGE 3
Project to build upon PTTEP’s position and expand its investments in the
Union of the Republic of Myanmar.

4) The farm-in to the Barreirinhas AP1 and BM-ES-23 projects which
represent PTTEP’s first steps into Brazil, a highly prospective
hydrocarbon region.

However, in 2014, PTTEP has relinquished its rights to the L21/48
concession Block in Thailand, the Indonesia Sagari Project, the New
Zealand Great South Project, and the L10B Block in the Kenya Project.
Also relinquished during 2014, but awaiting official approval from the
Australian Government, Indonesian Government and Thai Department of
Mineral Fuels are the rights to the AC/P4 Field of the PTTEP AA Project,
the Indonesia Semai II Project, the Indonesia Sadang Project, as well as
the A4/48 and A5/48 projects in Thailand.

14.4 Sustainable Development

PTTEP’s strategic direction and long-term goals for sustainable growth
are founded on the core philosophy that addresses the following three
areas: business, society and environment. 2014 marks the first year in
which PTTEP became a listed member in the Dow Jones Sustainability Index
(DJSI) under the World Index of Oil and Gas Sector. DJSI is a family of
indices evaluating the performance of sustainable development in leading
global companies. Additionally, during 2014, PTTEP also received a
certificate acknowledging the company as a member of Thailand’s Private
Sector Collective Action Coalition against Corruption (CAC). Of more
than 360 companies who have expressed their intent to join the CAC
project, PTTEP was amongst one of 78 companies to have been certified as
having anti-corruption processes and measures in place.

PTTEP’s sustainable development operations during 2014 can be summarized
from the perspective of the three areas which make up our core
philosophy, as follows:

  14.4.1) Business

PTTEP’s business management adopts the principles of sustainability that
encompass three strategic objectives, namely, expanding production base
(Big), extending reserves life (Long), and maintaining investment
returns (Strong). PTTEP’s operations and portfolio management were
carried out in accordance to the strategic objectives as outlined in the
“Operational Highlights” section. Moreover, the Company continuously
monitors and manages its capital structure to ensure that adequate
levels of liquidity are in place to allow it to take advantage of
business opportunities that may arise under today’s volatile market
conditions.

PTTEP is committed to technology development for petroleum exploration
and production as well as cultivation of knowledge management culture
within the Company. The following are some notable activities in this
area:

1) The Company established the PTTEP Technology Center with the
objective of researching and developing technologies for petroleum
exploration and production to create value for the business. A
Technology Development Steering committee was also established to
oversee the development of various technologies.

2) Cooperation with universities and research institutions locally and
internationally such as:

-   Cooperation with KJT Enterprises in the United States to enhance
    Electromagnetic Imaging to achieve better visualizations of
    subsurface geology which can lead to more accurate analysis and
    identification of petroleum system;

-   Cooperation with Hitachi Zosen, a Japanese Engineering firm, on the
    development of CO₂-to-Methane conversion technologies which are
    aimed at reducing CO₂ emissions while maximizing its benefits;

-   Cooperation with Kasetsart University’s Faculty of Engineering on
    the development of Remotely Operated Vehicles (ROV) and Autonomous
    Underwater Vehicle (AUV) to increase local capabilities in
    technological innovation and reduce dependency on expensive foreign
    technology.

  14.4.2) Social

PTTEP is dedicated to carrying out its business operations with
responsibility to society, and recognizes its stakeholders in areas
where it operates. In 2014, PTTEP engaged in the following noteworthy
CSR activities:

1) The PTTEP Teenergy Camp to create awareness amongst youths nationwide
of the importance of conserving the Khao Yai National Park and to
instill a sense of environmental awareness. PTTEP realizes the
importance of the roles that local communities play in environmental
conservation.

2) Dissemination of local curricula for elementary and high schools such
as a local curriculum about tigers for schools surrounding the Huai Kha
Kaeng forest, and a curriculum about the conservation of Irrawaddy
Dolphins for 14 schools surrounding the upper Songkhla Lake area.

3) PTTEP GREEN UP activities to promote management and employee
participation in social and environmental responsibilities activities.
In 2014, a total of 2,436 management and employees joined the campaign.

4) Learning Centers in cooperation with local fishing communities and
the Institute of Aquaculture in Songkhla to promote the breeding and
nursing of crab species back into the ecosystem.

5) Scholarship programs in areas where PTTEP operates such as
Suphanburi, Phitsanulok, and Kampaeng Phet. In 2014, PTTEP granted over
1,000 scholarships.

6) Education, Health & Hygiene, and Social Development projects for the
communities and societies in the Union of the Republic of Myanmar such
as, providing continuous scholarship grants up to undergraduate studies,
parasite free schools, classroom buildings, potable water, hygienic
toilets, and communal electricity infrastructure.

7) Social Development projects in Indonesia such as the pre-school
center for child development project (SIOLA), the health center project
(PTTEP LKC DD) and scholarship grants projects (PTTEP-Beastudi Etos).

14.4.3) Environment

PTTEP has an environmental management system which encompasses a
project’s entire life cycle, and is a subset of PTTEP’s Safety,
Security, Health and Environment Management System (SSHE MS). In 2014,
PTTEP had a Lost Time Injury Frequency (LTIF) score of 0.22, and a Total
Recordable Incident Rates (TRIR) score of 1.30. The Company performs
better than average on both safety performance indicators, in comparison
to the members in the International Association of Oil and Gas Producers
(IOGP).

Moreover, PTTEP aims to become a Low carbon footprint organization, and
has set a goal to reduce its greenhouse gas (GHG) emissions by not less
the 20% in the year 2020 versus its 2012 base year figure. In 2014,
PTTEP reduced its greenhouse gas (GHG) emissions by 5.1% below its 2012
levels. Notable activities in this area during 2014 include the
following:

1) Reforestation Campaign to plant 200,000 rais of forest between 2013
and 2020, carried out together with the Department of Forestry, the
Department of National Parks, and the Department of Marine and Coastal
Resources.

2) Reforestation project to promote the study of ecological systems in
the Si Nakhon Khuean Khan park in Bang Ka Chao, Samut Prakarn. The
reforestation will create a learning center about natural ecosystems and
also create a green area in the heart of the city, following the royal
initiative of Her Royal Highness Princess Maha Chakri Sirindhorn. The
project also includes renovating and maintaining nature trails and
facilities including learning center classrooms for visitors.

3) Participation in Thailand’s Voluntary Emission Reduction Program
(T-VER) in the field of Sustainable Forestation, to support the
voluntary participation in the carbon market initiative in Thailand, and
encourage carbon dioxide emissions reduction, increased oxygen
production and air pollution absorption.

In addition, PTTEP has also engaged in other environmental activities
such as the signing of a Memorandum of Understanding with the Training
Department of the Southeast Asian Fisheries Development Center, King
Mongkut’s University of Technology North Bangkok, Kasetsart University’s
Research and Development Institute, and the institute of Marine Science
of Burapha University, to develop ROV for environmental survey and
research of marine life and habitat. This joint cooperation marks the
first time that technology is being developed for environmental purposes
in Thailand.

14.5 Business Outlook for 2015

Based on the operating plans, PTTEP expects sales volume in 2015 to grow
approximately 6% year-on-year (yoy), primarily from realizing a full
year’s volume of natural gas sales from the Zawtika Project which began
production during 2014, as well as realizing a full year’s volume from
the acquisition of Hess Thailand which was completed during the first
half of 2014, and also from the expected start-up of oil production from
the Algeria 433A & 416B Project during the second half of 2015.

The price of crude oil is an important driver to PTTEP’s operating
performance, and PTTEP expects price volatility in crude oil markets to
continue in 2015. During the first half of the year crude oil prices
could continue to face downward pressure from market oversupply of
approximately 1.5 – 2.0 million BPD with no suggestion of OPEC reducing
their crude oil production. This environment is expected to result in
low crude oil prices during the first half of the year.

During the second half of the year, however, the industry could see
positive factors on prices stemming from crude oil supply which is
expected to grow at a slower pace as oil producers reduce their
investments to cope with changes in the oil price and global crude oil
demand which is also expected to pick up as the global economy recovers.
The IMF forecasts that world GDP growth in 2015 will be 3.5%, which is
higher than the expected 3.3% growth rate in 2014. Moreover, the
reduction in oil prices will increase the buying power of consumers; and
the combined effects are expected to result in a slight increase of
future demand. There are, nonetheless, other factors to monitor that may
have an impact of crude oil prices during 2015, such as geopolitics and
unrest in Africa, particularly the violence in Libya. Additionally, if
the outcome of nuclear negotiations between Iran and the G6 is
successful, Iran may once again export crude oil to the world markets.

The Thai economy in 2015 is expected to gradually recover, but the rate
of recovery risks being lower than previous estimates due to public and
private spending power. Household debt and exports are both affected by
the slow recovery of the Eurozone, Japan and Asia. Tourism is expected
to be the engine of growth in 2015. However, there is also a possibility
that the government will accelerate its fiscal disbursements while
private household consumption and private sector investment could
recover supported by lower energy prices. These factors may drive
economic growth to 4.0% and subsequently result in increased energy
demand versus 2014.

The continuous decline of crude oil prices in 2015 will continue to
impact PTTEP’s performance. Although PTTEP’s main product is natural
gas, PTTEP’s natural gas prices are expected to begin reflecting the
impact of the oil price decline since late 2014, albeit to a lesser
magnitude. With respect to PTTEP’s crude oil and condensate products,
the Company maintains its risk management policy to hedge the oil price
volatility using derivatives referenced to Brent crude oil prices.

The Company continuously monitors global economic conditions, events and
factors which may impact crude oil prices, and undertakes preparations
to cope with volatility through efficient financial management. As a
result, PTTEP has created a robust capital structure with low gearing
and high liquidity which is reflected in its cash on hand of
approximately USD 4 billion at the end of 2014. In addition, PTTEP
simulates scenarios with crude oil prices at various levels to generate
mitigation plans which will be implemented if such scenarios pan out.
PTTEP has adjusted its strategic and operating plans to allow for
flexibility in business operations and investments by prioritizing its
expenditures as follows:

-   Producing projects will continue to produce, and their production
    rates will be maintained in order to avoid negative impacts to
    domestic petroleum demand;

-   Projects in the development phase will be reassessed, and their
    investment plans will be adjusted accordingly to allow for
    flexibility in coping with the oil price environment;

-   High risk exploration projects and those without commitments will be
    deferred as necessary.

Last but not least, PTTEP has a roadmap called “SAVE…to be SAFE” aimed
at achieving cost efficiencies in both the short run and long run. An
integral part of our plan is to promote a culture of cost consciousness
where resources are sensibly consumed.