12. Financial Position and Result of Operation

12.1 Auditor and Significant Accounting Policies

  12.1.1 Auditor

PTTEP has appointed Office of the Auditor General, as the external
auditor of the Company and subsidiaries the appointment has been
approved by the Office of Securities and Exchange Commission and has
also been approved by the annual General Shareholders’ meeting.  In 2005
the Company and subsidiaries agreed to pay audit fee Baht 2.85 million
and non-audited fee Baht 0.31 million. The audit fee charged for PTTEP
was Baht 0.9 million.  

  12.1.2 Summary Auditors’ Report in the past 3 years

The auditor expressed clean opinion in the Auditors’ Report in the past
3 years and expressed the additional opinion are as follows:

(1) Assets, liabilities and expenses of the joint venture have not been
    audited by the Company’s auditor however they have been audited by
    the joint ventures’ auditors.

    (2) The Group recorded a provision of decommissioning costs for the
    year 2003. A provision is recognized, and provided at the onset of
    production of the project, for the estimate of the eventual costs
    that relate to the removal of the production facilities. These costs
    were included as part of the oil and gas properties and were
    amortized based on proved reserves on a unit of production basis.

  12.1.3 Significant Accounting Policies

(1) Basis for Preparation of Financial Statements

The consolidated and the Company financial statements have been prepared
in accordance with Generally Accepted Accounting Principles in Thailand
under the Accounting Act B.E. 2543, being those Accounting Standards in
Thailand endorsed under Accounting Professions Act B.E. 2547, and the
financial reporting requirements of the Securities and Exchange
Commission under the Securities and Exchange Act. B.E. 2535.

The Company presents financial statements in compliance with
notification of Department of Commercial Registration dated September
14, 2001 under the third paragraph of section 11 of Accounting Act B.E.
2543.

  Since 1998, the Group has applied International Accounting Standard 12
  “Income Taxes”.

The consolidated and the Company’s financial statements are use of
estimates and assumptions that affect the assets, liabilities, revenues
and expenses reported in the financial statements. While the Group uses
its best estimates and judgments, actual results could differ from these
estimates as future confirming events occur.

The consolidated and the Company’s financial statements have been
prepared under the historical cost convention except as disclosed in the
accounting policies below.

  ( 2) Subsidiary Undertakings

Subsidiary undertakings, which are those entities in which the parent
company in the Group has an interest of more than one half of the voting
rights and has power to exercise control over subsidiaries’ financial
policies and operations. Subsidiaries are consolidated from the date on
which control is transferred to the parent company and are no longer
consolidated from the date that control ceases. All intercompany
transactions, balances and unrealized gains on transactions between the
Group are eliminated; unrealized losses are also eliminated unless cost
cannot be recovered.

Where necessary, accounting policies for subsidiaries have been changed
to ensure consistency with the policies adopted by the Group.

  3) Associated Undertakings

Investments in associated undertakings are accounted for by the equity
method of accounting. These are undertakings over which the Group
generally has between 20% and 50% of the voting rights, and over which
the Group has significant influence, but which it does not control.

Unrealised gains on transactions between the Group and its associated
undertakings are eliminated to the extent of the Group’s interest in the
associated undertakings; unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the asset
transferred. The Group’s investment in associated undertakings includes
excess on acquisition.

Equity accounting is discontinued when the carrying amount of the
investment in an associated undertaking reaches zero, unless the Group
has incurred obligations or guaranteed obligations in respect of the
associated undertaking.

(4) Joint Ventures

The Group’s interest in jointly controlled entities are accounted for by
proportionate consolidation. Under this method the Group includes its
share of the joint ventures’ individual income and expenses, assets and
liabilities in the relevant components of the financial statements.

The Group’s interest in jointly controlled assets are accounted for by
proportionate consolidation. Under this method the Group includes its
share of the assets, liabilities and expenses based on Joint Operating
Agreement in the relevant components of the financial statements.

(5) Related Parties

Enterprises that directly, or indirectly, through one or more
intermediaries, control, are controlled by, or are under common control
with, the Company, including holding companies, subsidiaries, follow
subsidiaries and associates are related parties of the Company.

In considering each possible related party relationship, attention is
directed to the substance of the relationship, and not merely the legal
form.

(6) Foreign Currency Transactions

Foreign currency transactions are translated into Baht at the exchange
rates ruling on the transaction dates. Monetary assets and liabilities
denominated in foreign currency remaining at the year-end date are
translated into Baht at the average buying and selling rates,
respectively, as determined by the Bank of Thailand. Such gains or
losses are recognized as revenues or expenses in the period in which
they occur.

The monetary assets and liabilities of subsidiary companies are
translated into Baht using average buying and selling rates determined
by the Bank of Thailand at year-end, whereas the income statement is
translated using the exchange rates ruling on the transaction dates.
Gains or losses from such translation are recognized as revenues or
expenses in the period in which they occur.

The assets and liabilities of overseas jointly controlled entities are
translated into Baht using average buying and selling rates determined
by the Bank of Thailand at year-end, whereas the income statement is
translated using average exchange rates during the period. Differences
from such translation have been shown under the caption of “Currency
Translation Differences” in shareholders’ equity.

  (7) Cash and Cash Equivalents

Cash and cash equivalents comprise cash on hand and at banks, and other
short-term highly liquid investments with maturities within 3 months.

(8) Trade Accounts Receivable

Trade accounts receivable are carried at anticipated realizable value.
An estimate is made for doubtful receivables based on a review of all
outstanding amounts at the year end. Bad debts are written off during
the year in which they are identified.

  (9) Inventories

Inventories are valued at the lower of weighted average cost or net
realizable value. Cost is determined by the weighted average method. Net
realizable value is the estimated selling price in the ordinary course
of business, less the costs of completion and selling expenses.

  (10) Materials and Supplies

Materials and supplies are valued on the average cost basis. Allowances
have been provided for obsolete and unserviceable items.

  (11) Borrowing Costs

Interest costs on borrowings to finance the construction of property,
plant and equipment are capitalized, during the period of time that is
required to complete and prepare the asset for its intended use. All
other borrowing costs are expensed.

  (12) Property, Plant and Equipment

  General properties

Property, plant and equipment are presented at cost, after deducting
accumulated depreciation and provision for impairment of assets.

Depreciation of general properties is determined on the straight-line
method at rates ranging from 5% to 20% per annum.

Oil and Gas Property

The Company follows the Successful Efforts Method in accounting for its
oil and gas exploration and production activities as follows:

Cost of Properties

Cost of properties comprising total acquisition costs of concession
right or the portion of costs applicable of properties as well as the
decommissioning costs.

If exploratory wells establish proved reserves, and are included in the
plan to develop in the near future, exploratory drilling costs (both
tangible and intangible) are initially capitalized otherwise the related
costs are charged as expenses.

Exploratory costs, comprising geological and geophysical costs as well
as are reservation fees during the exploration stage, are charged to
expenses as incurred.

Development costs, irrespective of whether relating to development wells
or unsuccessful development wells, are capitalized.

Depreciation, depletion and amortization

Capitalized of acquisition costs of concession right are depleted and
amortized on the unit of production method, which is based on estimated
proved recoverable reserves. Depreciation, depletion and amortization of
exploratory wells, development equipment and operating costs of support
equipment as well as the decommissioning costs, except unsuccessful
projects are calculated on the unit of production method, which is based
on estimated proved recoverable reserves and proved development
reserves. Changes in reserve estimates are recognized prospectively.

Proved recoverable reserves and proved development reserves are
calculated by the Group’s own engineers and information from the joint
ventures.

Depreciation of transportation pipeline of Yadana and Yetagun project is
calculated on the straight-line method with an estimated useful life of
30 years.

Where the carrying amount of an asset is greater than its estimate
recoverable amount, it is written down immediately to its recoverable
amount and recorded in the income statement.

Gain and losses on disposal are determined by reference to their
currying amount and are taken into account in operating profit.

Expenditure for addition, renewal and betterment which result in a
substantial increase in an asset’s current replacement value, are
capitalized. Repair and maintenance costs are recognized as expenses
when incurred.

  (13) Intangible Assets

Expenditures on acquired licenses for computer software are capitalized
and amortized using the straight-line method over the lives of contract,
maximum of 10 years. The carrying amount is reviewed annually and
adjusted for impairment where it is considered necessary.

  (14) Deferred Income Taxes

Deferred income tax is provided in full, using the balance sheet method,
on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements. The
principal temporary differences arise from depreciation on property,
plant and equipment, amortization of decommissioning costs and, on the
difference between the fair values of the net assets acquired and their
tax base.

Tax rates enacted or substantively enacted by the balance sheet date are
used to determine deferred income tax.

Deferred tax assets are recognized to the extent that it is probable
that future taxable profit will be available against which the temporary
differences can be utilized.

Deferred income tax is provided on temporary differences arising on
investments in subsidiaries, associates and joint ventures, except where
the timing of the reversal of the temporary difference can be controlled
and it is probable that the temporary difference will not reverse in the
foreseeable future.

  (15) Borrowings

Borrowings are recognised initially at the proceeds received.
Transaction costs incurred are recognized as deferred assets and
amortized through the income statement over the period of the
borrowings.

  (16) Provision for Decommissioning Costs

The Group recorded provision for decommissioning costs whenever it is
probable that there are an obligation as a result of the past event and
reliable amount of obligation.

The Group recognizes provision for decommissioning costs, which are
provided at the onset of completion of the project, for the estimate of
the eventual costs that relate to the removal of the production
facilities. These costs were included as part of the oil and gas
properties and were amortized based on proved reserves on a unit of
production basis. The estimates of decommissioning costs have been
determined based on reviews and estimates by the Group’s own engineers
and managerial judgment.

  (17) Reserve for Expansion

The Group considers to set aside a reserve for expansion for the purpose
of investing in new exploration-phase projects, which are generally
susceptible to high risk, and for the purpose of finding additional
petroleum reserves. The reserve for expansion is set aside not exceeding
35% of the net profit on tax basis after tax from exploration and
production activities.

  (18) Income Recognition

Sales are recognized upon delivery of products and customer acceptance.

Interest income is recognized on the basis of percentage of period,
taking into account the effective yield on the asset.

Revenues other than the above mentioned are recognized on an accrual
basis.

  (19) Income Taxes

  The Group’s expenditures and revenues for tax purposes comprise:

-   Current period tax which is calculated in accordance with the
    Petroleum Income Tax Act B.E. 2514 and Amendment B.E. 2532 and the
    Revenue Code

-   Income tax in the Union of Myanmar

-   Deferred income taxes.

  (20) Earnings per Share

Basic earnings per share is calculated by dividing the net profit
attributable to shareholders by the weighted average number of outside
ordinary shares in issue during the year.

Diluted earnings per share is calculated by the weighted average number
of outside ordinary shares in issue, which adjusted to assume conversion
of all dilutive potential ordinary shares. The Company has one category
of dilutive potential ordinary shares: share options.

  (21) Provident Fund and Provision for Employee Benefits

The Company established a provident fund under the name of "Employee of
PTTEP Registered Provident Fund".

The provident fund is funded by payments from employees and by the
Company which are held in a separate trustee-administered fund. The
Company contributes to the fund at a rate of 15 % of its employees’
salaries which are charged to the income statement in the period to
which the contributions relate.

The provision for employee benefits is determined from the different of
compensation and benefits under provident fund and compensation and
benefits under the old pension scheme. The provision is assessed by the
Company's management. The provision is based on the old pension scheme
which is determined by length of years of service, and current salary of
employees. The provision is presented under Non-current liabilities.

(22) Deferred Income under Take-or-Pay Agreements

The Group has certain obligations in respect of the supply of gas under
gas purchase agreements with its customer. Under these agreements
customer is required to pay for certain minimum quantities of gas in a
given year. Should customer be unable to take the minimum contracted
quantities in a given year, certain volumes of gas that the customer has
paid for but has not taken in that year can take for free of charge in
subsequent years subject to certain conditions in the agreements. The
Group recognizes its obligations under Take-or-Pay agreements on an
accrual basis based on its best estimate of volumes taken in the year.
Received in advance under these agreements are recognized as deferred
income. The deferred income, when subsequently taken, is recognized in
the income statement.

The Group made prepayment for royalty related to cash received in
advance under Take or Payment agreement to government of Myanmar.
Prepayment will be amortized when the deferred income is recognized.

12.1.4 Bonds issuing Liabilities

(1) The Company issued 2,500,000 unsecured unsubordinated bonds with a
face value of Baht 1,000 each, totaling Baht 2,500 million. The bonds
bear interest at a rate of 4.625% per annum, payable every six months on
March 27 and September 27 of each year, and have a maturity period of 15
years, to be redeemed on March 27, 2018. On September 27, 2005, the
Company entered into a Cross Currency Swap transaction with a bank to
swap Baht for USD 60.82 million. Under this agreement, interest is
charged at the rate of 3.85% per annum with effective until the expiry
date, payable every six months on March 27 and September 27 of each
year.

(2) PTTEPI issued 200,000 unsubordinated bonds with a face value of USD
1,000 each, totaling USD 200 million, guaranteed by the Company. The
bonds bear interest at a rate of 7.625% per annum, payable every six
months on April 1 and October 1 of each year, and have a maturity period
of 10 years, to be redeemed on October 1, 2006.

3) The Company issued 230 unsecured unsubordinated bonds with a face
value of Yen 100 million each, totaling Yen 23 billion. The bonds bear
interest at a rate of 3.35% per annum and have a redemption period of 10
years, to be redeemed on September 19, 2007. On the date of the bond
issuance, the Company entered into a swap agreement with a foreign bank
to swap Yen for USD 193.28 million. Under this agreement, interest is
charged at the rate of 7.86% per annum, payable every six months on
March 19 and September 19 of each year.

2.  Summary PTTEP and its subsidiaries Financial Statements

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3.  

4.  Summary significant financial ratio table

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12.4 Management Discussion and Analysis of Operation Results in 2005

1 2.4.1 PTTEP Performance

In 2005, Thailand’s economy demonstrated continuous growth even though
there were some hurdles to depress Thai economy such as Tsunami disaster
at the end of 2004, the Southern region issue, and high volatility of
oil price. However, the good fundamental structure of Thai economy and
the effectively flexible governmental policy are the great factors to
support Thai economy not to descend to the crisis. The Bank of Thailand
(BOT), and the National Economic and Social Development Board (NESDB),
projected economic growth in 2005 to be 4.7%.

Regarding business results in 2005, PTTEP and its subsidiaries were
successful in implementing most of their plans in accordance with
company strategy and direction. The notable business aspects in 2005 are
summarized here.

PTTEP and its subsidiaries’ sales volume averaged was 153,531 Barrel of
Oil Equivalent per Day (BOED), which was higher than the target of
144,000 BOED. Its total revenue was Baht 69,583 million and its net
profit was Baht 23,735 million or Baht 36.21 per share-diluted. PTTEP
and its subsidiaries’ return on shareholders’ equity in 2005 was 36.86%

In order to focus on direct investment in petroleum assets, PTTEP and
its subsidiaries completed the sales of all of its shares in New Links
(which holds most stakes in PT Medco Energi Internasional Tbk (Medco))
to Encore Int’l Limited (Encore), and completed the sales of all of its
shares in Thaioil Power to PTT Plc. Furthermore, PTTEP and its
subsidiaries continuously expanded its investment in E&P business in
both Thailand and overseas as following, Block B in Cambodia, Saveh
Block in Iran, Block B8/32 & 9A in Gulf of Thailand, Merangin I in
Indonesia and Block M11 in Myanmar. In addition, PTTEP established PTTEP
Iran Company Limited to carry out petroleum exploration and development
in the Islamic Republic of Iran, and Diamond Petroleum Company Limited
to carry out petroleum exploration and development activities in
Thailand.

In order to confirm the development phase of natural gas based projects,
PTTEP and its subsidiaries signed Gas Sales Agreement (GSA) with the
buyer in each project in 2005 as followed, GSA of the Oman 44 project,
GSA of Malaysia-Thailand Joint Development Area (MTJDA) project, GSA of
Phu Horm project, and the 4^(th) Amendment GSA and a side agreement for
additional gas sales of Bongkot project.

However, there was a setback in Nang Nuan Project from its postponement
of first oil production from the first quarter of 2005 to the second
quarter of 2005. This is due to the technical problem from the operation
field.

12.4.2 Results of Operations

The Company had cash and cash equivalents of Baht 30,507 million. at
December 31, 2005, and invested its surplus cash in short-term financial
instruments carrying low risks such as Treasury Bills, Promissory Notes,
US. Treasury Bills, and deposits with commercial banks, where emphasis
is given to security and liquidity.

On April 5, 2005, PTTEP 2005 General Shareholders’ Meeting approved the
issuance and the offering of 2.8 million units of warrants to purchase
the Company’s common shares for management and employees of the Company
for the year 2005 (Exercise Ratio : 1 unit of warrant per 1 unit of
common share) at the exercise price of Baht 278. Meanwhile, the General
Shareholders’ Meeting also approved the 2005 dividend payment to the
shareholders at Baht 9 per share on April 19, 2005

In 2005, PTTEP paid an interim dividend based on its half year
performance to the shareholders at Baht 5.50 per share on August 29,
2005. This complied with the resolution of the Board of Directors’
Meeting dated July 29, 2005.

For Financial Risk Management, PTTEP has entered into the Cross Currency
Swap agreement with the Kasikornbank Public Company Limited in September
2005. The agreement is to swap the existing Baht 2,500 million 15-year
Bond (due in 2016) at the THB fixed interest rate of 4.625% per annum
into USD 60.83 million at the USD fixed interest rate of 3.85% per
annum, resulting in a reduction of PTTEP’s average cost of borrowing.

For the investor relations activities, the Company has initiated a
Webcast in which investors can listen to the recording of presentation
given by the management in the Company’s quarterly analyst meeting
through PTTEP’s website : www.pttep.com (from the second quarter of 2005
onwards). The Company also participated in the SET in the City event
during November 17-20, 2005, hosted by The Stock Exchange of Thailand
and the Money & Banking Electronic Magazine to promote the company and
disseminate company information to retail investors.

Results of Operations – Full Year Comparison

  ----------------------------------------- --------------- --------------
  Earning summary                           Full Year       

  (Unit : Millions of Baht excepting Baht   2005            2004
  per share amounts)                                        

  Income from continuing operations                         

  Exploration and production                20,948          15,158

  Pipelines                                 3,437           2,601

  The others                                (650)           (1,893)

  Total net income                          23,735          15,866

  Diluted earnings per share – from         36.21           24.26
  continuing operations                                     

  Total Revenues - from Current Operational 69,583          48,417
  Results                                                   
  ----------------------------------------- --------------- --------------

For the results of operations for year 2005, PTTEP and its subsidiaries’
net profit was Baht 23,735 million or Baht 36.21 per share-diluted, an
increase of Baht 7,869 million when compared with the last year’s net
profit of Baht 15,866 million or Baht 24.26 per share-diluted. PTTEP and
its subsidiaries return on shareholders’ equity in this year was 36.86%

For this year, total revenues of PTTEP and its subsidiaries amounted to
Baht 69,583 million, an increase of Baht 21,166 million or 44% when
compared with Baht 48,417 million last year. This increase was mainly
due to an increase in sales from petroleum of Baht 20,159 million,
resulting from the higher average petroleum sales price to USD 29.37 per
BOE when compared with the last year of USD 23.38 per BOE. In addition,
sales volume increased in this year to 153,531 BOED when compared with
134,070 BOED last year. The higher sales derived mainly from the crude
oil sales from the S1, B8/32 & 9A and Nang Nuan projects, and the
natural gas and condensate sales from the Bongkot, the Pailin and the
Yetagun projects. In this quarter PTTEP made the upfront payment under
Gas Sales agreement to PTT Public Co. Ltd. in order to subsidize the
automatically adjusted formula for electricity fees rate (Ft) to EGAT
amounting to Baht 1,169 million.

PTTEP and its subsidiaries’ interest income for this year increased
mainly as a result of higher fixed deposit, Promissory Notes and
Treasury Bills.

PTTEP and its subsidiaries incurred expenses for this year of Baht
27,854 million, an increase of Baht 8,006 million or 40% when compared
with Baht 19,848 million for last year. This increase was the effect of

(1) An increase in operating expenses, mainly due to the cost of the
    Nang Nuan project which started to produce at the end of the second
    quarter of 2005, and the cost from the B8/32 & 9A project and the
    maintenance cost of the Bongkot and Pailin projects.

(2) Higher depreciation and amortization expenses, mainly due to the
    depreciation of the Nang Nuan, the Yetagun and the Pailin projects
    because of an increase in production volume, and the amortization of
    the excess of the cost of acquiring Orange Energy Limited and B8/32
    Partners Limited

(3) An increase in exploration expenses, mainly due to the write-off of
    dry wells in the Algeria 433a&416b, the S1, the Yetagun and the
    Unocal III projects, and the geological study and 3D seismic cost
    from the Pailin, the MTJDA, the Algeria 433a&416b and the
    L53/43&L54/43 projects

(4) An increase in general administrative expenses, mainly due to higher
    operating activities from the Arthit, the Pailin, the B8/32 & 9A,
    the MTJDA, the Oman44, the Yetagun and the Phu Horm projects, and
    the amortization of up-front payment in accordance with Bongkot Gas
    Sales Agreement.

(5) Higher petroleum royalties and remuneration as a result of higher
    sales revenue and the cost of Special Remuneratory Benefits under
    Petroleum Act (No.4) B.E. 2532.

(6) Incurred losses on divestment amounted to Baht 71 million comprising
    of losses on divestment in New Links Energy Resources Limited (New
    Links) which is a shareholder of PT Medco Energi Internasional Tbk.
    (Medco) and with a gain on divestment in Thaioil Power Co., Ltd. and
    Orange Energy Limited & B8/32 Partners Co., Ltd. To Palangsophon
    International Co., Ltd.

  PTTEP and its subsidiaries had increased income tax expenses of Baht
  5,295 million due to the higher taxable profits.

12.4.3 Financial position

As of December 31, 2005, PTTEP and its subsidiaries had total assets
amounted to Baht 143,317 million, which was Baht 31,372 million higher
than the end of 2004. This increase was mainly due to the net effect of
(1) an increase in oil and gas properties of Baht 35,695 million,
resulting from higher investments in the B8/32 & 9A, the Arthit, the
Oman44, the Myanmar M7&M9 and the S1 projects (2) higher current assets
amounted to Baht 6,392 million, mainly resulting from an increase in
trade receivable, materials and supplies-net due to higher operating
activities including cash and cash equivalent and (3) a decrease in
investments accounted for under equity method of Baht 10,970 million due
to the divestment in New Links and Thai Oil Power Co. Ltd..

Most of the current assets of PTTEP and its subsidiaries as of December
31, 2005 were in cash and cash equivalents, short-term investments,
parent company receivables, and accounts receivables. A large proportion
of the non-current assets were (1) assets used in joint-venture
exploration and production, presented under the title of Property,
Plant, and Equipment, and (2) investments in associated companies,
Energy Complex Co., Ltd., presented under the title of Investment
Accounted for under Equity Method.

PTTEP and its subsidiaries had total liabilities of Baht 71,620 million,
which was higher than the end of 2004 by Baht 16,774 million, mainly
resulting from (1) an increase in accrued expenses of Baht 6,929 million
due to the Special Remuneratory Benefit cost, and higher investment in
oil and gas properties from the Arthit, the S1 and the Bongkot projects
(2) higher income tax payable amounted to Baht 4,576 million due to the
higher income taxable and (3) an increase in Deferred income tax and
provision for decommissioning cost amounting to Baht 3,940 million.

PTTEP issued warrants to directors, managements and employees of 2
million units on August 1, 2002, 2 million units on August 1, 2003, 2.8
million units on August 1, 2004 and 2.8 million units on August 1, 2005,
with the exercise prices of Baht 111 per share, Baht 117 per share, Baht
183 per share and Baht 278 per share respectively. As of December 31,
2005, the total number of shares exercised was 2.93 million share units
and the outstanding number of warrants was 6.67 million units.

On November 9, 2005, PTTEP registered the change in paid-up capital to
Baht 3,274.66 million for the issuance and payment of 654.93 million
ordinary shares.

As of December 31, 2005, PTTEP and its subsidiaries had a net cash flow
from operations that amounted to Baht 48,719 million. Most of this was
cash received from operating activities.

PTTEP and its subsidiaries had a net cash flow from investment
activities that amounted to Baht 32,745 million. Most of this was from
(1) acquisitions in Orange Energy Limited and B8/32 Partners Limited
amounting to Baht 18,209 million (2) cash flow used in investment in oil
and gas properties in the Arthit, the Oman44, the S1, the B8/32 & 9A
projects amounting to Baht 25,368 million (3) cash received from the
divestment in New Links, which is a shareholder of Medco, and Thai Oil
Power Co. Ltd. which amounted to Baht 8,909 million and Baht 2,300
million respectively (4) dividends received from Thai Oil Power Co.,
Ltd. amounted to Baht 73 million and (5) investment in Energy Complex
Co., Ltd. which amounted to Baht 400 million.

In addition, PTTEP and its subsidiaries had a net cash flow used in
financing activities that amounted to Baht 9,258 million, resulting from
(1) dividend payments to shareholders amounting to Baht 9,481 million
(2) cash received from the issuance of ordinary shares for the exercise
of warrants amounted to Baht 223 million.

As of December 31, 2005, PTTEP and its subsidiaries had cash and cash
equivalents of Baht 30,507 million, an increase in Baht 6,729 million
from the end of 2004.

Regarding protection against potential risks which may affect its
projects, PTTEP purchased insurance coverage by considering all types of
perils and appropriate sum-insured related to each project. For 2005,
the premiums on these policies remained high relative to those of the
year 2004. However, the Company continued to purchase sufficient
insurance coverage as it has done in the past.

As at the Company’s credit ratings, in November 2005 Moody’s Investor
Services has upgraded PTTEP’s long term foreign currency rating from
Baa1 to A2. As of December 31, 2005, PTTEP’s credit ratings are as
follows;

-   A2 for its Long-term foreign currency rating by Moody’s Investors
    Service

-   BBB+ for its Long-term foreign currency rating, and

  BBB+ for its Long-term local currency rating by Standard and Poor’s
  Ratings Services

-   A- by Japan Credit Rating Agency, Limited

-   AA+ by TRIS Rating Company Limited

12.4.4 Impacts on Operational Results

For the economic outlook in 2006, Thai economy is predicted to have
higher growth than the previous year. Factors supporting stable Thai
economic growth are the momentum of economic recovery in Thailand in the
second half year of 2005, and less volatility of oil price crisis (the
relief of oil price crisis), along with the global economic growth in
particular with the continuous economic growth in Asia. The National
Economic and Social Development Board (NESDB) forecasted the Thai
economic growth at the ranges of 4.7 - 5.7%.

The factor that may influence Thai economy in 2006 is the confidence of
people and investors on the political stability. This may influence on
their decisions on the investment in Thailand and the investment is one
of key indicators to measure the economic growth in 2006.

For business in 2006, PTTEP and its subsidiaries has to closely monitor
the economic situations in order to prepare for the suitable action. In
addition, the situation of highly competitive in petroleum business, all
petroleum companies are accelerating the development of their petroleum
resources in response to the upward trends of oil prices. Hence, there
is a higher demand of fundamental requirements for development
facilities such as material and rig services providers. This could lead
to the shortage of fundamental requirement for development facilities
which is influenced in higher prices. These are the big challenges for
PTTEP. Therefore, PTTEP has to initiate effective project management and
effective check & balance process on project development preparation to
meet scheduled plan.

Other factors, which may affect the company performance both in short
and long term are also elaborated in the section of risk factors.