3. Business Operation of PTTEP and its subsidiaries

3.1 Products Features

PTTEP and its subsidiaries performed the petroleum exploration and
production business (crude oil, natural gas, LPG and condensate). On
December 31, 2005, PTTEP has 29 petroleum exploration and production
projects and 4 investment projects¹ as mentioned above. The definitions
of the products are as follows:

3.1.1 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

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

The characteristic of the crude oil and condensate is liquid in nature
and has a measurement in barrel while the natural gas is measured by
cubic foot. All petroleum products could be given into the heat
measurement in Barrel of Oil Equivalent (BOE). 1 cubic foot of natural
gas has approximately 1,000 BTU while 1 barrel of crude oil has
6,000,000 BTU

2.  Gas Transportation Pipeline:

PTTEPO has other major investment in other companies as well such as a
25% of the investment in Moattama Gas Transportation Company (MGTC) and
19.31784% in Taninthayi Pipeline Company (TPC) to conduct the business
of pipeline laying from Yadana and Yetagun projects from Myanmar to Thai
borders.

¹Please see the project classification on part 2 page 9

3.1.3 Electricity

According to the Extraordinary Shareholders Meeting No. 1/2000 held on
March 6, 2000, the shareholders approved PTTEP to invest in the power
business by using PTTEPI to hold 26% interest in Thaioil Power Company
Limited (TP). The transaction cost was approximately 1,450 million Baht
and the share transfer was completed on August 30, 2000.

Subsequently, the Extraordinary Shareholders’ Meeting No. 1/2005 held on
December 15, 2005, approved the resolution for PTTEP to sell PTTEPI’s
all 26% interest in TP to PTT for 2,300 million Baht or 31.48 Baht per
share in order to focus on PTTEP’s core business in the exploration and
production of petroleum. PricewaterhouseCoopers FAS Ltd., as the
Independent Financial Advisor, considered the transaction fair to the
shareholders of PTTEP and reasonable to enter into. The completion of
cash receipt and share transfer occurred on December 23, 2005.

In accordance with the strategy to focus on the core business in the
exploration and production of petroleum, PTTEP will not actively seek
new investment in the power business. However, in the future PTTEP might
consider investing in the power plants in foreign countries if such
investments are related and supported its core business. For example,
PTTEP may invest in the power plants in overseas to create natural gas
market for the gas fields that PTTEP already has interest.

3.2 Factors affecting the opportunity or restriction in business

PTTEP does its petroleum exploration and production in the Kingdom 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. Inside the Kingdom, 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:

3.2.1 Issue of Concession Areas

The Department of Mineral Fuels, Ministry of Energy, which is the
responsible agency, delineates exploration blocks, and then invites oil
companies to submit applications for concessions. The Petroleum
Committee considers applications for concessions. In this connection,
the sub-committee will initially screen the information stated in the
applications, and the Minister of Energy is empowered 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.

3.2.2 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 spread the risks. In a joint venture, one company will be
designated “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 who participate in the joint venture are called
“non-operators”. The operators manage operations and make cash calls on
all co-venturers to finance the work program. Non-operators through
their representation on the management committee participate in
technical and financial decisions. Generally, an oil company as it grows
in experience, seeks to become an operator in order to assume a greater
role in management and operations.

3.2.3 Nature of Operations and Investment Decisions

Before oil company decides to invest in petroleum exploration in the
Kingdom and abroad, it has to 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. In addition, there must be a chance of
finding a source of petroleum that has commercial viability. The success
ratio of drilling of exploration wells in neighboring areas is taken
into account. If the company decides to invest, 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, and may take 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.

3.2.4 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, as amended. 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. However the concessionaire
    must be a limited company established under the law of Thailand;

(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 can be credited against
    income tax (Thailand I) or be deducted as expenses (Thailand III
    terms);

(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 may not obtain concessions for more than 4
    exploration blocks except the case where the Minister considers
    appropriate to authorize an additional exploration block.

  Thailand I for the petroleum concessions issued by the Ministry of
  Industry² from B.E. 2514 to B.E. 2532 and the onshore petroleum
  concession issued before B.E. 2525

  Thailand II³ 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

  _________________________

² Now is the Ministry of Energy

  ³ 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.

Details of Thailand I, II and III Terms

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

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

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

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

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

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

  Concession areas not exceeding    not exceeding    not exceeding 4,000
                   10,000 sq. km    10,000 sq. km    sq. km per exploration
                   per exploration  per exploration  block, up to 5
                   block, up to 5   block, up to 5   exploration blocks
                   exploration      exploration      
                   blocks           blocks           
  ---------------- ---------------- ---------------- ----------------------

3.3 Marketing

In 2005, PTTEP and its subsidiaries derive total revenue of 66,357
Million Baht from sales of petroleum products i.e. crude oil, Natural
Gas, LPG, and condensate.

+--------------------------------+---------------+---------------------+
| Product                        | Volume        | Value               |
|                                |               |                     |
|                                |               | (Million Baht)      |
+--------------------------------+---------------+---------------------+
| Crude Oil (MMBOE)              | 9.64          | 19,943              |
+--------------------------------+---------------+---------------------+
| Natural Gas (MMSCF)            | 245,248       | 32,277              |
+--------------------------------+---------------+---------------------+
| LPG (Metric Tons)              | 99,659        | 1,159               |
+--------------------------------+---------------+---------------------+
| Condensate (MMBBL)             | 6.30          | 12,978              |
+--------------------------------+---------------+---------------------+

3.3.1 Marketing Policy and the Product Market

The petroleum exploration and production business in Thailand comes
under the petroleum concession system. PTTEP currently sells most of its
products to PTT, who in turn sells them to power generators,
petrochemical operators, industries, and households (in the form of
cooking gas).

 In contrast, overseas exploration and production is generally under the production sharing contract system under which, PTTEP, as a contractor, is entitled to sell its “equity petroleum” produced from a given project, where possible, to PTT for consumption in Thailand, for instance, natural gas from Myanmar and condensate from Oman.

 (1) Natural Gas

To guarantee revenue to producers, all gas sales agreements (GSAs)
contain take-or-pay contracts spanning 20-30 years while buyers are
assured of gas supply during such periods. Each GSA specifies a minimum
Annual Contract Quantity (ACQ) together with a mutually agreed price
formula. As a rule, to enable natural gas to compete with alternative
fuels, its selling price is indexed to fuel oil prices, economic
indices, and currency exchange rates for each contractual price
adjustment. Each producer is committed to producing the agreed volume,
of which each buyer is committed to taking delivery.

In 2005, PTTEP signed two new domestic GSAs with PTT and successfully
sold additional volumes of gas from Bongkot to PTT through price
incentives amid the rising demand for natural gas.

-   On June 16, 2005, PTTEPI, a joint operator in the MTJDA Project
    (Blocks B-17 , C-19, and B-17-01) in the Malaysia-Thailand Joint
    Development Area, along with PC JDA Limited and Malaysia-Thailand
    Joint Authority (MTJA) – collectively known as the Sellers – signed
    a GSA with PTT (the Buyer). The Sellers will start supplying natural
    gas to PTT in mid-2008 at the Daily Contract Quantity (DCQ) of 270
    MMCFD at a price comparable to those of major gas fields in the Gulf
    of Thailand. If additional petroleum reserves are later discovered,
    the Sellers can raise the DCQ to 470 MMCFD. 

-   On July 19, 2005, PTTEP and PTTEPS, together with Phu Horm
    joint-venture partners, namely Amerada Hess (Thailand) Limited,
    Apico LLC, and ExxonMobil Exploration and Production Khorat Inc,
    signed a GSA with PTT. Located in Udon Thani province, the project
    consists of two concession blocks, Block E5 North and Block EU-1.
    The Sellers expect to sell gas production at the DCQ of 79 MMCFD,
    starting in the fourth quarter of 2006, at a price comparable to
    that of the E5 Project, in which PTTEP has a 20% interest. Gas
    production from Phu Horm represents a milestone in onshore gas field
    development for northeastern Thailand. 

-   On July 13, 2005, PTT (the Buyer) and Bongkot joint-venture
    partners, namely PTTEP, Total E&P Thailand, and BG Asia Pacific PTE
    Ltd. (the Sellers), signed a side agreement for additional gas
    supply from the project, under which PTT will buy an additional 61
    BCF (or an average of 50 MMCFD) from April 1, 2005, to October
    1, 2008. In return, the Sellers paid 1,000 Million Baht as an
    upfront discount to PTT and at the same time extended their project
    development area described in the existing GSA (an area of 1,586
    square kilometers) to cover the current total Bongkot Project
    concession area of 3,200 square kilometers, thereby enhancing future
    gas supply security to satisfy domestic energy demand growth.  

Since natural gas is Thailand’s main power-generation fuel, PTTEP
supported the government’s policy by subsidizing the automatically
adjusted formula for electricity fee rates (Ft) by paying PTT an advance
discount of 1,500 Million Baht. This amount was already stipulated in
the existing GSAs due to become effective from mid-2006 onward. PTTEP
will eventually recover the net present value of the entire amount and
will incur no net financial impact.

-   For its overseas investment in Oman, in April 2005 PTTEP OM signed a
    GSA for the Shams Gas Field in Oman 44 Project with the Government
    of the Sultanate of Oman, with a plan to start gas production in the
    first quarter of 2006 at 50 MMCFD and condensate at 3,000 BPD.  This
    marks PTTEP’s milestone of providing natural gas supply to a country
    in the Middle East for the first time. To partially displace
    Thailand’s crude oil imports, the Company also plans to sell the
    Oman condensate/crude to PTT.  

 (2) Crude Oil and Condensate

To best reflect the market values of products, the prices of crude oil
and condensate produced by PTTEP are tied to those of world-market crude
oil with comparable qualities. As a rule, PTTEP has engaged most of its
crude and condensate in long-term sales agreements.

-   In June 2005, PTTEPS, the sole partner in Nang Nuan Project (Block
    No. B6/27) in the Gulf of Thailand – 25 kilometers off Chumphon
    province – resumed crude oil production from Nang Nuan Field at a
    rate of about 3,100 BPD from a single well, with the produced crude
    sold to domestic customers on a spot basis, alleviating the growing
    domestic energy demand while reducing crude oil imports and
    foreign-exchange payment. In 2006, the Company plans to drill two
    additional wells here to raise its crude oil reserves and output to
    justify a potential long-term sales agreement.

-   Also, on June 17, 2005, PTTEPO and Mitsui Oil Exploration Co., Ltd.,
    jointly acquired all the shares of Thaipo Limited and 46.34% of its
    shares in B8/32 Partners Limited from Pogo Overseas Production B.V.
    and Pogo Producing Company. As a result, PTTEPO holds 25% in Gulf of
    Thailand Blocks B8/32&9A – consisting of Tantawan, Benchamas,
    Maliwan, Jamjuree, and Chaba fields. The fields are producing about
    98,800 BOEPD – that is, 59,200 BPD of crude oil and 240 MMCFD of
    natural gas. All produced crude oil is exported on a term contract,
    while natural gas is committed to PTT on a long-term GSA. The
    acquisition enabled PTTEP to realize an immediate revenue stream
    from petroleum sale and increased its proved reserves by about 52
    million barrels of oil equivalent (MMBOE).

 3.3.2 Competition 

(1) Exploration and Production Business (E&P)

Throughout Thailand, several moderate-sized petroleum fields are
distributed both onshore and offshore, attracting several overseas
companies’ investments. However, since the business is both
risk-intensive and capital-intensive, investors usually form joint
ventures to spread their risk, leading to only moderate competition in
Thailand. Since Thailand is still a net petroleum importer, any
indigenous petroleum production is directed to the domestic market to
lower import burdens. In 2005, the completed merger between Unocal
Corporation and Chevron Corporation of the U.S. has made Chevron
Thailand the largest E&P producer in Thailand with substantial
bargaining power.

(2) Power Business

According to the government’s policy in restructuring the Electricity
Supply Industry (ESI) and privatizing the state enterprises in power
sector to improve efficiency, to increase competition, and to promote
private investment, the Cabinet on December 9, 2003 approved the ESI
structure named Enhanced Single Buyer (ESB) Model. This ESB Model still
maintains the Electricity Generating Authority of Thailand (EGAT) as the
single power buyer and sells power to the Metropolitan Electricity
Authority (MEA) and the Provincial Electricity Authority (PEA). Some
regulatory works of EGAT will be transferred to the Electricity
Regulatory Board (Regulator) to oversee the power industry. The
Regulator will determine, for examples, power tariff, the bidding of new
power plants, fuel types, and locations of the power plants. EGAT will
become one of the power producers who can participate in the bidding of
new power plants to sell power into the national grid similar to other
private power producers. On June 24, 2005, EGAT has been corporatized
and became “EGAT Public Company Limited (EGAT)”. However, EGAT’s Initial
Public Offering (IPO) in the Stock Exchange of Thailand (SET) has been
temporary suspended by the order of the Supreme Administrative Court on
November 15, 2005. Regarding the establishment of the Electricity
Regulatory Board, all 7 members which were nominated by the Ministry of
Energy were approved by the Cabinet on November 22, 2005.

The new round of IPP bidding, to support Thailand’s power demand in
2011, is expected to be held by the Regulator around the end of year
2006. Natural gas will still be the main fuel source for new IPP plants.
Coal would remain an alternative fuel source. The bidding details are
expected to be finalized and proposed to the National Energy Policy
Committee (NEPC) for consideration in the middle of year 2006.

Such policies would create more competition in the investment of new
power projects. However, existing SPP and IPP projects with long-term
Power Purchase Agreements (PPAs) with EGAT, their revenues will not be
impacted. On the other hand, such policies will open up the
opportunities for the existing companies to expand their investment by
participating in the IPP bid to sell more power to EGAT.

3.4 Production

3.4.1 Exploration and Production Stages and Technology

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

(1) Exploration Stage

-   Primary geology and geophysics survey

-   Seismic survey

-   Interpretation of information from seismic survey

-   Drilling

(2) Appraisal/Delineation Stage

-   Studied petroleum geology in detail and additional seismic survey

-   Well log interpretation

(3) Development Stage

-   Set the plan for the appropriate development

-   Construct the platforms, provide production facilities and drill the
    development wells.

-   The development of the production facilities in the sea includes
    Well head Platform, Processing Platform, and Living Quarter

(4) Production Stage

-   The production of crude oil or natural gas must be made through the
    Christmas tree and other production equipment including gauge so
    that the rate of production of each well may be ascertained

-   The follow up of the production proportion of the water and
    petroleum, proportion of crude oil and natural gas, the decline of
    pressure in the petroleum levels and the forecast of the production
    in the future

-   Workover must be performed regularly to improve the rate, the
    duration and effectiveness of the production

-   In the Gulf of Thailand, the natural gas which is produced will be
    sent to the natural gas refinery and electricity power plant while
    condensate will be sent to Floating Storage Unit before the
    refinery.

PTTEP is ready with its personnel, technology and equipment to do its
business effectively to achieve its company mission very well.

3.4.2 Petroleum Reserves

Reserves are those quantities of petroleum which are anticipated to be
commercially recovered from known accumulations from a given date
forward. All reserve estimates involve some degree of uncertainty. The
uncertainty depends chiefly on the amount of reliable geologic and
engineering data available at the time of the estimate and the
interpretation of these data. The relative degree of uncertainty may be
conveyed by placing reserves into one of two principal classifications,
either proved or unproved. Unproved reserves are less certain to be
recovered than proved reserves and may be further sub-classified as
probable and possible reserves to denote progressively increasing
uncertainty in their recoverability.

(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 can be categorized
as developed or undeveloped.

If deterministic methods are used, the term reasonable certainty is
intended to express a high degree of confidence that the quantities will
be recovered. If probabilistic methods are used, there should be at
least a 90% probability that the quantities actually recovered will
equal or exceed the estimate.

  (2) Unproved reserves

-   Probable reserves are those unproved reserves which analysis of
    geological and engineering data suggests are more likely than not to
    be recoverable. In this context, when probabilistic methods are
    used, there should be at least a 50% probability that the quantities
    actually recovered will equal or exceed the sum of estimated proved
    plus probable reserves.

-   Possible reserves are those unproved reserves which analysis of
    geological and engineering data suggests are less likely to be
    recoverable than probable reserves. In this context, when
    probabilistic methods are used, there should be at least a 10%
    probability that the quantities actually recovered will equal or
    exceed the sum of estimated proved plus probable plus possible
    reserves.

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 December 31, 2005, the total Proved Reserves of all PTTEP and
subsidiaries projects are 151 Million Stock Tank Barrels (MMSTB) for
crude oil and condensate, and 5,158 Billion Standard Cubic Feet (BSCF)
for gas. The total Proved Reserves (Consolidated Companies) in term of
oil equivalent is 950 Million Barrels (MMBOE). No reserve quantities
have been recorded for the company in Vietnam B&48/95 Project, Vietnam
52/97 Projects, Vietnam 9-2 Project, Vietnam 16-1 Project, G4/43 Project
and Algeria 433a & 416b Project because no commercial arrangement has
been established for the discoveries.

3.4.3 PTTEP Petroleum Production

In 2005, the total production of PTTEP and Subsidiaries projects is 67
MMBOE or equivalent to the production rate of approximately 184,000
Barrels of Oil Equivalent per Day (BOED), approximately 30,000 BOED or
19% increase from last year. The production increase was mainly
attributed to the increase of petroleum production from Yetagun and
Pailin projects, the production from Nang Nuan Project and the
acquisition interest in B8/32&9A project.

3.3.4 Environmental Impact

For Petroleum Exploration and Production operation, an effective
environmental management system is considered to be an integral part of
environmental impact reductions in several aspects as follows: -

(1) Land use and marine organism impact from sound vibration, which is
    the main environmental impact during seismic surveys.

(2) Water and soil contamination from discharges of drilling fluid and
    produced water, release of sludge and contaminated solid wastes and
    accidental spills of oil and condensate during drilling and
    production activities.

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

Currently, above environmental impacts are directly under control of the
Department of Mineral Fuel under Ministry of Energy who is the direct
permitting agency, and the Office of Natural Resources and Environmental
Policy and Planning (ONEP) under the Ministry of Natural Resources and
Environment who announces the requirement that an environmental impact
assessment must be conducted prior to any commencements of exploration
and production projects

Thus, the initiative to reduce environmental impacts has been
established constantly and continuously improved by PTTEP, including the
following:

(1) Implementation of the ISO14001 Environmental Management System (EMS)
    Standard for all operational sites and the PTTEP office building. In
    accordance with ISO14001 requirements, environmental management
    system are followed in compliance with company policy, legislations
    and other requirements in order to prevent pollution to environment,
    and continuously improve to ensure effective company performance. As
    a result, PTTEP became the first petroleum exploration and
    production company in Thailand and the Southeast Asian region to
    achieve ISO 14001 Certification.

(4) Study of environmental impact assessment prior to commencements of
    new exploration and production projects which is legally required in
    order to ensure on-going monitoring and measurement programs to
    mitigate any environmental impacts.

(5) Re-injection of produced water (wastewater separated from the
    production process) into subsurface reservoirs to ensure no
    overboard discharging which might affect the environment.

(6) Monitoring of discharged wastewater quality from the production
    process and the quality of seawater, sediment, benthic fauna and
    fish around platform vicinity to ensure of no exposures to health
    and environmental hazards.

(7) Recovery flare gas for electricity generator.

(8) Oil Spill Equipment and response are provided to ensure
    environmentally sound operation from oil spill incident, joining Oil
    Industrial Environmental Safety Group (IESG) for Tier 2 oil spill
    response incident (20-1000 tonnes) and EARL/OSRL (East Asia Response
    Limited/ Oil Spill Response Limited) for Tier 3 Oil Spill Response
    (>1000 tonnes).

(9) Provide appropriate technology for waste disposal and treatment
    (e.g. Mercury contaminated waste, oil contaminated waste) for
    environmental abatement.

(10) Promotions of Safety, Security, Health and Environmental awareness
     through number of means e.g., training, and monthly SSHE bulletins,
     etc.

(11) Coordination and provisions of supports to other exploration and
     production companies, the Petroleum Institute of Thailand,
     government agencies and related associations in order to expand
     experience and solve environmental problems for further
     improvement.

During the passed 3 years, PTTEP strictly complied with both Thai and
International legislations and other requirements concerning Safety,
Security, Health and Environment. . In addition, PTTEP has been
continuously improving sound environmental practices in maintaining,
developing and reducing environmental impacts by achieving the ISO 14001
certification for Environmental Management System Standard from AJA
Registrars LTD. under UKAS (United Kingdom Accreditation Service)
accreditation, for all operational sites as follows:

(1) PTTEP1 Project in the scope of “Exploration and production”

(2) PTTEP Building in the scope of “Building management and maintenance
    services”

(3) Bongkot Project in the scope of “Exploration and production of
    natural gas and condensate”

(4) Songkhla Logistics Base in the scope of “Provision of logistics
    services to offshore oil and gas operations”

(5) S1 Project in the scope of “Exploration and production of petroleum”

(6) Core research centre and logistics support for storage of core slab
    samples.

In this passing year, PTTEP has developed company’s Environmental
management System to comply with requirement of ISO 14001 version 2004.

For Safety management system, PTTEP has committed in its policy to
conduct its activities with out undue impact on the personnel and
properties of the company and its contractors. In addition, the Lost
Time Injury Frequency Rate (The number of Lost Time Injury per 1,000,000
hours worked) on the year 2003, 2004 and 2005 were 0.48, 1.03 and 0.41.
The significant reduction LTIF in 2005 was reflected from more
strengthen Safety, Security, Health and Environment (SSHE) standard and
measures implementation in company management system.

As a commitment to protect the environment, PTTEP spent on environmental
improvement program about 20.5 14.7 and 67.2 million baht during the
year 2003, 2004 and 2005 respectively. Majority of environmental expense
in year 2005 was affected by cost of waste disposal from drilling
operation which was extended to increase production.