2. Nature of Business

2.1 Establishment/ Changes/ Significant Development

The Company was incorporated on 20 June 1985 with the Petroleum
Authority of Thailand (now PTT Public Company Limited or PTT) as the
shareholders of 99.99% in accordance with the Cabinet’s resolution of
April 16, 1985 for the Government to be able to hold petroleum
concessions. And on February 16, 1988 the Cabinet gave resolution for
PTTEP to conduct its business without having to comply with the orders,
rules & regulation and the Cabinet’s resolution that enforced general
State Enterprises with exemption only to the solution concerning the
creating of the country’s debt of year 1985 and its amendment. This was
for the Company to conduct its business independently with effectiveness
and efficiency and be able to compete with other international oil
companies. On October 30, 1992, PTTEP became a public company and was
first trade in the market on June 10,1993.

2005 Significant Development

1.  Participated 30% interest in Petroleum Block B, Cambodia with
    Resourceful Petroleum Limited (RPL) and became the operator of the
    project.

2.  Participated 100% interest in Petroleum Exploration and Development
    Project of Saveh Block and became the operator of the project.

3.  Acquired all shares of the Pogo group in Thailand, consisting of
    100% shares of Thaipo Limited, and 46.34% shares of B8/32 Partners
    Limited. 

4.  Acquired 39% interest in Petroleum Block Merangin I, Indonesia with
    PT Medco E&P Merangin (the Operator).

5. Participated 100% interest in petroleum exploration project Block
M-11, Union of Myanmar and became the operator of the project. 

6. Sold all 40% interest in New Links Energy Resources Limited (New
Links) and 34.20% interest in PT Medco Energi Internasional Tbk. (Medco)
to Encore Int’l Limited (Encore) in order to support the company’s
current investment strategy, which focuses on direct investment in
petroleum assets instead.

7. Sold all 26% interest in Thaioil Power Company Limited to PTT
according to the Extraordinary Shareholders Meeting No. 1/2005.

2.2 Business Overview

PTTEP conducts its core business in petroleum exploration, development
and production. PTTEP has 10 petroleum exploration and production
projects currently under production out of a total of 29 projects and 4
additional investment projects as mentioned in the summary information.
(Please see additional details of each project in attachment 6)

Thailand E&P Projects

Regional E&P Projects

International E&P Projects

Investment Project

Structuring Policy for PTTEP’s group companies

PTTEP sets up structuring policy for PTTEP’s group companies with the
aim of utmost effectiveness of resource management, a transparent
management, strong long-term business strategy and good corporate
governance. As of December 31, 2005, PTTEP has 15 subsidiaries and 5
associated companies. The shareholding structure is presented as
follows:

2.3 Revenue Structure

The petroleum exploration and production projects which generated
revenues for PTTEP and its subsidiaries comprised 10 projects: Bongkot,
Pailin, S1, E5, Unocal III, PTTEP1, Yadana, Yetagun, B8/32 & 9A, and
Nang Nuan. In addition, PTTEP and its subsidiaries recorded revenues
proportionately from gas pipeline transportation which MGTC and TPC
rendered to Myanmar Oil and Gas Enterprise (MOGE)

Revenue structure of PTTEP and its subsidiaries during 2003-2005

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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 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.

2.4 PTTEP Business Targets during 2005-2009

Notable aspects of PTTEP corporate business targets during 2005-2009 and
resulting corporate strategy execution are summarized here:

+----------------------------------+-----------------------------------+
| Quantitative Target              | Execution in 2005                 |
+----------------------------------+-----------------------------------+
| -   PTTEP had a sales volume     | -   The actual sales volume       |
|     target in 2005 of 144,00     |     turned out to be 153,531 BOED |
|     Barrels Oil Equivalent per   |     in 2005 which was higher than |
|     Day (BOED), PTTEP also       |     target. This increase sales   |
|     forecasted a 2009 sales      |     mainly derived from the       |
|     volume of 240,000 BOED with  |     immediate proportional        |
|     the CAGR (Cumulative Average |     interests of petroleum sales  |
|     Growth Rate) at 7.5%.        |     on acquisition investment in  |
|                                  |     Block B8/32&9A, along with    |
|                                  |     the natural gas and           |
|                                  |     condensate sales from the     |
|                                  |     Bongkot, Pailin and Yetagun   |
|                                  |     projects.                     |
+----------------------------------+-----------------------------------+
| Qualitative Target               | Execution in 2005                 |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to be an operator | -   PTTEP aims to become an       |
|     with operational excellence  |     operator proud of its         |
|     in operation projects.       |     operational excellence along  |
|                                  |     with a keen awareness of      |
|                                  |     Safety Security Health and    |
|                                  |     Environment (SSHE) issues for |
|                                  |     the projects in which PTTEP   |
|                                  |     is the operator.              |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to be a company   | -   PTTEP has continuously        |
|     recognized for its           |     improved its organizational   |
|     international best           |     capability. PTTEP has         |
|     practices, both in           |     introduced Corporate          |
|     organizational development   |     Governance (CG) principles to |
|     and internal control system. |     be its main policy. In        |
|                                  |     addition, PTTEP incorporated  |
|                                  |     risk management principle     |
|                                  |     into the internal control     |
|                                  |     system to ensure              |
|                                  |     implementation of its         |
|                                  |     business plans. Key process   |
|                                  |     capability improvements in    |
|                                  |     2005 were project management  |
|                                  |     process, procurement process, |
|                                  |     and subsurface evaluation     |
|                                  |     process.                      |
+----------------------------------+-----------------------------------+

+----------------------------------+-----------------------------------+
| Qualitative Target (Continued)   | Execution in 2005(Continued)      |
+----------------------------------+-----------------------------------+
| -   PTTEP aims to be a company   | -   PTTEP net profit was 23,735   |
|     acknowledged for its         |     million baht in 2005. Its     |
|     World-Class Competitive      |     annual performance yielded a  |
|     Strengths, outstandingly     |     Return on Capital Employed    |
|     competent and developed      |     (ROCE) of 36.86%.             |
|     management and staff, growth |                                   |
|     reserves as targeted in its  | -   PTTEP has continuously        |
|     planning, strong financial   |     expanded its investment both  |
|     performance and trustworthy  |     domestic and overseas. Key    |
|     internal and external        |     investment events in 2005     |
|     relationships.               |     included:                     |
|                                  |                                   |
|                                  |     -   Block B in Cambodia.      |
|                                  |                                   |
|                                  |     -   Saveh Block in Iran.      |
|                                  |                                   |
|                                  |     -   Block B8/32&9A in Gulf of |
|                                  |         Thailand.                 |
|                                  |                                   |
|                                  |     -   Block Merangin I in       |
|                                  |         Indonesia.                |
|                                  |                                   |
|                                  |     -   Block M-11 in Myanmar.    |
|                                  |                                   |
|                                  |     -   PTTEP has continuously    |
|                                  |         improved its staff        |
|                                  |         competencies. PTTEP has   |
|                                  |         also focused on four main |
|                                  |         competency characters in  |
|                                  |         terms of talent,          |
|                                  |         leadership, collaboration |
|                                  |         and strategic unity for   |
|                                  |         staff capability          |
|                                  |         development. In 2005,     |
|                                  |         PTTEP introduced          |
|                                  |         boundaryless organization |
|                                  |         and knowledge management  |
|                                  |         concepts to incorporate   |
|                                  |         in its organizational     |
|                                  |         culture.                  |
+----------------------------------+-----------------------------------+