About PTTEP

Dear Shareholders,

The year 2016 was a period of great sorrow for Thailand after the loss of our beloved King, His Majesty King Bhumibol Adulyadej. With his ever-present sense of immeasurable grace, the late King bestowed the name “Navamindra Petroleum Area” on PTTEP’s petroleum fields of Bongkot and Arthit. All of PTTEP’s Board of Directors, management and employees offer their continuing loyalty and dedication to follow and keep in our thoughts His Majesty King Bhumibol Adulyadej’s guidance in our mission to secure energy security for the maximum benefit of the country with pride, honesty and perseverance.

The past year also presented daunting challenges for the petroleum exploration and production business globally as 2016 experienced relatively low crude oil prices and considerable volatility. During the first quarter of 2016, the Dubai crude price bottomed out at approximately 23 USD/BBL following the lifting of sanctions on Iran. This reflected the increased concerns over oversupply conditions after that crude prices rose slightly in the second quarter and third quarter. Prices ranged from 40 to 50 USD/BBL throughout the third quarter, and then peaked at a year-high record of 54 USD/BBL in December. As a result, the Dubai crude price annual average ultimately stood at 41.27 USD/BBL, lower than the previous year average of 50.91 USD/BBL.

The decline in global crude oil prices naturally continued to significantly affect PTTEP’s financial performance in 2016. The company revised its strategic plan to enhance its competitive advantage and sustainable growth under the concept of “RESET REFOCUS RENEW”.  In more detail, RESET has meant the formulation of a cost structure under the SAVE TO BE SAFE project which resulted in cost savings of USD 300 million to maintain competitiveness in the industry and the prioritization of investment in projects with competitive cost structures under present oil price conditions. This consequently has brought down overall unit costs from 38.88 USD/BOE in 2015 to 30.46 USD/BOE, representing a 22% reduction. REFOCUS has focused investment towards core areas in which PTTEP has extensive experience, and areas that demonstrate low cost structures and low risks, such as in Thailand and other nations in Southeast Asia, especially Myanmar.  RENEW has adopted the development of technology as part of a long-term strategy for sustainable growth, so as to diversify sources of revenues and return on investment as well as to explore new business by synergizing with PTT Group in the LNG business.

By adhering to the strategic plan above, conducted with professional management and strong financial discipline, PTTEP recorded a recurring net profit for 2016 of 466 MMUSD and a non-recurring loss of 94 MMUSD. These results can be mainly attributed to losses on oil price hedging, which partly is the mark-to-market valuation of outstanding oil price hedging positions that has no impact on the company’s cash flow but was booked in accordance with internationally accepted accounting standards. The company also recognized asset impairment losses of 47 MMUSD as a result of adjustments to the production profiles of the Yetagun and Natuna Sea A projects. However, the company recorded non-recurring gains and tax saving, arising from the appreciation of Thai Baht relative to the US Dollar over the year. Consequently, the company improved to a net profit of 372 MMUSD for 2016, compared to a net loss 854 MMUSD in 2015. Given this performance, the company’s financial position remained robust with cash on hand and short-term investments of 4,022 MMUSD to maintain planned production levels, to develop future projects in the pipeline as well as to support new investment opportunities through merger and acquisition activities in line with the company’s business plan.

Besides the year-end performance discussed above, it needs to be noted that PTTEP places great focus on organization development. In fact, we’re proud that the company has been selected as a member of 2016 Dow Jones Sustainability Indices (DJSI) for the third consecutive year, and named as the industry leader in the World Oil and Gas Upstream & Integrated Industry. This recognition underlines our ongoing commitment to being a sustainable organization and our effort to balance our growth in business, with the benefits to society and environmental protection. In 2016 PTTEP was also selected as a member of Thailand Sustainability Investment by the Stock Exchange of Thailand (SET) as one of the listed companies exhibiting outstanding business performance and corporate governance as well as responsibility to society and environment.

Looking forward PTTEP expects the crude oil price during the first half of 2017 to be range-bound between 50-60 USD/BBL due to bullish support for the agreement on production cuts between OPEC and non-OPEC members in the fourth quarter last year. However, everyone in the market will be closely monitoring events leading up to as well as the subsequent discussion between OPEC and non-OPEC members as they consider the renewal of the agreement during the second half of the year. Further, it is prudent that we keep an eye on US policy under the new government administration, particularly in the area of energy sector policies, which will affect the movement of oil prices in the global market.

PTTEP remains confident that the company’s performance will stay solid with the potential for future growth in reserves and production driven by various project development in alignment with our portfolio management strategy which would support projected rising gas demand in Asia. This will be pursued with good corporate governance and transparency in risk and corporate management as well as through professionalism of the PTTEP team.

To further capitalize on rising gas demand in Thailand and globally, PTTEP is orientating its strategy to capture potential opportunities for joint investment with the PTT Group in the LNG chain in different regions to effectively serve increased future domestic and global gas demand.

PTTEP’s Board of Directors, management and employees would like to express our sincere thanks for your continued trust. We commit to perform our duty effectively and efficiently and offer our profound loyalty to His Majesty King Bhumibol Adulyadej’s guidance in order to lead PTTEP towards a sustainable future.