Management s Discussion and Analysis (MD&A) and operating results for the three-month and six-month periods ended June 30, 2016

Transcription

1 Management s Discussion and Analysis (MD&A) and operating results for the three-month and six-month periods ended June 30, In the second quarter of 2016 (), net income of PTT and its subsidiaries was Baht 24,879 million, increasing by Baht 1,210 million or 5.1% from Baht 23,669 million in the first quarter of 2016 (Q1/2016) mainly due to the gradual declining in feed gas costs in line with crude oil price which had fallen since mid-year Therefore, PTT s performance increased from better performance of Gas Separation Plant (GSP), the decrease of NGV loss and the improvement in oil business performance from stock gain following the increase of crude oil price in this quarter. For PTT affiliates, performance of petrochemical and refining business increased due to the rise in Accounting Gross Refinery Margin (Accounting GRM) as a result from stock gain in line with the rise in crude oil price since late of Q1/2016, though Market GRM decreased. Meanwhile, the performance of olefins increased owing to higher product spreads despite PTT group s unplanned shutdown. Nonetheless, performance of PTT Exploration and Production Public Company Limited (PTTEP) decreased due to income tax expenses affected by Thai Baht appreciated against US Dollar which had lower effect compared with Q1/2016. In addition, the company also recognized an increase in loss on derivatives. In the first half of 2016 (1H/2016), net income of PTT and its subsidiaries was Baht 48,548 million, increasing by Baht 2,218 million or 4.8% from Baht 46,330 million in the first half of 2015 (1H/2015) mainly due to better performance of PTT. On the contrary, the performance of affiliates decreased in almost all business groups. The drop in refining and olefins mainly from the decline in Accounting GRM and the decrease of polyethylene price in line with crude oil price, whereas the Product to Feed Margin (P2F) of Aromatics Petrochemical increased from lower feed cost. The performance of PTTEP decreased in line with declining in average selling prices following the fallen crude oil price, though, the lower of depreciation and amortization expenses. The higher appreciation of Thai Baht against US Dollar compared to last year, leading to higher gain on foreign exchange rates for PTT group in 1H/2016. While, PTT had higher loss on foreign exchange rate in relation with Japanese Yen outstanding loans caused by Thai Baht depreciated against Japanese Yen. Unit : Million Baht Q2/2015 %Inc. (Dec.) 1H/2015 %Inc. Q1/2016 1H/2016 (Restated) YoY QoQ (Restated) (Dec.) Sales & services income 536, , ,447 (21.6%) 8.7% 1,051, ,387 (23.2%) EBITDA 87,376 71,343 82,151 (6.0%) 15.2% 158, ,493 (2.9%) Net income (loss) 23,746 23,669 24, % 5.1% 46,330 48, % Earnings per share (Baht/share) % 3.4% % Outlook

2 in the second quarter of 2016 PTT Public Company Limited 2 The world economy in expanded at a faster pace than in Q1/2016. Primarily supported by domestic demand, economic growth picked up in advanced economies. Specifically in the US, the overall state of the labor market remained strong, though worries about a global economic slowdown and volatility in financial markets had led the Federal Open Market Committee (FOMC) to hold off on interest rate hikes at its July 26-27, 2016 meeting, maintaining policy rates at %. As for the euro area, the economic recovery continued on the back of easy financial conditions, though uncertainty over the outcome of the UK s EU membership referendum on June 23, 2016 had somewhat adversely affected private sector confidence. Meanwhile, emerging market economies and lower income countries started to show signs of stabilization in, amid gradually rising oil prices and improving economic momentum in China, where effects of the government s growth stimulus measures on the housing sector are becoming more pronounced, though overcapacity and growing corporate debt problems are still of concern. The International Monetary Fund (IMF) in July 2016 revised down its global growth forecast for 2016 to 3.1%, against a projection in April 2016 of 3.2%. According to the International Energy Agency (IEA) in June 2016, global oil demand in averaged 95.5 million barrels per day (MMBD), increasing from 95.2 MMBD in Q1/2016 amid higher Americas, Europe, and the Middle East demand, and increasing from 94.1 MMBD in Q2/2015. For the whole of 2016, global oil demand is expected to average 96.1 MMBD, shooting up from 94.7 MMBD in Unit: US$/bbl Q2/2015 Q1/2016 Average Dubai crude oil price % Inc.(Dec.) YoY QoQ 1H/2015 1H/2016 % Inc.(Dec.) (29.5%) 42.1% (35.0%) Dubai oil price in averaged US$43.2 per barrel, increasing from US$30.4 per barrel in Q1/2015 amid falling shale oil production, terror attacks on oil facilities in Nigeria, and wildfire affecting production in Canada. However, Dubai oil price in was lower than in Q2/2015 which averaged US$61.3 per barrel. Petroleum product prices in the Singapore spot market recorded a rise in compared with Q1/2016, following the rise in the Dubai price. Gasoline crack spreads in averaged US$14.5 per barrel, a decrease from Q1/2016 amid surplus and more exports from North Asia. Diesel crack spreads averaged US$10.5 per barrel, an increase from Q1/2016 amid refinery maintenance season. Fuel oil crack spreads averaged US$-8.9 per barrel, a decrease from previous quarter amid increasing Japanese and Iranian supplies. Outlook

3 3 Singapore gross refining margin (GRM) in averaged US$5.0 per barrel, decreasing from US$7.7 per barrel in Q1/2016 and US$8.0 per barrel in Q2/2015 primarily due to lower gasoline crack spreads and fuel oil crack spreads. Petrochemical prices of Olefins in for both High Density Polyethylene (HDPE) and Polypropylene (PP) surged from Q1/2016, in parallel with a recovery in crude and naphtha prices, tight supply of Polyethylene (PE) from unplanned shutdown of PTTGC and Petro Rabigh, and limited cargo offering for Polypropylene (PP). However, Olefins price in declined from the same quarter of last year. For Aromatics, the Benzene price in increased from Q1/2016 along with rising feedstock price and a peak turnaround period of Benzene (BZ) plants in Asia. Moreover, arbitrage window for Asian benzene headed to the US has been closed since the Asian benzene price has remained higher than the US benzene price. Similarly, Paraxylene (PX) price improved amid high Purified Terephthalic Acid (PTA) demand and a peak turnaround period of PX plants in Asia. However, the BZ and PX spreads to Naphtha (MOPJ) in lowered to US$217 per ton and US$394 per ton from US$230 per ton and US$407 per ton, respectively, in Q1/2016 as a result of a larger increase in feed prices compared to product prices. However, Aromatics prices in declined from the same quarter last year. Unit: US$ per Ton Q2/2015 Q1/2016 % Inc.(Dec.) YoY QoQ 1H/2015 1H/2016 % Inc.(Dec.) HDPE: CFR SEA 1,375 1,103 1,153 (16.1%) 4.5% 1,282 1,128 (12.0%) PP: CFR SEA 1, ,082 (19.4%) 16.3% 1,246 1,006 (19.2%) BZ: FOB Korea (22.0%) 9.4% (18.5%) PX: CFR Taiwan (14.0%) 7.1% (11.8%) The Thai economy in continued to recover, primarily supported by government spending and continual growth in tourism sector. Domestic consumption started to show signs of improvement following rising farm income and alleviation of drought stress. However, private investment and export still contracted, on concerns over global recovery, despite seeing signs of improvements in sectors benefiting from government policy. The Office of the National and Social Development Board (NESDB) in August 2016 projected that the Thai economy in 2016 will expand 3.3%, no change from the previous forecast in May 2016.

4 in the second Quarter of 2016 until present of non-recurring for are as follows: PTT Public Company Limited 4 January 2016 Energy Policy Management Committee ( EPMC ) announced, on January 21, 2016 to float NGV price for private cars on the condition that PTT be responsible for the price differential when the cost exceeds Baht 13.50/kg for 6 months. March 2016 On March 25, 2016 the tribunal renders the majority award that since PTT s termination of the commercial contract with RPCG Public Company Limited ( RPC ) is not in accordance with the contract condition and the tribunal rules that PTT make a payment for damages to RPC. However, PTT is respectfully unable to concur with such award and together with the fact that the award is not unanimously rendered. As a result, PTT exercise its legal right by filing a motion with the court requesting the award be abrogated and currently PTT is preparing a petition to be submitted to the court of jurisdiction to withdraw the arbitration's award. April 2016 The Chief Ombudsman submitted the complaint to the Administrative Court on April 4, 2016, regarding PTT not returning the natural gas pipeline assets in accordance with the judgment of the Supreme Administrative Court which there is no new allegation. However, the Supreme Administrative Court, on February 16, 2015, ordered that PTT had returned all assets completely according to the judgment of the Supreme Administrative Court since May 2016 The State Audit Commission ( SAC ) issued a resolution on a matter in which PTT had not delivered the gas pipeline assets in its entirety under the judgment of the Supreme Administrative Court, and alleged a former Minister and officers of the Minister of Finance, a former PTT executive, and a PTT employee unlawfully performed their duties. PTT insisted that PTT had jointly undertaken to separate the assets under the judgment of the Court entirety, and did in no way conceal any information or fact. Ombudsman alleged Ministry of Finance, Ministry of Energy, PTT and their related 11 persons. On 27 May 2016, PTT has formally received a Court order requested PTT to clarify an issue relation to the separation of the assets of Petroleum Authority of Thailand on parts which are considered as the State property that are required to transfer to Ministry of Finance whether or not PTT have completely complied with the Cabinet Resolution. Currently, the attorney is on process of preparing the testimony. PTT Global Chemical Public Company Limited ( PTTGC ) had shutdown the Olefins Unit 3 since May 17, 2016 to repair the furnace coils which were damaged from power outage and thermal shock within the coil. After considering the shutdown, the overall Outlook

5 June 2016 July 2016 PTT Public Company Limited olefins utilization rate in 2Q/2016 and 3Q/2016 will averaged at 84% and 92% respectively. The unit will be able to operate at its full capacity by August PTT reviewed five-year investment plan to reflect the operation and current circumstances by reducing investment plan of 2016 from Baht 50,839 million to Baht 43,307 million. The reduction is mainly from the investment projects of natural gas and infrastructure business. Global Power Synergy Public Company Limited ( GPSC ) commenced small power plant producer (SPP), Nava Nakorn Electricity Generation ( NNEG ) with the installed capacity of Megawatts (30% stake in NNEG), which already has achieved commercial operation to supply electricity to Electricity Generating Authority of Thailand (EGAT). NGV selling price to private cars were already sold at prices that reflect actual costs with no ceiling. Currently, NGV sell at baht / kg. PTT Exploration and Production Public Company Limited ( PTTEP ), signed a Production Sharing Contract (PSC) through PTTEP HK Offshore Limited (PTTEP s subsidiary) with Petroleum National Berhad (PETRONAS) for exploration and production rights of Block SK410B, offshore Sarawak, Malaysia. IRPC Company Limited ( IRPC ), has commenced the commercial operation of Upstream Project for Hygiene and Value Added Products (UHV) project which generate propylene of 320,000 tons per year. This will be the feedstock in polypropylene expansion unit. 5 Outlook

6 performance of PTT and its subsidiaries PTT Public Company Limited 6 Financial performance of compared with Q2/2015 and Q1/2016 as well as 1H/2016 compared with 1H/2015 are summarized as follows: Unit : Million Baht Q2/2015 (Restated) Q1/2016 % Inc. (Dec.) 1H/2015 % Inc. 1H/2016 YoY QoQ (Restated) (Dec.) Sales & services income 536, , ,447 (21.6%) 8.7% 1,051, ,387 (23.2%) : Exploration & Production 48,258 38,165 38,294 (20.6%) 0.3% 95,890 76,459 (20.3%) : Natural gas 1/ 138, , ,210 (17.5%) (3.4%) 278, ,495 (16.5%) : Oil 134, , ,569 (11.1%) 6.0% 268, ,330 (13.4%) : International trading 272, , ,284 (33.1%) 20.8% 510, ,192 (34.7%) : Petrochemical & Refining 239, , ,585 (24.5%) 2.5% 455, ,790 (21.6%) : Coal 3,184 3,263 3, % 13.5% 7,877 6,968 (11.5%) : Others 1,281 1,119 1,024 (20.1%) (8.5%) 2,368 2,143 (9.5%) EBITDA 87,376 71,343 82,151 (6.0%) 15.1% 158, ,494 (2.9%) : Exploration & Production 34,277 28,548 27,820 (18.8%) (2.6%) 69,969 56,369 (19.4%) : Natural gas 13,742 14,562 16, % 16.6% 22,945 31, % : Oil 4,525 5,875 6, % 18.1% 8,540 12, % : International trading - Excluding effect of FX 1, ,237 >100% >100% 1,234 2,900 >100% - Including effect of FX 1,265 1,548 2,755 >100% 78.0% 2,361 4, % : Petrochemical & Refining 33,520 20,915 27,749 (17.2%) 32.7% 53,875 48,664 (9.7%) : Coal % 11.2% 1,958 1,487 (24.1%) : Others (284) >(100%) >(100%) 889 (159) >(100%) Depreciation and amortization expenses 36,672 31,828 31,925 (12.9%) 0.3% 72,835 63,753 (12.5%) Operating Income 50,705 39,515 50,225 (0.9%) 27.1% 85,284 89, % : Exploration & Production 10,184 10,045 9,560 (6.1%) (4.8%) 22,107 19,605 (11.3%) : Natural gas 9,940 10,160 12, % 22.7% 15,406 22, % : Oil 3,677 4,995 6, % 20.4% 6,927 11, % : International trading - Excluding effect of FX 1, ,229 >100% >100% 1,219 2,884 >100% - Including effect of FX 1,258 1,540 2,747 >100% 78.4% 2,346 4, % : Petrochemical & Refining 26,745 13,508 20,271 (24.2%) 50.1% 40,498 33,779 (16.6%) : Coal (256) >100% (10.5%) % : Others 84 (124) (535) >(100%) >(100%) 107 (659) >(100%) Share of net income (loss) from investments in joint ventures and associates 2, (65.5%) (3.0%) 4,324 1,704 (60.6%) Gain (loss) on foreign exchange (3,289) 2,349 (248) (92.5%) >(100%) (1,348) 2,101 >100% EBIT 50,818 43,431 48,517 (4.5%) 11.7% 95,251 91,948 (3.5%) Finance costs 7,829 7,235 7,245 (7.5%) 0.1% 15,722 14,480 (7.9%) Income taxes 8,989 3,798 6,912 (23.1%) 82.0% 12,440 10,710 (13.9%) Net income (loss) 23,746 23,669 24, % 5.1% 46,330 48, % Earnings per share (Baht/share) % 3.4% % 1/ Including infrastructure business Outlook

7 Second quarter of 2016 compared with First quarter of 2016 In, sales revenue of PTT and its subsidiaries was Baht 420,447 million, increasing by Baht 33,507 million or 8.7% mainly due to the increase in average petroleum and petrochemical product selling prices, both olefins and aromatics following higher crude oil price, resulting in the rise in sales revenue of almost all business groups. The improvement of PTT s GSP performance resulted from a lower feed gas costs in relation to the time lag effect of the decline in fuel oil price and the increase in product selling prices referring to higher petrochemical price. The performance of petrochemical and refining business increased mainly from stock gain following the higher crude oil price from the previous period, even though Market GRM dropped from the considerable decline in gasoline and fuel oil crack spreads. The rise in performance of olefins caused by the increase in product selling prices of polyethylene following crude oil price. Meanwhile, the performance of aromatics decreased following lower in P2F from a soften demand and an increased supply, leading to the increase in product selling price lower than the feedstock price. The performance of PTTEP also decreased mainly due to higher unit cost from operating activity and the increase in planned maintenance, even though average selling prices increased. Hence, earnings before interest, taxes, depreciation and amortization (EBITDA) of PTT and subsidiaries in was Baht 82,151 million, increasing by Baht 10,808 million or 15.1%. 7 Share of net income (loss) from investments in joint ventures and associates 3% Q1/2016 Unit: Million Baht Others Gas Oil Petrochemical & Refining. In, the share of net income from investments in joint ventures and associates was Baht 839 million, decreasing by Baht 26 million from Baht 865 million in Q1/2016 mainly due to the decrease in performance of associates in natural gas business group, while the performance of associates in petrochemical and refining business group increased primarily from HMC owing to the rise in Polypropylene (PP) price, leading to higher P2F. Outlook

8 In, loss on foreign exchange rate was Baht 248 million, increasing by Baht 2,597 million from gain of 2,349 million in Q1/2016 mainly from PTT s Japanese Yen outstanding loans caused by Thai Baht depreciated against Japanese Yen. Moreover, the effect of Thai Baht appreciation against US Dollar, which has lower effect compared with Q1/2016, resulted in lower unrealized gain on foreign exchange rate of many affiliates within PTT Group. Moreover, loss on derivatives increased by Baht 3,155 million from Baht 916 million in Q1/2016 mainly resulted from PTTEP s oil price hedging contracts. In, corporate income taxes were Baht 6,912 million, increasing by Baht 3,114 million from Baht 3,798 million in Q1/2016, mainly resulted from the effect of Thai Baht appreciation against US Dollar of PTTEP, which lower affected compared with Q1/2016 and there was the recognition of deferred tax assets from loss carry forward and the dissolution of its subsidiaries of IRPC in Q1/2016, Moreover, corporate income taxes of PTT also increased from better performance. First half of 2016 compared with First half of 2015 Sales revenue of PTT and its subsidiaries in 1H/2016 was Baht 807,387 million, decreasing by Baht 243,969 million or 23.2% mainly due to the drop in average selling prices following a sharply decline in average Dubai crude oil price by 35.0% compared with prior year, led to the decrease in sales revenue in all businesses, especially trading business as well as petrochemical and refining business. Hence, EBITDA of PTT and subsidiaries was Baht 153,494 million, decreasing by Baht 4,624 million or 2.9% compared with 1H/2015, even though, gas business had improved performance from lower feed cost in relation to the time lag of the decline in fuel oil price, as well as oil and trading business which had stock gain and sales of domestic condensate. 8. Share of net income (loss) from investments in joint ventures and associates 60.6% 4,324 Others 516 Gas 457 Oil Unit: Million Baht 1,704 3, (87) 1H/2015 1H/2016 Petrochemical & Refining Outlook

9 In 1H/2016, the share of net income from investments in joint ventures and associates was Baht 1,704 million, decreasing by Baht 2,620 million or 60.6% from Baht 4,324 million in 1H/2015 mainly from the recognition of performance of SPRC and BCP amounting to Baht 2,803 million in prior year, while there was no such recognition in this period (PTT sold its investment in BCP on April 30, 2015 and decreased its shareholdings in SPRC to 5.4% on December 3, 2015). Depreciation and amortization expenses decreased by Baht 9,082 million or 12.5% from Baht 72,835 million in 1H/2015 to Baht 63,753 million mainly due to the increase in petroleum reserve and the recognition of loss on impairment of exploration and production assets of PTTEP in Q3/2015. In 1H/2016, there was gain on foreign exchange rate of Baht 2,101 million, increasing by Baht 3,449 million from 1H/2015 mainly resulted from the effect of Thai Baht appreciation against US Dollar. Therefore, many affiliates within PTT Group had unrealized gain on foreign exchange from foreign currencies debts. Nonetheless, loss on foreign exchange of PTT increased mainly due to Japanese Yen outstanding loans caused by Thai Baht depreciated against Japanese Yen. Furthermore, loss on derivatives in 1H/2016 was Baht 4,987 million, increasing by Baht 3,247 million compared with 1H/2015 mainly from PTTEP s oil price hedging derivative contracts and foreign exchange forward contracts. In addition, in 1H/2015, gain on disposal of investment was Baht 3,096 million primarily from disposal of investment in BCP (an associate of PTT) and IRPC had revenue from reversal of doubtful account, while there were no such recognition in 1H/2016. Corporate income taxes decreased by Baht 1,730 million or 13.9% from Baht 12,440 million in 1H/2015 to Baht 10,710 million in 1H/2016 mainly from the effect of Thai Baht appreciation against US Dollar of PTTEP and IRPC recognized deferred tax assets from loss carry forward and the dissolution of its subsidiaries. Moreover, corporate income taxes of PTT also increased from the better performance. 9 Outlook

10 performance of PTT and its subsidiaries The details by segmentation of revenue, EBITDA and operating income of 1H/2016 are as follow; 1. Upstream Petroleum and Natural Gas Business Group Unit: Million Baht Revenue EBITDA Operating Income 45% 37% 15% 22% 6% 10% 807,387 1% 1% 153,493 89,740 0% 19% 20% 38% 29% 32% 25% GAS Oil & Trading * Including coal and others. PTTEP Petro & Refine Others* 10 Petroleum Exploration and Production Business: PTT Exploration and Production Public Co., Ltd. (PTTEP) Q2/2015 Q1/2016 %Inc. (Dec.) YoY QoQ 1H/2015 1H/2016 %Inc. (Dec.) Average selling price (US$/BOE) (24.8%) 4.3% (26.6%) Average sales volume (BOED) 315, , , % (2.8%) 315, , % Second quarter of 2016 compared with First quarter of 2016 In, sales revenue of PTTEP was Baht 38,294 million, increasing by Baht 129 million or 0.3% mainly from the increase in average selling prices by 4.3% from US$ 35.1 per barrel of oil equivalent (BOE) in Q1/2016 to US$ 36.6 per BOE in, primarily because of the rise of crude oil price. Nonetheless, the average sales volume decreased by 2.8% from 329,858 barrel of oil equivalent per day (BOED) to 320,657 BOED in mainly from Montara project. EBITDA and operating income was Baht 27,820 million and Baht 9,560 million, decreasing by Baht 728 million and Baht 485 million respectively mainly from the rise in unit cost by US$ 1.7/BOE (Q1/2016 : 28.6 US$/BOE, : 30.3 US$/BOE) due to operating activity and the increase in planned maintenance. First half of 2016 compared with First half of 2015 In 1H/2016, sales revenue of PTTEP was Baht 76,459 million, decreasing by Baht 19,431 million or 20.3% from 1H/2015 mainly from the decrease in average selling prices by 26.6% from US$ 48.8 per BOE in 1H/2015 to US$ 35.8 per BOE in 1H/2016, primarily because of the drop of crude oil price. Nonetheless, the Outlook

11 average sales volume increased by 3.0% from 315,649 BOED in 1H/2015 to 325,257 BOED in 1H/2016 mainly from Arthit and Contract 4 projects. EBITDA in 1H/2016 was Baht 56,369 million, decreasing by Baht 13,600 million or 19.4% mainly from lower sales revenue as aforementioned. However, operating expenses decreased from cost reduction policy and efficiency improvement activities under the SAVE to be SAFE program. Operating income in 1H/2016 was Baht 19,605 million, decreasing by Baht 2,502 million or 11.3% in line with a decline in EBITDA as aforementioned. Even though, depreciation, depletion and amortization expenses decreased by Baht 11,098 million as a result of an increase in the petroleum reserve from both domestic and overseas projects and the recognition of impairment of assets from PTTEP Australasia project in Q3/2015. Natural Gas Business Group The details of all product sales volume from GSPs are as follows: % Inc.(Dec.) %Inc. Unit : Ton Q2/2015 Q1/2016 1H/2015 1H/2016 YoY QoQ (Dec.) LPG 608, , , % (2.8%) 1,282,931 1,341, % Ethane 496, , ,103 (9.9%) (0.6%) 1,048, ,776 (14.4%) Propane 220, , ,004 (15.4%) 0.1% 425, ,796 (12.1%) NGL 1/ 176, , , % 0.9% 366, ,850 (3.6%) Total 1,501,944 1,492,241 1,472,580 (2.0%) (1.3%) 3,122,182 2,964,821 (5.0%) Note: 1/ include Pentane The details of reference product prices of GSPs are as follows: %Inc.(Dec.) %Inc. Unit : US$ per Ton Q2/2015 Q1/2016 1H2558 1H/2559 YoY QoQ (Dec.) LPG 1/,4/ (24.4%) 6.2% (27.6%) Ethylene 2/ 1,386 1,012 1,099 (20.7%) 8.6% 1,206 1,056 (12.4%) Propylene 2/ (23.2%) 11.2% (22.7%) HDPE 2/ 1,375 1,103 1,153 (16.1%) 4.5% 1,282 1,128 (12.0%) PP 2/ 1, ,082 (19.4%) 16.3% 1,246 1,006 (19.3%) Naphtha 3/ (27.5%) 20.3% (29.5%) Note: 1/ Contract Price (CP) 60:40 2/ South East Asia - Spot Price 3/ MOP Singapore (MOP S) 11 4/ On December 15, 2014, NEPC passed a resolution of LPG price restructuring effective from February 2, 2015 onwards, with the cancellation of LPG Ex-GSP pricing at US$ 333 per ton and setting the calculating method for LPG Pool price which reflects actual costs of LPG production and supply (GSPs, Refineries and Aromatics plants, Imported) based on weighted average of the volume from production and supply for the last 3 months Outlook

12 Second quarter of 2016 compared with First quarter of 2016 PTT Public Company Limited 12 In, sales revenue of natural gas business was Baht 114,210 million, decreasing by Baht 4,075 million or 3.4% from Q1/2016 mainly from lower sales revenue of PTT Natural Gas Supply and Trading (GSM), Natural Gas Transmission (GTM) and Natural Gas Distribution (NGR) business units, as a result of the drop in average selling prices in all customer groups compared with Q1/2016. However, the average natural gas sales volume (calculated at heating value of 1,000 BTU per cubic foot) increased by 253 million standard cubic feet per day (MMSCFD) from 4,628 MMSCFD in Q1/2016 to 4,881 MMSCFD in or 5.5% because power producer customers called more gas in summer mainly from IPP, and there were new SPPs started up in. Sales revenue of PTT s GSP increased from higher product selling prices in line with global petrochemical product reference prices. Nonetheless, the sales volume of all products from GSPs (including NGL derived from Dew Point Control units) dropped from 1,492,241 tons in Q1/2016 to 1,472,580 tons in or 1.3% mainly from LPG. This resulted from GPS 6 major turnaround for 26 days (15 May 9 Jun) in and Ethane separation plant (ESP) major turnaround for 23 days (1-23 Mar) in Q1/2016. EBITDA of natural gas business in was Baht 16,975 million, increasing by Baht 2,413 million or 16.6% mainly from the decrease of feed gas costs and the increase in fuel oil price as well as petrochemical prices following crude oil price. As a result, gross profit of PTT s natural gas business increased especially GSPs which had higher sales margin of LPG and NGL selling to petrochemical business. Also, industrial customers and NGV had less losses. Therefore, operating income in was Baht 12,466 million, increasing by 22.7% in line with the rise in EBITDA. The overall performance of infrastructure business, consisting of GPSC, ENCO and PTTES, decreased compared with Q1/2016, mainly resulted from dividend received from Ratchaburi Power Company Limited (RPCL) of GPSC in Q1/2016. Nevertheless, there was an increase in sales revenue as a result of the rise in sales volume of electricity from both Sriracha Power Plant (IPP) and Small Power Producer (SPP). First half of 2016 compared with First half of 2015 In 1H/2016, sales revenue of natural gas business was Baht 232,495 million, decreasing by Baht 46,108 million or 16.5% from 1H/2015 mainly from lower sales revenue of PTT GSM, GTM and NGR business units, as a result of the drop in average selling prices in all customer groups, especially selling prices for industrial customers, following the decrease in reference fuel oil price, compared with the same period of last year. Moreover, the average natural gas sales volume (calculated at heating value of 1,000 BTU per cubic foot) decreased 100 Outlook

13 13 MMSCFD or 2.1% from 4,855 MMSCFD in 1H/2015 to 4,755 MMSCFD in 1H/2016 mainly due to lower demand from EGAT. In addition, sales revenue of PTT s GSP decreased in line with the drop in product selling prices in relation to the global petrochemical product reference prices in 1H/2016. Moreover, the sales volume of all products decreased from 3,122,182 tons in 1H/2015 to 2,964,821 tons in 1H/2016 or 5.0% mainly from the drop in sales volume of Ethane and Propane, as a result of PTT s ESP and GSP 6 major turnaround in Q1/2016 and, respectively, and planned shutdown of PTTGC s Olefins and Polymer plants in Q1/2016, and unplanned shutdown of Olefins 3 in. EBITDA of Natural Gas Business in 1H/2016 was Baht 31,537 million, increased by Baht 8,592 million or 37.4%. The main reason was from the decrease of feed gas costs which decreased more than the drop in selling prices. Therefore, gross profit of PTT s natural gas business increased mainly from GSPs. Furthermore, industrial customers and NGV losses decreased from the drop in Pool Gas cost despite NGV selling prices decline to Baht per kilogram (as of 16 Jun 15 Jul 2016) for private cars and Baht per kilogram for taxi and public cars. Operating income in 1H/2016 was Baht 22,626 million, increasing by 46.9% in line with the rise in EBITDA. In 1H/2016, infrastructure business had better performance mainly from GPSC which had the increase in sales volume of electricity from Small Power Producer (SPP) and revenue from the power plant of IRPC Clean Power (IRPC-CP) Phase-1 has started its commercial operation since November 2015 and fully operated in 1H/2016. Also, there were the reduction in average natural gas price brought to the decrease in cost of raw materials, as well as dividend received from Ratchaburi Power Company Limited (RPCL). 2. Downstream Petroleum Business Group Oil Business Group %Inc.(Dec.) %Inc. Unit : million liter Q2/2015 Q1/2016 1H/2015 1H/2016 YoY QoQ (Dec.) Average sales volume 6,214 6,677 6, % (1.8%) 12,600 13, % Second quarter of 2016 compared with First quarter of 2016 In, sales revenue of oil business was Baht 119,569 million, increasing by Baht 6,807 million or 6.0% mainly from the increase in product selling prices following the rise in average Dubai crude oil price from US$ 30.4 per barrel in Q1/2016 to US$ 43.2 per barrel in despite average sales volume in this quarter decreased by 119 million liters or 1.8% from 6,677 million liters or equivalent to 461,509 barrels per day in Q1/2016 Outlook

14 14 to 6,558 million liters or equivalent to 453,298 barrels per day in, primarily caused by the decrease in sales volume of LPG and aviation fuel. EBITDA in was Baht 6,941 million, increasing from Q1/2016 by Baht 1,066 million or 18.1%, mainly from the increase in contribution margins almost all petroleum products, especially gasoline and diesel as a result of stock gain increased compared with previous quarter. Therefore, operating income in was Baht 6,013 million, increasing from the prior quarter by Baht 1,018 million as a result of the increase in EBITDA as aforementioned. First half of 2016 compared with First half of 2015 Sales revenue of oil business in 1H/2016 was Baht 232,330 million, decreasing by Baht 35,890 million or 13.4% which resulted from the drop in crude oil price. The average Dubai crude oil price decreased from US$ 56.6 per barrel in 1H/2015 to US$ 36.8 per barrel in 1H/2016. Whereas, sales volume increased by 635 million liters or 5.0% from 12,600 million liters or equivalent to 437,880 barrels per day in 1H/2015 to 13,235 million liters or equivalent to 457,403 barrels per day in 1H/2016, mainly from the increase in gasoline, diesel and aviation fuel following the decline in product prices in line with crude oil price. EBITDA in 1H/2016 was Baht 12,816 million, increasing by Baht 4,276 million or 50.1% due to the rise in margins of gasoline and diesel as a result of stock gain increased compared with prior year. Consequently, operating income in 1H/2016 was Baht 11,008 million, increasing by Baht 4,081 million, in line with the increase in EBITDA as aforementioned. International Trading Business Group %Inc.(Dec.) %Inc Unit : million liter Q2/2015 Q1/2016 1H/2015 1H/2016 YoY QoQ (Dec.) Average sales volume 20,248 18,549 17,168 (15.2%) (7.4%) 41,314 35,717 (13.5%) Second quarter of 2016 compared with First quarter of 2016 Sales revenue of international trading business in was Baht 182,284 million, increasing by Baht 31,376 million or 20.8% from Q1/2016 mainly from the rise in global crude oil price. While, sales volume in this quarter decreased by 1,381 million liters or 7.4% from 18,549 million liters or equivalent to 1,282,096 barrels per day in Q1/2016 to 17,168 million liters or equivalent to 1,186,657 barrels per day in, mainly due to the rise in sales volume of crude oil and imported condensate from Out In trading resulted from the planned shutdown of PTT group refineries and the drop in sales volume of petroleum products and crude oil overseas from the Out Out trading along with Asia refinery turnaround in this period. Outlook

15 Outlo PTT Public Company Limited 15 EBITDA, which adjusted the effect of foreign exchange, in was Baht 2,755 million, increasing by Baht 1,207 million mainly from the rise in domestic condensate margins due to the increase in price. Operating income, which adjusted the effect of foreign exchange, in this quarter was Baht 2,747 million. First half of 2016 compared with First half of 2015 Sales revenue of international trading business was Baht 333,192 million in 1H/2016, decreasing by Baht 177,206 million or 34.7% which resulted from the reduction in product selling prices in accordance with global oil market prices. Moreover, the sales volume in this period decreased by Baht 5,597 million liters or 13.5% from 41,314 million liters or equivalent to 1,435,722 barrels per day in 1H/2015 to 35,717 million liters or equivalent to 1,234,376 barrels per day mainly due to the decline in sales volume of crude oil and condensate from Out In trading and Out Out trading due to the refinery planned shutdown. EBITDA, which adjusted the effect of foreign exchange, in 1H/2016 was Baht 4,303 million, increasing by Baht 1,942 million. Operating income, which adjusted the effect of foreign exchange, in 1H/2016 was Baht 4,287 million, increasing by Baht 1,941 million from prior year mainly from the rise in domestic condensate margins following the decrease in average selling prices slower than the drop in cost. Petrochemical and Refining Business Group Unit : US$ per ton Q2/2015 Q1/2016 %Inc. (Dec.) YoY QoQ 1H/2015 1H/2016 %Inc. (Dec.) HDPE 1,375 1,103 1,153 (16.1%) 4.5% 1,282 1,128 (12.0%) PP 1, ,082 (19.4%) 16.3% 1,246 1,006 (19.3%) BZ - Cond (13.7%) (14.0%) % PX - Cond % (2.4%) % Unit : US$ per ton Q2/2015 Q1/2016 %Inc. (Dec.) YoY QoQ 1H/2015 1H/2016 %Inc. (Dec.) Market GRM (42.7%) (32.3%) (34.0%) Inventory gain (loss) 2.45 (0.97) 3.74 (52.7%) >100% (0.18) 1.14 >100% Accounting GRM (20.1%) 81.9% (26.3%) Refinery Utilization rate (%) 99.4% 97.2% 83.8% (15.7%) (13.8%) 98.5% 90.5% (8.1%) Note: GRM is calculated from refineries of TOP, IRPC, and PTTGC. Second quarter of 2016 compared with First quarter of 2016 In, sales revenue of petrochemical and refining business was Baht 180,585 million, increasing by Baht 4,380 million or 2.5% mainly from the increase in average petroleum and petrochemical product prices

16 16 following the rise in crude oil price as a result of the tightening supply, the wildfire in Canada, and the prolonged unrest in Nigeria. The refinery utilization rate in was 83.8%, decreasing by 13.8% from Q1/2016 mainly from planned shutdown of PTTGC s refinery plants for two months. The refinery maintenance affected the drop in aromatics utilization rate of PTT Group because the refinery unable to send reformate to feed aromatics business and refinery could not receive condensate residual from aromatics, resulted in the reduction of utilization. For Olefins utilization rate increased even if PTTGC unplanned shutdown of the Olefins 3. EBITDA in was Baht 27,749 million, increasing by Baht 6,834 million from Q1/2016, and Operating income was Baht 20,271 million, increasing by Baht 6,763 million, mainly due to Refinery performance surged mainly due to the increase in PTT group s stock gain by US$ 4.71 per barrel (Q1/2016 : (0.97) US$/BBL, : 3.74 US$/BBL) following the rise in crude oil price, whereas Market GRM decreased as a result of the lower petroleum product crack spreads, especially fuel oil and gasoline from the increase in oversupply and the lower demand. Meanwhile, diesel spreads slightly increased due to higher demand. Aromatics Petrochemical performance slightly decline from market P2F due to the lower product spreads in almost all products following the increase in condensate price which is the main feedstock, even though there was the recognition of stock gain in this period from higher condensate price following crude oil price. Olefins Petrochemicals performance increased for both PTTGC and IRPC due to higher product prices following the rise in crude oil price, where HDPE price increased, and the spread of PP and Naphtha increased by 14% owing to the tightening supply from plants shutdown in this region. Share of net income from investments in joint ventures and associates of petrochemical and refining business increased by Baht 190 million from Q1/2016 mainly from HMC performance due to the rise in PP price, while PTTAC performance decreased from higher feed stock cost, planned shutdown in this period and the lower gain on foreign exchange of outstanding loans. First half of 2016 compared with First half of 2015 In 1H/2016, sales revenue of petrochemical and refining business was Baht 356,790 million, decreasing by Baht 98,465 million or 21.6% mainly from the reduction in average petroleum and petrochemical product prices following the sharply drop in crude oil price. Outlook

17 Econom PTT Public Company Limited 17 Sales volume of petrochemical increased following the improved in Aromatics utilization rate, while the Olefins utilization rate decreased from planned and unplanned shutdown of PTTGC s olefins plant. The refinery decreased from the drop in utilization rate by 8.1% as a result of PTTGC s planned shutdown as aforementioned. EBITDA in 1H/2016 was Baht 48,664 million, decreasing by Baht 5,211 million from 1H/2015, and Operating income was Baht 33,779 million, decreasing by Baht 6,719 million, mainly due to Refinery performance decreased from market GRM due to the decline in almost all petroleum product spreads although PTT Group refineries had higher stock gain by 1.32 US$/BBL. As a result, the Accounting GRM decreased. Aromatics Petrochemical performance improved due to higher P2F, both PX and BZ, compared with the same period of last year which had oversupply. Moreover, 1H2016, fuel used and loss decreased following the reduction in feed cost. Olefins Petrochemicals performance decreased mainly from the fall in PTTGC s sale volume following utilization rate of Olefins plant, which had planned shutdown in the previous quarter and emergency shutdown from power outage in this quarter. In addition, PE prices decreased in line with crude oil price. Share of net income from investments in joint ventures and associates of petrochemical and refining business decreased by Baht 2,937 million from 1H/2015 mainly from the performance of SPRC and BCP amounting to Baht 2,803 million which PTT sold its investment in BCP on April 30, 2015 and decreased its shareholding in SPRC to 5.41% on December 3, 2015.

18 Coal Business PTT Public Company Limited 18 Q2/2015 Q1/2015 %Inc. (Dec.) %Inc. 6M/2015 6M/2016 YoY QoQ (Dec.) Newcastle index price (US$ per ton) (13.4%) 2.2% (18.7%) Average selling price (US$ per ton) (24.0%) (6.3%) (22.8%) Sales volume (million ton) % 23.8% % Second quarter of 2016 compared with First quarter of 2016 In sales revenue of coal business was Baht 3,705 million, increasing by Baht 442 million or 13.5% mainly due to the rise in sales volume in by 0.5 million tons or 23.8% from 2.1 million tons in Q1/2016, mainly from Jembayan, as a result of the desire to reduce coal inventories because the quality of coal will decrease if stored for long time. However, average selling price in decreased by US$ 2.8 per ton from US$ 44.6 per ton to US$ 41.8 per ton. EBITDA in was Baht 783 million, increasing by Baht 79 million or 11.2% mainly caused by the rise in sales volume as aforementioned, accompanied by lower drilling costs from the higher discount received by the contractor. Operating income in was Baht 291 million, decreasing by Baht 34 million or 10.5% due to the rise in depreciation and amortization expenses following the higher sales volume. First half of 2016 compared with First half of 2015 In 1H/2016, sales revenue of coal business was Baht 6,968 million, decreasing by Baht 909 million or 11.5% mainly due to the drop in average selling price by US$ 12.7 per ton or 22.8%. However, sales volume increased by 9.5% from the desire to reduce coal inventories as aforementioned. EBITDA in 1H/2016 was Baht 1,487 million, decreasing by Baht 471 million or 24.1% mainly caused by the drop in average selling price as aforementioned, despite sales volume increased. However, operating income in 1H/2016 was Baht 616 million, increasing by Baht 307 million or 99.4% compared with 1H/2015 as a result of the drop in depreciation and amortization expenses following the decrease in coal mining assets from recognition of impairment losses in Outlook

19 The analysis of PTT and its subsidiaries consolidated financial position as of June 30, 2016 compared with December 31, Total Assets Total Liabilities & Equity Unit: Million Baht 1% 1% Current assets Available-for-sale investments, Investments in joint ventures, associates, and Other long-term investments 2,173,996 2,152, , ,338 77,342 79,524 2,173,996 2,152, , , , , , ,593 Other current liabilities Long-term loans (including current portion) Non-current liabilities Property, plant and equipment 1,118,677 1,106,396 1,087,687 1,123,750 Equity Other non-current assets Assets 298, , Dec Jun Dec Jun 2016 As of June 30, 2016, total assets of PTT and its subsidiaries were Baht 2,152,472 million, decreasing by Baht 21,524 million or 1% compared with December 31, The decrease was mainly from the net effect of the followings: : A decrease of Baht 10,364 million or 1.5% in current assets was mainly from the followings: - An increase of Baht 9,307 million in cash and cash equivalents and current investments. - A decrease of Baht 17,347 million in accounts receivable mainly from the decrease in sales volume and selling prices compared with the year ended : An increase of Baht 2,182 million or 2.8% in long-term investments was mainly from the share of profit from investments in joint ventures and associates and the increase in investments of associates of infrastructure business. : A decrease of Baht 12,281 million or 1.1% in property, plant and equipment was mainly from depreciation expenses even though there was additional assets of PTT Group during the period, for instance, the Nakornsawan and the Nakornratchasima onshore gas pipeline projects of PTT, assets under construction of the Phenol II and LLDE Expansion projects of PTTGC, the Upstream Project for Hygiene and Value Add Products (UHV), the Polypropylene Expansion project (PPE) and the Polypropylene Compound and Specialties project (PPC) of IRPC, and the LNG terminal Phase II project of PTTLNG. Outlook

20 Liabilities As of June 30, 2016, PTT and its subsidiaries had total liabilities of Baht 1,028,722 million, decreasing by Baht 57,587 million or 5.3% from the year ended 2015, mainly from the net effect of the followings: : A decrease of Baht 32,105 million or 12.3% in other current liabilities mainly from the payment of accounts payable and income tax payable. : A decrease of Baht 20,367 million or 3.2% in long-term loans (including the current portion) mainly from the repayment of long-term loans and the repurchase of debentures. : A decrease of Baht 5,116 million or 2.7% in non-current liabilities mainly from deferred tax liabilities and derivative liabilities following the appreciation of Thai Baht. Equity As of June 30, 2016, PTT and its subsidiaries had total shareholders equity of Baht 1,123,750 million, increasing by Baht 36,063 million or 3.3% from the year ended 2015, mainly due to performance in 1H/2016 of PTT and its subsidiaries which was Baht 48,548 million and dividends paid amounting to Baht 11,424 million. 20 Outlook

21 Liquidity PTT Public Company Limited 21 For the six-month period ended June 30, 2016, PTT and its subsidiaries had net decrease in cash and cash equivalents amounting to Baht 41,192 million, and cash and cash equivalents at the beginning of the period was Baht 239,978 million. As a result, cash and cash equivalents at the end of the period was Baht 198,786 million. Details of cash flow by activities are as follows: Unit: Million Baht Net cash provided by operating activities 130,433 Net cash used in investing activities (107,256) Net cash used in financing activities (59,297) Effects of exchange rates on cash and cash equivalents (167) Currency translation differences (4,905) Net increase in cash and cash equivalents during the period (41,192) Cash and cash equivalents at the beginning of the period 239,978 Cash and cash equivalents at the end of the period 198,786 Net cash provided by operating activities of Baht 130,433 million was derived from Baht 48,548 million of net profit attributable to owners of the parent, adjusted by net profit to net cash provided (used in) by operating activities. The increase in net cash flow from operating activities mainly resulted from Baht 63,753 million of depreciation and amortization expenses, Baht 14,480 million of finance costs, Baht 10,710 million of income taxes expenses, as well as, the decrease in net operating assets of Baht 8,268 million and income taxes paid was Baht 23,209 million. Net cash used in investing activities was Baht 107,256 million mainly resulted from the followings: : The cash outflow of investments in property, plant and equipment, intangible assets, and mining properties amounting to Baht 58,938 million, mainly due to the additional investments of PTTEP in petroleum exploration and production assets mainly from the investments in Arthit, Zawtika, and S1 projects. Additionally, PTT invested in projects, principally are the Nakornsawan and the Nakornratchasima onshore gas pipeline projects. Furthermore, there were investments in Phenol II project and LLDPE Expansion project of PTTGC, UHV, PPE and PPC projects of IRPC, as well as the production of linear alkylbenzene project (LAB) and New Small Power Plants Project (SPPs) of TOP. : The cash outflow from current investments amounting to Baht 50,499 million, mainly from fixed deposits of PTT, PTTEP and TOP. Outlook

22 Net cash used by financing activities was Baht 59,297 million, mainly from the followings: : The long-term loans repayment of Baht 39,342 million were principally from the repayment of loans and the repurchase of debentures of PTTGC, PTT and PTTEP amounting to Baht 36,000 million. : Cash paid for finance costs amounting to Baht 16,129 million, mainly from PTT, PTTEP, PTTGC and TOP. : A decrease of Baht 3,957 million in bank overdrafts and short-term loans from financial institutions, mainly from PTTT. : Cash received from loans totaling to Baht 22,469 million, mainly was derived from PTTGC, IRPC, and TOP. 22 Outlook

23 Financial ratios and earnings per share of PTT and its subsidiaries PTT Public Company Limited 23 Financial Ratio Unit 1H/2015 1H/2016 Profitability Ratios Gross profit margin % 11.78% 15.11% Net profit margin % 6.38% 8.27% Solvency Ratios Interest coverage Time Earnings per share Earnings per share Baht/share Financial Ratio Unit Dec 31, 2015 Jun 30, 2016 Liquidity Ratios Current ratio Time Quick ratio Time Solvency Ratios Debt to Equity Time Note: Current ratio = Current assets divided by Current liabilities Quick ratio = (Cash and cash equivalent + Current investments + Accounts receivable) divided by Current Liabilities Gross profit margin = Gross profit divided by Sales and service income Net profit margin = Net profit divided by Sales and service income Debt to equity = Interest bearing debt divided by Total shareholder s equity Interest coverage = (Net cash flow from operating activities +Taxes paid from operating activities) divided by Interest paid from financing activities Outlook

24 Outlook in 2016 PTT Public Company Limited 24 Global economic growth is expected to slow down in the third quarter of 2016 (Q3/2016) as the effects of the UK s vote to leave the EU (Brexit vote) are felt in advanced economies especially in the UK and the euro area where reduced private sector confidence and heightened market volatility may prove damaging to growth, though weaker currencies should provide some support to exports. Subsequently, central banks of various countries announced to stand ready to support the stability of markets. As for the US, growth is expected to remain modest on the back of resilient domestic demand, though a potentially stronger dollar post Brexit vote could hurt exports. Meanwhile, emerging market economies and lower income countries are expected to maintain a roughly steady growth rate in Q3/2016 amid relatively stable oil prices, post-brexit vote financial market volatility and China s economic expansion hitting the government s growth target of 6.5-7%. According to the IEA s estimates in June 2016, global oil demand is expected to grow by 1.4 MMBD to average 96.1 MMBD in 2016, with emerging market economies and lower-income countries being the key driver. Meanwhile, oil demand in the advanced economies is expected to remain unchanged from the previous year. As for global oil supply, oversupply condition is expected to decline following the reduction in Non-OPEC production. However, increased production in Iran, Iraq, and Libya should help keep oil prices in the US$35-40 per barrel range which would help boost petroleum product demand Singapore GRM in Singapore in 2016 is expected to average US$5-6 per barrel. The Olefins price in Q3/2016 is expected to trend higher amid tight supply, with HDPE price expected at US$ 1,159 per ton and PP price at US$ 1,083 per ton. Meanwhile, Aromatics price is expected to trend lower with PX price forecasted at US$ 796 per ton following lower polyester demand in China, and BZ price forecasted at US$ 616 per ton amid new capacities and lower demand of Styrene Monomer (SM) and Phenol during plants turnarounds period. The Thai economy in Q3/2016 is expected to expand at a slightly slower pace amid contracting exports as a result of global economic slowdown. Government spending, however, is expected to remain a key driver of economic growth, especially those large-scale public infrastructure investment projects which are expected to take clearer shape and help partially crowd in private investment. In the meantime, tourism sector is likely to continue its expansion. Risk factors that need to be monitored include an increase in financial market and exchange rate volatility as a consequence of Brexit vote, and the outcome of Thailand s constitutional referendum. Outlook