PTT: After the Tom-Yum-Kung Disease

February 24, 2003

Piyaworn Chankanit

Sunny Lo

Jennifer Pawlowski

Sam Shin

Agenda

PTT and the Industry

PTTEP

EGAT

Country Background

Privatization Process

Risk Assessment

Valuation

Recommendations

IPO Update

Case Summary

In November 2001, the Petroleum Authority of Thailand (PTT), privatized through the largest IPO in Thai history.

The Industry

Oil ReservesThailand has 300 mn barrels of proven oil reservesIn 1997 107,000 barrels/day produced

Natural Gas ReservesProven in 2000: 12,705 BcfProbable/possible reserves: 21,000 Bcf

PTTOperations began in 1978, state-owned enterpriseMerger between Oil & Fuel Organization and Natural Gas OrganizationThailand’s only fully integrated gas and oil companyIndustry leader in marketing and distribution of gas and oil products

PTTOil

Purchased in/outside ThailandCustomer distribution – 1519 nationwide service stations

GasPrincipal processor and distributorPurchases from PTTEP and other producers in Thailand & MyanmarCustomer distribution – large volume (power plants) and small volume (local vendors)

PTT Revenues

(in millions) 1999 2000 2000 2000 2001 2001Bt Bt $ Bt Bt $

Combined Sales Revenue 228,617 365,106 8,067 157,140 187,829 4,150

Year Ended December 31, Six Months Ended June 30,

PTTEP

Subsidiary of PTT, which has 61% equity interest

Exploration and production of natural gas

Owns 22% natural gas reserves

In 2000, involved in 13 projects9 with proven reserves, 5 exploratory

3 on shore, 10 offshore

EGAT

Thailand’s principal state-owned power producer

PTT’s largest customer

Approximately 13% of PTT’s total 2000 revenue

PTT highly dependent on EGAT sales to generate sufficient cash flows

Reductions in EGAT demand highly affect PTT

PTT Value Chain

Pipeline Network

PTT Natural Gas Supply

Country Background

Strong decade of economic growth pre-Asian financial crisis

July 1997 Thai government floats currency (baht) resulting in immediate decline in value

Spread of financial crisis to Asia and then global markets

IMF Involvement

Post-Asian Crisis IMF granted $17.2 bn package to help institute economic reform

Restructure financial sector, increase competitiveness, improve legal environment for business sector

Thai government ordered to privatize many public industries

PTT set for IPO in November 2001

PTT Privatization

Original date in Q4 1998, but ultimately set for November 2001

ExpectationsPTT established as holding company and listed on Thai Stock Exchange

PTT would gradually sell off subsidiary holdings

Raise $14 bn in first 3 years of privatization

PTT Strengths

Dominant position in industry

Integrated natural gas operations

Gas earnings reduce exposure to oil price volatility

Low cost and growing upstream operations

Experienced management team

Risk Assessment

Operational Heavy dependence on EGAT for

sales

Take-or-pay purchase agreements

Financial Highly leveraged

(approx 80% D/V)

Sovereign High currency risk

Government has historically affected gas/oil prices

Discussion Points

Cost of Capital CalculationFrom ICCRC, the country rating of Thailand as of September, 2001 was 50.0

Cost of Equity: 21.00%

Risk Adjusted rE: 17.00%

Cost of Debt: 10.20%

Cost of Capital: 12.23% (in 2002)

Valuation

AE 31.64 Bt

FCFU 24.06 Bt

Multiple (EV/EBITDA) 49.62 Bt

Multiple (P/E) 39.99 Bt

Recommendation

Macroeconomic conditions in 2001 much worse than today. Expected IPO price of Bt 37.5 – 65 overestimated PTT’s value.

Our valuation indicates a proper value between Bt 24.06 (FCFU) – 31.64 (AE).

IPO Update

November 22, 2001 Thailand secured largest privatization and fourth largest equity offering to dateIPO raised proceeds of $726 mnMarket capitalization of $2,741 mnFinal pricing at the Bt 31 and Bt 35 rangeCurrently trading at Bt 42 per share (02/0703)