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(Translation) Opinion Report of The Independent Financial Advisor Regarding Connected Transaction From The Issuance of New Shares And Subordinated Convertible Debenture Offered To PTT Public Company Limited To Shareholders The Bangchak Petroleum Public Company Limited By Kim Eng Securities (Thailand) Public Company Limited September 20, 2005 Introduction According to the resolution of Board of Directors Meeting No.9/2005 of The Bangchak Petroleum Public Company Limited ("BCP" or "the Company") on August 29, 2005 resolved the increase for registered capital from Baht 867,143,461 to Baht 1,531,643,461 by the issuance of new shares amounting 664.50 million shares at par Baht 1 per share to be allocated as follows: (1) To allot not exceeding 283,000,000 common shares, by offering to PTT Public Company Limited ("PTT") with the offering price of Baht 14-16 per share totaling not more than Baht 4,528 million and not exceeding 161,000,000 common shares to specific investors and/or institutional investors, either domestic or foreign. (2) To allot not exceeding 135,000,000 common shares reserving for the exercise of the Company's new subordinated convertible debentures to be offered to PTT for not exceeding USD 41.7 million or Baht 1,890* million. (3) To allot not exceeding 85,500,000 common shares reserving for the exercise of the Company's new warrants to be offered to the existing shareholders. * Assume Exchange Rate of Baht 45 per USD to mitigate risk associated to Baht depreciation due to the bidding price determined in USD, expected to be finalized in Nov - Dec 2005 The relationship between the company and PTT can be defined as follows linkages: 1. PTT holds 52,240,000 shares of BCP or 7.71% of the paid-up capital (as of July 5, 2005) via the holding of Depository Receipt ("BCP-DR1") giving the voting right to the company through Siam DR Company Limited ("Siam DR"). In addition, two of the PTT managements - Mr. Pichai Chunhavajira and Mr.Apisit Rujikeatkamjorn - are the Company's directors. 2. Ministry of Finance ("MOF") holds 124,947,970 shares of BCP or 18.45% of the paid-up capital (as of July 5, 2005) via the holding of Depository Receipt ("BCP-DR1") giving the voting right to the Company through Siam DR. In addition, two of the MOF representatives - Mr. Songpope Polachan and Ms. Chularat Suteethorn - are the Company's directors. 3. Vayupak Mutual Fund I ("Vayupak I") holds 20,831,400 shares of BCP or 3.14% of the paid-up capital (as of April 11, 2005) via the holding of Depository Receipt ("BCP-DR1") giving the voting right to the company through Siam DR. 4. Vayupak I holds 10,000 units of the company's Convertible Debenture Deposit Receipts ("CDDR") (as of April 29, 2005) which can be convert equivalently to 6,993,006 common shares. 5. MOF holds 1,467,750,743 shares of PTT or 52.48% of the paid-up capital (as of July 20, 2005). 6. Vayupak I holds 435,800,000 shares of PTT or 15.58% of the paid-up capital (as of July 20, 2005). 7. MOF holds 3,000 million units of Vayupak I or 30% of the total units (as of July 28, 2005). The proceeds from these fund raising together with loan from financial institutions will be used for investment in the Product Quality Improvement ("PQI") Project. The PQI project includes a cracking unit and its supporting units and facilities, situating at current site of BCP refinery. The completion of PQI project would turn BCP simple refinery to a complex refinery allowing the company to produce a higher proportion of value-added refined oil; i.e., diesel and gasoline. The company will implement fixed lump - sum contract with ceiling price, and turnkey contract for the project construction. At present, the Company is in the process to obtain an engineering, procurement and construction ("EPC") contractor for the PQI project. The selection of EPC contractor is expected to be concluded and pursue the project around the end of the 2005.The project will take 27-30 months for the construction of the project; the completion is expected in the first quarter of 2008. However, the definite construction period will be determined by the selected EPC contractor. The offering of newly issued shares and convertible debentures to PTT aforementioned equal to a maximum of 54% of Net Tangible Assets ("NTA") of the Company -- NTA as of 30 June 2005 was Baht 10,037 million. Since the size of the Transaction is larger than 3% of the NTA, the company is obliged to disclose the information on the Transaction to the Stock Exchange of Thailand and to obtain the shareholders' approval on the Transaction, following Notification of the Board of Governors of the Stock Exchange of Thailand regarding Disclosure of Information and Other Acts of Listed Companies Concerning the Connected Transactions, 2003. The Company is required to send a report on the opinion of the independent financial advisor regarding (1) reasonableness and benefits of the transaction to the listed company, (2) fairness of the price and conditions of the transaction, and (3) recommendation for the shareholders' resolution for or against the transaction together with supporting reasons. Kim Eng Securities (Thailand) Public Company Limited. ("Financial Advisor") has been appointed as the Financial Advisor to the Company with the duty to provide opinion on the acquisition of assets, the fair price and the reasonableness of the transactions to the shareholders. In order to give the opinion, the Financial Advisor has considered the details of the transaction from the BODs' resolutions from the meeting No. 9/2005 held on August 29th, 2005, the company information (F56-1), relevant documents, and interviews with the company's managements. With respect to the preparation of its opinion concerning the transaction the Financial Advisor opinion is based on the assumptions of data and documents received from the company. The Financial Advisor cannot certify or guarantee, directly or indirectly, the correctness or validity of the information and representations provided by the company to the Financial Advisor.In addition, the opinion of the Financial Advisor is based on assumptions and information that were available during the study. Any changes occur or develop after the study may nevertheless affect the opinion of Financial Advisor. Additionally, the sources of fund to finance such a project would be loan from the financial institution, new common shares, as well as convertible debenture and the analysis for the opinion already took these funding package into account. The Financial Advisor is to give the opinion on the transaction to the Board of Directors and the shareholders to support their voting decision as follows: 1. General Description of The Transaction 1.1 Transaction Date After the shareholder's meeting approval on the transaction and the permission from The Securities and Exchange Commission to issue new shares and convertible debenture. 1.2 General Description of the Transaction The Company has planned to partially raise fund for the project via the issuance of new shares and convertible debenture in Thai Baht equivalent to a combined amount of approximately USD 150 million (Baht 6,750 million*), offered to PTT and institutional investor(s), while the company will balance the funding requirement by debt facilities from commercial bank(s).The offering to PTT, the Transaction, would be equivalent to USD equivalent to USD 100-120 million (Baht 4,500-5,400 million*) divided into (1) a maximum of 283 million newly issued shares at the offering price of Baht 14-16 per shares and (2) a maximum of USD 41.7 million (Baht 1,890 million*) convertible debenture issued at par value, subsequently converted to common shares of not more than 135 million shares. Considering both PTT's direct holding and holding BCP-DR1 with the voting right through Siam DR, such offering would result in the increasing shareholding of PTT in the company, from 52.24 million shares or 7.71% to a maximum of 335.24 million shares or which is not more than 30% total shares. Note: *Assume Exchange Rate of Baht 45 per USD to mitigate risk associated to Baht depreciation due to the bidding price determined in USD, expected to be finalized in Nov - Dec 2005. Shareholding Structure The Bangchak Petroleum Plc. Before After Registration of new shares Registration of new shares (As of Jul 5, 2005) (Approximately) SIAM DR Co., Ltd. (by followingBCP-DR1 holders) 76.80 % 46.39 % - Ministry of Finance 18.45 % 11.15 % - PTT Plc. 7.71 % 4.66 % - Other DR holders 50.63 % 30.59 % PTT Plc - 25.25 % Bankthai Plc. 6.00 % 3.66 % Others 17.20 % *24.72 % Total paid-up shares 677,146,946 1,121,000,000 Note: *Assume the issuance of new shares to institution investor(s) of approximately 161 million shares. 1.3 Features of the securities 1. New common shares offered to PTT Offering amount Not exceeding 283,000,000 shares Par value Bath 1 per share Offering price Bath 14 - 16 per share 2. Subordinated and unsecured convertible debenture offered to PTT Type Subordinated / unsecured / name-registered debenture with no trustee Offering amount Not exceeding 189,000 units Par value Bath 10,000 per unit Offering price Bath 10,000 per unit Tenor Not longer than 10 years after the issuance Interest yield Fixed rate not higher than 5% Interest payment period To be later determined by BOD Conversion ratio Par value divided by conversion price Conversion period The last date of each quarter Conversion price Bath 14 - 16 per share Number of shares reserved for the conversion Not exceeding 135,000,000 shares According to being informed by the company, the subscribers of the new common shares and the subordinated convertible debenture will not subject to receive the new warrants to be offered to the existing shareholders as the company will issue the new warrant to the existing shareholders before the subscription date of the new common shares and the subordinated convertible debenture. The offering of newly issued shares and convertible debentures to PTT aforementioned equal to a maximum of 54% of Net Tangible Assets ("NTA") of the Company -- NTA as of 30 June 2005 was Baht 10,037 million. Since the size of the Transaction is larger than 3% of the NTA, the company is obliged to disclose the information on the Transaction to the Stock Exchange of Thailand and to obtain the shareholders' approval on the Transaction, following Notification of the Board of Governors of the Stock Exchange of Thailand regarding Disclosure of Information and Other Acts of Listed Companies Concerning the Connected Transactions, 2003. 1.4 Conditions precedent The acquisition of ordinary shares and convertible debentures shall be subject to conditions precedent. The major condition precedents are as follows: * The result of the confirmatory due diligence is satisfactory to PTT. * PTT has obtained a waiver of the mandatory tender offer by way of Whitewash for its acquisition of BCP's new shares both from the private placement and from the conversion of the convertible debentures. * In the event that the Trade Competition Board announces its notification that this investment in BCP by PTT shall be subject to prior approval from the Trade Competition Board, PTT must have obtained such approval without any condition that may have a negative impact on PTT. * The financing from financial institutions, EPC contractor and other contracts for the Product Quality Improvement Project (PQI Project) including approval on environmental impact and other licenses for the PQI Project obtained by BCP must be satisfactory to PTT subject to certain conditions, e.g. PTT taking into account the best interests of BCP. * The report of the independent engineer is satisfactory to PTT. * BCP has obtained all necessary approvals at its board of directors' meeting and extraordinary meeting of shareholders as required by laws, e.g. increase of capital and the amendment to its articles of association to facilitate the nomination of new representatives from PTT to be new BCP's directors in a number to be mutually agreed. * BCP has obtained consent from its existing lender (i.e. Krung Thai Bank) in order to proceed with the PQI Project. * The financing plan of BCP for the PQI Project must be in the structure agreed between PTT and BCP. * PTT and BCP have executed the contracts relating to their business collaboration, e.g. crude supply, product offtake based on the key terms set out in the subscription agreement * From the execution date of the subscription agreement up to the closing date, there must be no material adverse change on the business operations or financial conditions of BCP except for any change arising from normal volatility in oil business. It is anticipated that PTT and BCP will enter into the subscription agreement for ordinary shares and convertible debentures after the shareholders' meeting of BCP has approved its entering into of this transaction, which is expected to be in November 2005. 1.5 Related parties 1.5.1 Same major shareholder BCP PTT Vayupak I No. of share % No. of share % No. of share % MOF 124,947,970 18.45% 1,467,750,743 52.48% 3,000,000,000 30.00% PTT 52,240,000 7.71% - - Vayupak I 20,831,400 3.08% 435,800,000 15.58% - In addition, Vayupak I holds 10,000 units of the company's CDDR (as of July 29, 2005) which can be convert equivalently to 6,993,006 common shares. The shareholding altogether among MOF, PTT, and Vayupak 1 is accounted for 198,019,370 shares or 29.24% of the paid-up capital. 1.5.2 Same management Mr. Pichai Chunhavajira and Mr. Apisit Rujikeatkamjorn are the directors for both PTT and BCP. 2. Reasonableness, Benefits, and Risk Factors of the Transaction 2.1 Objective and Necessity of the Transaction BCP is implementing the Product Quality Improvement ("PQI") Project of which total project cost would be approximately USD 250 - 350 million or Baht 11,250 - 15,750 million*.The PQI project includes a cracking unit and its supporting units and facilities, situating at current site of BCP refinery. The completion of PQI project would turn BCP simple refinery to a complex refinery allowing the Company to produce a higher proportion of value-added refined oil; i.e., diesel and gasoline. The Company has planned to partially raise fund for the project via the issuance of new shares and convertible debenture in Thai Baht equivalent to a combined amount of approximately USD 150 million (Baht 6,750 million*), offered to PTT and institutional investor(s), while the company will balance the funding requirement by debt facilities from commercial bank(s). The offering to PTT, the Transaction, would be equivalent to USD equivalent to USD 100-120 million (Baht 4,500-5,400 million*) divided into (1) a maximum of 283 million newly issued shares at the offering price of Baht 14-16 per shares and (2) a maximum of USD 41.7 million (Baht 1,890 million*) convertible debenture issued at par value, subsequently converted to common shares of not more than 135 million shares. Considering both PTT's direct holding and holding BCP-DR1 with the voting right through Siam DR, such offering would result in the increasing shareholding of PTT in the company, from 52.24 million shares or 7.71% to a maximum of 335.24 million shares or which is not more than 30% shareholding. * Assume Exchange Rate of Baht 45 per USD to mitigate risk associated to Baht depreciation due to the bidding price determined in USD, expected to be finalized in Nov - Dec 2005. 2.2 Benefits from and effects on the transaction 2.2.1 Benefits from issuance of new common shares and convertible debenture * The proceed will be used to invest in the PQI project in order to enhance the valued added products by converting its low-value fuel oil to the high-value products such as gasoline and HSD. The objective of the investment is to enhance the company's competitiveness as well as increase its revenue stream. * As the extensive project cost is estimated to approximately USD 250-350 million, sources of the fund would be from equity and debt combined to ensure the appropriate level of D/E ratio. The expected equity portion will be USD 150 million. The D/E ratio effect can be numerically demonstrated as follows: Assumption: Total investment cost 350* USD Consisting of 1) Loan 200 USD 2) Increased shares 120 USD 3) Convertible debenture 30 USD Foreign exchange 45 Baht per USD Recent outstanding CDDR*** 257,377** Units Recent outstanding ESOP Warrant 24** million units Number of shares reserved for 85.50 Million shares exercise of the new warrant**** * Using the maximum budget in order to be conservative ** as of August 30, 2005 *** Par value of Baht 10,000 per unit with the conversion price of Baht 14.30 ****Right offering ratio of 10 existing shares to 1 new warrant with exercise price of Baht 18.00 (Million Baht) Total Shareholders' D/E ratio liabilities equity (Times) At June 30, 2005 21,552 11,462 1.89 (1)New fund from loan, new shares, and new convertible debenture 10,350 5,400 Adjusted to 31,902 16,862 1.89 ESOP Warrant entirely exercised 0 120 CDDR entirely convert -2,574 2,574 New RO Warrant entirely exercised 0 1,539 Adjusted to 29,328 21,095 1.39 (2) New fund from loan only 15,750 0 Adjusted to 37,302 11,462 3.25 ESOP Warrant entirely exercised 0 120 CDDR entirely convert -2,574 2,574 Adjusted to 34,728 14,156 2.45 From the above-simulated calculation of D/E ratio (which is not yet taken into account for additional earning to enhance the equity base), it's apparently cleared that the D/E ratio with the new fund from loan only would be considered too high. This would also cause breaking one of the covenants for the long-term loan from Krung Thai Bank Plc. indicating to maintain D/E ratio not more higher than 2 times. * The issuance of convertible debenture will help in delay of dilution effect in such a way as earning per share and voting right. Its interest rate would also be lower than rate from bank loan. 2.2.2 Effects from issuance of new common shares and convertible debenture * Dilution effect on earning per share (EPS), Book value per share (BVPS), and return on equity (ROE) as increased new share and possible conversion of the new convertible debenture before the completion of the project. * Due to issuance of the company's new shares as a part of the project funding, a profit in terms of dividends and their voting rights will be affected as follows: Before the share After the share Assumed all warrant increase increase is exercised and (as of August 30, 2005) and new CD CDDR is convert Number of Number of Number of shares % shares % shares % Existing shareholders 677,146,946 100.00% 677,146,946 60.40% 744,861,640 48.63% CDDR holders 0 0.00% 0 0.00% 182,596,153 11.92% ESOP warrant holders 0 0.00% 0 0.00% 25,200,000 1.65% New investors in new common shares and convertible debenture 0 0.00% 444,000,000 39.60% 579,000,000 37.80% Total 677,146,946 100.00% 1,121,146,946 100.00% 1,531,657,793 100.00% Given, the assumptions for the above calculation as follows: 1. Number of increased common shares to PTT is equal to 283 million shares. 2. Number of increased common shares to institutional investors is equal to 161 million shares. 3. Number of increased common shares for conversion of new convertible debenture is equal to 135 million shares. 4. The new RO warrant is right offering with the ratio 10 existing common shares to 1 new warrant. 5. Number of increased common shares reserved for the first possible exercised portion (approximately 45%) of the ESOP warrant is equal to 1.2 million shares. 2.3 Benefits from and effects on between doing the transaction with related and other parties 2.3.1 Benefits from offering the new shares and convertible debenture to PTT * There is certainty for obtaining the proceeds from this fund raising for (more)