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Attachment 1 / 9 Management's Discussion and Analysis for Business Operations For the three-month period and six-month period ended June 30, 2007 Business Overview for 2007 Oil Price Situation For the second quarter of 2007, world oil market was in upward trend as evidenced by continuously increased in oil price from the first quarter. This situation was supported by the concerned over possibly supply shortage which may resulted from political unrest in crude oil production countries and conflict between UN Nation and Iran regarding nuclear experimentation. In addition, it was expected that global oil demand growth should be supported by a stronger fundamental factors than the previous year. Further more, the OPEC had confirmed not to increase oil production level until next OPEC's meeting on Sep 11, 2007. These factors had encouraged oil price in this 2nd quarter to be in an upward trend (average Dubai crude price of the second quarter was 64.82 USD/BBL, 16.9% increased from the first quarter which was 55.43 USD/BBL) Currently, crude oil price is reaching its highest level in the past 11 months which is nearly equal to last year's highest price. It is expected that OPEC may decide to increase oil production in the next meeting. The Hedge Fund may unwind their position to realize profit. These anticipated factors may encourage the crude oil price to be rather weak sometimes in the second half of the year. In order to cope with this uncertain market situation, the Company has set an effective inventory control measure mainly to mitigate impacts as may result from this situation. Refinery Production The Company has successfully increased its crude run production level to reached 73.8 KBD in this second quarter which has made the average crude run production for this first half to be 63.1 KBD, comparing to 54.5 KBD and 60.1 KBD of the year 2006 respectively. This is mainly due to the successful execution of Fuel Oil Very Low Sulfur (FOVS) export contract with various Chinese refineries which will crack the FOVS for Gasoline and Gas Oil. Average volume of FOVS under these contract will be around 100-120 million liters per month and it shall be valid until the end of 2007. In the mean time, the Company is in the process of 2008's contract consideration. In addition, the incident of nuclear power plant in Japan had made demand for fuel oil to continuously increased as it has been anticipated that the power plant will have to take time as long as 12 months for rectification. This situation encouraged Fuel Oil price to be stronger than last year. Attachment 2 / 9 1. Explanation and Analysis of the Operating Results for second quarter and first half of 2007 compared with that of the year 2006 1st Half 2007 1st Half 2006 Consolidated Company Consolidated Company Total Revenues, Million Baht 44,561 44,129 51,874 51,455 Net Profit (Loss), Million Baht 839 791 908 919 Net Profit Margin, % 1.90 1.81 1.78 1.82 Earning Per Share, Baht/Share 0.75 0.71 1.14 1.15 2nd Quarter 2007 2nd Quarter 2006 Consolidated Company Consolidated Company Total Revenues, Million Baht 24,370 24,138 25,166 24,945 Net Profit (Loss), Million Baht 881 845 393 385 Net Profit Margin, % 3.66 3.54 1.58 1.56 Earning Per Share, Baht/Share 0.79 0.76 0.43 0.42 1.1 Net Profit/(Loss) Analysis 1) For six-month period, the consolidated financial statements recorded net profit of Baht 839 million, which being the Company's net profit of Baht 791 million and the subsidiary's (Bangchak Green Net Company Limited- BGN) net profit of Baht 45 million and adjustment of connected transactions of Baht 3 million. 2) For 2nd quarter, the consolidated financial statements recorded net profit of Baht 881 million, which was being the Company's net profit of Baht 845 million and the subsidiary's net profit of Baht 34 million and connected transactions adjustment of Baht 2 million. The Company's EBITDA was Baht 1,444 million, increased from Baht 958 million of the same period last year by Baht 486 million or 50.7%. Performance breakdown by business unit are as follow; Attachment 3 / 9 Table: Details of breakdown EBITDA 2nd Quarter,07 2nd Quarter,06 Changing +/ - (Million Baht) (A) (B) (A) - (B) (Reviewed) (Revised) EBITDA 1,444 958 +486 - Refinery 1,362 1,190 +172 - Marketing 82 -232 +314 (Less) Inventory Gain (849) (358) -491 Adjusted EBITDA 595 600 -5 - Refinery 513 832 -319 - Marketing 82 -232 +314 - EBITDA of the Refinery Business was Baht 1,362 million, increased from Baht 1,190 million of the same period of last year. Total Gross Refining Margin (GRM) for this quarter was 6.27 USD/BBL (included inventory gain due to crude oil price increased in average), higher than Q2 last year which was at 6.03 USD/BBL. The Company's crude run was at 73.8 KBD higher than those of last year which was only at 54.5 KBD. GRM is illustrated as follow; USD/BBL 2nd Quarter 2nd Quarter Changing GRM from 2007 2006 +/- Base GRM 2.47 3.45 -0.98 Improvement Program 0.001 2.97 0.27 4.54 -0.27 (1.57) Oil Hedging 0.50 0.82 -0.32 Inventory Gain (Loss) 3.30 1.49 +1.81 Total 6.27 6.03 +0.24 Gross Refining Margin - GRM (excluding inventory effects) was 2.97 USD/BBL,lower than that of the same period of last year which was at 4.54 USD/BBL. Base GRM for this quarter itself was decreased from those of last year by 0.98 USD/BBL mainly due to average market's Gas Oil crack spread was decreased by 3.15 USD/BBL while Tapis/Dubai spread was increased. Gain from improvement program and oil hedging was decreased by 0.27 USD/BBL and 0.32 USD/BBL respectively. The reduction in gain from oil hedging was resulted by the hedged margin as quoted this year was lower than those of last year. This quarter the company entered into hedged position at only 23% of the average production level while last year the hedged position was at 54%. Attachment 4 / 9 Inventory gain for this quarter was equivalent to 3.30 USD/BBL while it was 1.49 USD/BBL last year. The higher gain was resulting from higher oil price increasing rate for this quarter than those of last year (reference average Dubai crude price Q2/Q1 2007 was 16.9% against Q2/Q1 2006 was 11.7%) - EBITDA of the Marketing Business was Baht 82 million, increased from Baht -232 million of the same period of last year, since in this quarter the retail oil prices was adjusted in the manner that better reflect its cost than those of last year. As a result, Marketing Margin (exclude lubricant margin) was at 27.4 satang per liter higher than those of last year which was at the level -11.5 satang per liter. The marketing business sale volume was at 52.7 KBD increased from 52.3 KBD of the same period of last year. 1.2 Income Analysis 1) Total revenues of the Company and its subsidiary for six-month period of 2007 were Baht 44,561 million, composed of the Company's revenues of Baht 44,129 million and its subsidiary's (BGN) of Baht 6,345 million, adjusted by connected transaction of Baht 5,913 million which mostly were sale transactions from the Company to BGN. 2) Total revenues of the Company and its subsidiary for the second quarter of 2007 were Baht 24,370 million, composed of the Company's revenues of Baht 24,138 million and its subsidiary's (BGN) of Baht 3,446 million, adjusted by connected transaction of Baht 3,214 million. Major changes from the same period of last year were as follows: - Interest income was increased by Baht 32 million to Baht 57 million or 129% since the Company invested its excess cash (mostly PQI funds raising proceeds raised at May 2006 and yet to be utilized) into fixed deposit accounts. As of June 30, 2007, the Company had Baht 3,859 million of fixed deposit at banks (classified as Baht 2,830 million in "Cash and Cash Equivalent" and Baht 1,029 million as "Short-term Investment"). - Gain from oil hedging contract was Baht 127 million, decreased by Baht 70 million or 36%. This quarter, the hedge level was 23% of production level compared with those of last year at 54%. The reduction in gain from oil hedging was resulted by the hedged margin as quoted by the market was lower than those of last year. - Other incomes-others was Baht 72 million, increased by Baht 46 million or 180% mainly from settlement of damage claim to one of the company's jetty amount of Baht 26 million and Premium on foreign exchange hedging contracts of Baht 24 million. Attachment 5 / 9 1.3 Expense Analysis 1) Total expenses of the Company and its subsidiary for six-month period of 2007 were Baht 43,722 million, which composed of the Company's expenses of Baht 43,337 million and its subsidiary's (BGN) of Baht 6,299 million, adjusted by connected transaction of Baht 5,914 million, which mostly were cost of sales from the Company to BGN. 2) Total expenses of the Company and its subsidiary for the second quarter of 2007 were Baht 23,489 million, which composed of the Company's expenses of Baht 23,293 million and its subsidiary's (BGN) of Baht 3,412 million, adjusted by connected transaction of Baht 3,216 million, major changes from the same period of last year were as follows: - Interest expense was Baht 167 million, decreased from those of last year by Baht 20 million or 11%, as the market rate was decreasing 0.5% p.a. The current cost of debt is at 5.7% p.a. - Income tax of Baht 273 million, increased by Baht 84 million, resulted from performance for this second quarter was higher than that of last year. The corporate income tax for this period has included deferred tax asset amount Baht 51 million from tax privileges of capital investment program in accordance with the Royal Decree No. 460 (2nd Quarter, the company has paid Baht 678 million for the capital investment program, mainly PQI project). 1.4 Profitability Analysis Gross profit margin has been affected by world oil price fluctuation which had direct impact to both refining and marketing margin. Gross profit margin for six-month period and the second quarter of 2007 were 4.2% and 6.4% respectively, increased from 3.2% and 3.9% of the same period of last year. This higher gross profit margin came from total refining margin of refinery business as mentioned in item 1.1 section 2. The net profit margin then increased from 1.6% in Q2 last year to 3.5% accordingly. 2. Explanation and Analysis of the Financial Position as of June 30, 2007 compared with December 31, 2006 2.1 Assets 1) At the end of the second quarter of 2007, total assets of the Company and its subsidiary were Baht 39,951 million, which comprised of Baht 39,871 million of the Company's total assets and Baht 472 million of BGN's total assets, adjusted by connected transactions of Baht 392 million which was from account receivable of Baht 389 million. Attachment 6 / 9 2) At the end of the second quarter of 2007, the Company's total assets increased by Baht 1,928 million, comparing to the end of 2006. The major changes of assets were as follows: - Trade account receivable as of June 30, 2007 was Baht 4,274 million which was increased by Baht 1,146 million or 37% since the Company has increased export sales of FOVS of which the normal credit term is 30 days. - Total inventories were Baht 9,791 million, increased by Baht 1,150 million or 13%, due to inventories volume has been increased as per higher rate of crude utilization. 2.2 Liabilities 1) At the end of the second quarter of 2007, total liabilities of the Company and its subsidiary were Baht 20,763 million, which comprised of Baht 20,687 million of the Company's total liabilities and Baht 465 million of BGN's total liabilities, adjusted by connected transactions of Baht 389 million. 2) At the end of the second quarter of 2007, the Company's total liabilities increased by Baht 1,436 million comparing to the end of 2006. The major changes of liabilities were as follow: - Trade accounts payable were Baht 6,048 million, increased by Baht 1,902 million since crude purchase was increased following the increase in refining production. 2.3 Shareholders' Equity 1) At the end of the second quarter of 2007, the consolidated total shareholders' equity were Baht 19,188 million, which comprised of Baht 19,184 million from the total shareholders' equity of the Company and Baht 7 million from BGN's, adjusted by Baht 3 million connected transactions. 2) The Company's total shareholders' equity were increased by Baht 492 million comparing to that at the end of 2006, since the Company generated net profit of Baht 791 million for the first half of 2007. However, the Company had amortized Baht 109 million of surpluses on fixed assets revaluation and had paid for dividend of Baht 190 million. 3) As of June 30, 2007 the Company has financial instruments (CDDR, convertible debenture, warrant and ESOP) which holders can exercise their conversion right (subject to the terms and conditions of each instrument), if fully converted or exercised shall be equal to 287 million common shares or approximately 20.4% of total shares in fully dilution. Attachment 7 / 9 3. Explanation and Analysis of the Statement of Cash Flows for six-month period of 2007 3.1 For this first half of 2007, the Company and its subsidiary had beginning cash and cash equivalent of Baht 2,705 million. During the period, the Company received cash from various activities of Baht 2,105 million, of which Baht 615 million were received from operating activities, Baht 2,231 million were received from investing activities and Baht 741 million were used in financing activities. Cash and cash equivalent at the end of the second quarter of 2007 were Baht 4,810 million, which consisted of Baht 4,676 million of the Company and Baht 134 million of BGN. 3.2 The Company had net profit of Baht 791 million; added back non-cash items of Baht 546 million, the Company then had cash profit from operation of Baht 1,337 million together with cash at the beginning of period of Baht 2,599 million. The Company also had additional cash flow activities as follows; 1) Net cash received from working capital was Baht 754 million; The Company used cash in operating assets of Baht 2,067 million which consisted of increased in Trade accounts receivable of Baht 1,103 million, increased in inventories value of Baht 1,150 million but other current assets were decreased by Baht 186 million. Cash from operating liabilities were increased by Baht 1,313 million consisted of increased in trade accounts payable of Baht 1,914 and decreased in other operating liabilities of Baht 601 million. 2) Net cash received from investing activities was Baht 2,235 million; Short term investment was reclassified to cash by Baht 3,016 million since its remaining investment period was less than 3 months. Investment in fixed assets of Baht 876 million, of which Baht 750 million was PQI's. Cash received from other investments were Baht 95 million. 3) Net cash used in financing activities was Baht 741 million; Baht 300 million short-term revolving loan and Baht 251 million long-term loan were repaid to Krungthai Bank. Dividend payment was Baht 190 million (total share of common stock 1,119 million at 0.17 Baht per share). The Company cash and cash equivalents had increased by Baht 2,077 million. When combine with Baht 2,599 million, at the end of the second quarter of 2007, cash and cash Attachment 8 / 9 equivalents was Baht 4,676 million which consisted of Baht 1,480 million for operation and Baht 3,196 million appropriated for PQI project. 4. Changing in accounting policy Since January 1, 2007, the Company changed its accounting policy regarding investment in a subsidiary so that separate financial statement, which formerly reported investment using the equity method, now reports using the cost method. This is to comply with TAS 44. Thus the Company restated its financial statement by using the historical cost as the cost of the investment in a subsidiary of the separate financial statement. This adjustment caused the net income on the separate financial statement to differ permanent from that reported in the consolidated financial statement. The Company had made adjustment to retain earning at December 31, 2006 to be increased by Baht 0.49 million which equivalent to equity injections that the Company invested in Bangchak Green Net in order to reflect investing value by using the historical cost method. The cumulative effect of the accounting policy has been presented under the heading of "Cumulative effect of the change in accounting policy for investments in subsidiary" in the separate financial statements in the statement of changes in shareholders' equity. Million Baht Statement of income 2nd Quarter 2007 2nd Quarter 2006 (The Company Only) Cost Mtd.Equity Mtd.Change+/- Cost Mtd.Equity Mtd.Change+/- Gain (loss) from - 35 -35 - 3 -3 investment in subsidiary Balance Sheet June 30, 2007 December 31, 2006 (The Company Only) Cost Mtd.Equity Mtd.Change+/- Cost Mtd.Equity Mtd.Change +/- Investment 0.49 - +0.49 0.49 - +0.49 in subsidiary Please be noted that, the change of accounting policy affects only the separate financial statement. It did not have any effect on the consolidated financial statements or business fundamentals. 5. Factors and major influences that may affect the Company's performance or financial status in the future Major factors affected the performance were the marketing margin and gross refining margin. For the marketing margin, since the oil prices were rapidly increased especially after the floating of gasoline and diesel price, the retail price could increase at a slower rate than the cost increased which depressed the marketing margin to be at a low level and this incident would slow down the demand for oil consumption; in other hand, if the oil prices were decreased, the marketing margin Attachment 9 / 9 and oil consumption would increase as well. For the refining margin, as a simple refinery having a high proportion of fuel oil production and the fact that fuel oil price is always lower than crude price, the Company's gross refining margin was capped to a certain level depending on the fuel oil price for each period. Thus the Company has had necessity to attain the long-term resolution for reducing fuel oil production to enhance gross refining margin to be at the same level of the industry's. Therefore, the Company has adopted the Product Quality Improvement project (PQI) by installing the hydro-cracking unit and other associated units, which will reduce production of fuel oil to the near level of other local and foreign refineries and hence become a complex refinery. The Company expects that the project will be started up in the forth quarter of 2008 and will increase EBITDA from average Baht 2,000-4,000 million to approximately Baht 6,000 - 8,000 million after the project reach its completion subject to oil price at the period. Currently PQI project has started its construction, which total project cost (included contingency reserve) totaling Baht 15,369 million or equivalent to USD 378 million. The Company has appointed CTCI Overseas Corporation Limited and CTCI (Thailand) Co., Ltd. to be contractors of the PQI under fixed price, date certain and performance guaranteed arrangement. The Company has achieved its financial closure for sources of funds for the project since May 16, 2006. The project is now on the process of construction and overall progress at June 2007 is 34.1% compare to plan of 33.6%. The oil prices will still be major parameters effecting operating result of the Company. Furthermore, another factor which may have effect on the Company's performance is the foreign exchange fluctuation (mostly Baht and USD). The Company purchases oil on US dollar term and sell its product on US (more)