(TRANSLATION)

AUDITOR’S REPORT AND FINANCIAL STATEMENTS

PTT PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES

FOR THE YEARS ENDED DECEMBER 31,2011AND 2010

PTT PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

NOTES / CONTENTS
1 / General Information
2 / Basis of Financial Statements Preparation
3 / Accounting Policies
4 / Cash and Cash Equivalents
5 / Current Investments
6 / Trade Accounts Receivable
7 / Other Accounts Receivable
8 / Loans
9 / Related Party Transactions
10 / Inventories
11 / Materials and Supplies
12 / Investments in Subsidiaries, Jointly Controlled Entities and Associates
13 / Available-for-saleInvestments
14 / Other Long-term Investments
15 / Investment Properties
16 / Property, Plant and Equipment
17 / Intangible Assets
18 / Mining Properties
19 / Goodwill
20 / Income Taxes and Deferred Taxes
21 / Advance Payments for Gas Purchases
22 / Other Non-current Assets
23 / Bank Overdrafts and Short-term Loans from Financial Institutions
24 / Other Current Liabilities
25 / Long-term Loans
26 / Employee Benefit Obligations
27 / Provision for Decommissioning Costs
28 / Other Non-current Liabilities
29 / Share Capital
30 / Reserves
31 / Earnings per Share
32 / Share-based Payment
33 / Salesand Service Income
34 / Other Income

PTT PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

NOTES / CONTENTS
35 / Expenses by Nature
36 / Petroleum Royaltiesand Remuneration
37 / Shares of Net Incomefrom Investments in Associates
38 / Finance Costs
39 / Segment Information
40 / Disclosure of Financial Instruments
41 / Dividend Payment
42 / Business Acquisition
43 / Reclassification
44 / Promotional Privileges
45 / Proceeding regarding the Central Administrative Court’s Ordering
the Temporary Suspension of Projects in the Map Ta Phut Area
46 / Proceeding regarding the Offshore Natural Gas Pipeline Leakage Incident
47 / Effect from Floods
48 / Commitments and Contingent Liabilities
49 / Events after the Financial Statement Date

PTT PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

1. General Information

PTT Public Company Limited (“the Company”) is incorporated as a public limited company in Thailand, and is listed on the Stock Exchange of Thailand. The address of its incorporated and registered office is as follows:

The Head Office of the Company is located at 555 Vibhavadi-Rangsit Road, Chatuchak, Bangkok, Thailand.

The Company’s principal activity isthe operation of its petroleum business. The Company has invested in subsidiaries, jointly controlled entities and associates (“the Group”), which are engaged inupstream petroleum, natural gas, downstream petroleum, coal and other related businesses as described in Note 39 “Segment Information”.

As at December 31, 2011, the Group was operating in 26 countries (as at December 31, 2010:27 countries).

  1. Basis of Financial Statement Preparation

The consolidated and the separate financial statements have been prepared in accordance with Thaigenerally accepted accounting principles under the Accounting Act, B.E. 2543 (2000).These are Thai Accounting Standards under the Accounting Profession Act, B.E. 2547 (2004), including interpretations and guidelines promulgated by the Federation of Accounting Professions (FAP), and the financial reporting requirements of the Securities and Exchange Commission under the Securities and Exchange Act, B.E. 2535 (1992).

The Company has presented the financial statements in compliance with the notification of the Department of Business Development “Definition of the abbreviated components required in the financial statements, B.E. 2554 (2011)”, dated September 28, B.E. 2554 (2011), under the third paragraph of section 11 of the Accounting Act, B.E. 2543 (2000).

The consolidated and the separate financial statements have been prepared based on the assumption that users of the financial statements have an understanding of Thai generally accepted accounting principles and practices, which may differ from generally accepted accounting principles adopted in other countries.

The consolidated and the separate financial statements have been prepared under the historical cost convention with the exception of certain amounts, which are accounted for using the fair value method as disclosed in the accounting policies.

The significant transactions arising among the Company, subsidiaries and jointly controlled entities are eliminated in the consolidated financial statements.

The consolidated and the separate financial statements are prepared and presented in Thai Baht and are rounded in the notes to financial statements to the nearest million unless otherwise stated.

This English translation of the financial statements has been prepared from the statutory financial statements that were issued in Thai language. In the event of a conflict or a difference in interpretation between the two languages, the Thai language statutory financial statements shall prevail.

  1. Accounting Policies

3.1New and Revised ThaiAccounting Standards (TASs), Thai Financial Reporting Standards (TFRSs), Financial Reporting Interpretations, Interpretation andFramework

During 2010 and 2011, the Federation of Accounting Professions (FAP) announced the following new and revised Accounting Standards, Financial Reporting Standards, Financial Reporting Interpretations andInterpretation and Frameworkin the Royal Thai Government Gazette.

Effective on May 26, 2010

Framework (revised 2009)

Effective for accounting periods on or after January 1, 2011

Thai Accounting Standard No.1(revised 2009) / Presentation of Financial Statements
Thai Accounting Standard No.2(revised 2009) / Inventories
Thai Accounting Standard No.7(revised 2009) / Statement of Cash Flows
Thai Accounting Standard No.8 (revised 2009) / Accounting Policies, Changes in
Accounting Estimates and Errors
Thai Accounting Standard No.10(revised 2009) / Events after the Reporting Period
Thai Accounting Standard No.11(revised 2009) / Construction Contracts
Thai Accounting Standard No.16(revised 2009) / Property, Plant and Equipment
Thai Accounting Standard No.17(revised 2009) / Leases
Thai Accounting Standard No.18(revised 2009) / Revenue
Thai Accounting Standard No.19 / Employee Benefits
Thai Accounting Standard No.23(revised 2009) / Borrowing Costs
Thai Accounting Standard No.24(revised 2009) / Related Party Disclosures
Thai Accounting Standard No.26 / Accounting and Reporting by
Retirement Benefit Plans
Thai Accounting Standard No.27(revised 2009) / Consolidated and Separate Financial
Statements
Thai Accounting Standard No.28(revised 2009) / Investments in Associates
Thai Accounting Standard No.29 / Financial Reporting in
Hyperinflationary Economies
Thai Accounting Standard No.31(revised 2009) / Interests in Joint Ventures
Thai Accounting Standard No.33(revised 2009) / Earnings per Share
Thai Accounting Standard No.34(revised 2009) / Interim Financial Reporting
Thai Accounting Standard No.36(revised 2009) / Impairment of Assets
Thai Accounting Standard No.37(revised 2009) / Provisions, Contingent Liabilities and
Contingent Assets
Thai Accounting Standard No.38(revised 2009) / Intangible Assets
Thai Accounting Standard No.40(revised 2009) / Investment Property

3. Accounting Policies(Continued)

3.1New and Revised Thai Accounting Standards (TASs), Thai Financial Reporting Standards (TFRSs), Financial Reporting Interpretations, Interpretation and Framework(Continued)

Effective for accounting periods on or after January 1, 2011(Continued)

Thai Financial Reporting Standard No.2 / Share-based Payment
Thai Financial Reporting Standard No.3
(revised 2009) / Business Combinations
Thai Financial Reporting Standard No.5
(revised 2009) / Non-current Assets Held for Sale and
Discontinued Operations
Thai Financial Reporting Standard No.6 / Exploration for and Evaluation of
Mineral Resources
Thai Financial Reporting Interpretation No.15 / Agreements for the Construction of Real Estate
Thai Standing Interpretation No.31 / Revenue – Barter Transactions Involving Advertising Service

Effective for accounting periods on or after January 1, 2013

Thai Accounting Standard No.12 / Income Taxes
Thai Accounting Standard No.20(revised 2009) / Accounting for Government Grants
and Disclosure of Government Assistance
Thai Accounting Standard No.21(revised 2009) / The Effects of Changes in
Foreign Exchange Rates
Thai Standing Interpretation No.10 / Government Assistance – No Specific Relation to Operating Activities
Thai Standing Interpretation No.21 / Income Taxes – Recovery of Revalued Non – Depreciable Assets
Thai Standing Interpretation No.25 / Income Taxes – Changes in the Tax Status of an Enterprise or its Shareholders

The Group adopts and applies the new and revised accounting standards,interpretations, financial reporting standards, and framework in accordance with the effective dates except for Thai Accounting Standard No.12 Income Taxes that has been adopted and applied before the effective date.

The adoption of the new and revised TASs and TFRSs, which are effective for accounting periods beginning on or after January 1, 2011, has resulted in changes in accounting policies of the Group. The effects of these changes are disclosed in Note 3.2.

The management of the Group has assessed and determined the potential impact of the new and revised standardsand interpretations, which are effective on or after January 1, 2013, except for the Thai Accounting Standard No.12 Income and Taxes that has been adopted and applied before the effective date, and concluded that they will have no material impact on the consolidated and the separate financial statements, except for Thai Accounting Standard No.21 (revised 2009) – The Effects of Changes in Foreign Exchange Rates (although this excludes a subsidiary which has adopted and applied Thai Accounting Standard No.21 before the effective date disclosed in Note 3.2.8). Currently, the management of the Group is considering the functional currency and its effects to the Group.

3. Accounting Policies(Continued)

3.2 Changes in Accounting Policies

3.2.1Overview

From January 1, 2011, consequent to the adoption of new and revised TASs and TFRSs as set out in Note 3.1, the Group has changed its accounting policies in the following areas:

  • Presentation of Financial Statements
  • Accounting for Property, Plant and Equipment
  • Accounting for Investment Properties
  • Accounting for Employee Benefits
  • Accounting for Share-based Payment
  • Accounting for Business Combination
  • Accounting for the Change in Functional Currency of Domestic Subsidiary

Details of the new accounting policies adopted by the Group and the impact of the changes on the financial statements are included in Notes 3.2.2 to 3.2.8. The impact of the changes on the 2010 financial statements is summarized as follows:

Unit: Million Baht

Consolidated
financial statements / Separate
financial statements
Statement of financial position
Equity at January 1, 2010 – as reported / 498,090.59 / 281,177.91
Changes as a result of the adoption retrospectively of:
-Employee benefit obligations / (4,063.48) / (1,496.46)
-Provision for decommissioning costs / (122.47) / -
-Change in functional currency of a domestic
subsidiary / 3,573.19 / -
Equity at January 1,2010 - restated / 497,477.83 / 279,681.45
Equity at December 31, 2010 – as reported / 571,312.57 / 315,383.17
Changes as a result of the adoption retrospectively of:
-Employee benefit obligations / (4,539.81) / (1,616.13)
-Provision for decommissioning costs / (135.64) / -
-Change in functional currency of a domestic
subsidiary / (9,223.26) / -
Equity at December 31, 2010 - restated / 557,413.86 / 313,767.04

3. Accounting Policies(Continued)

3.2 Changes in Accounting Policies (Continued)

3.2.1Overview (Continued)

Unit: Million Baht

Consolidated
financial statements / Separate
financial statements
Statement of income for the year
ended December 31, 2010
Income (Loss) before income tax – as reported / 139,037.13 / 67,297.01
Changes before tax as a result of the adoption
retrospectively of:
-Employee benefit obligations / (746.25) / (170.96)
-Provision for decommissioning costs / (13.17) / -
-Change in reporting currency of a domestic
subsidiary / (2,812.95) / -
Income before income tax - restated / 135,464.76 / 67,126.05
Income tax expense – as reported / (39,107.09) / (12,720.07)
Changes to income tax expense as a result of the
adoption retrospectively of:
-Employee benefit obligations / 281.33 / 51.29
-Change in reporting currency of a domestic
subsidiary / 4,865.22 / -
Income tax expenses - restated / (33,960.54) / (12,668.78)
Income for the year - restated / 101,504.22 / 54,457.27
Increase (Decrease) in earnings per share (Baht):
- Basic earnings per share / 0.32 / (0.04)
- Diluted earnings per share / 0.31 / (0.04)

3.2.2Presentation of Financial Statements

From January 1, 2011, the Group has applied Thai Accounting Standard No.1 (revised 2009) – Presentation of Financial Statements. Under the revised accounting standard, a set of financial statements comprises:

  • Statement of financial position;
  • Statement of comprehensive income;
  • Statement of changes in equity;
  • Statement of cash flows;
  • Notes to the financial statements

3. Accounting Policies(Continued)

3.2Changes in Accounting Policies (Continued)

3.2.2 Presentation of Financial Statements (Continued)

As a result, the Group presents all owner changes in equity in the statement of changes in equity and all non-owner changes in equity in the statement of comprehensive income. Previously, all such changes were included in the statement of changes in equity.

Comparative information has been re-presented so that it is also in conformity with the revised accounting standard. Such change in accounting policy only impacts presentation aspects.

3.2.3Property, Plant and Equipment

Since January 1, 2011, the Group has applied Thai Accounting Standard No.16(revised 2009) –Property, Plant and Equipment in determining and accounting for the cost and depreciable amount of property, plant and equipment.

The principal changes introduced by the revised Thai Accounting Standard No.16and affecting the Group are that (i) costs of asset dismantlement, removal and restoration have to be included as asset costs and subject to annual depreciation; (ii) the depreciation charge has to be determined separately for each significant part of an asset; and (iii) in determining the depreciable amount, the residual value of an item of property, plant and equipment has to be measured based on the estimated amount that the Group would currently obtain from the asset’s disposal, if the asset were already of the age and in the condition expected at the end of its useful life. Furthermore, the residual value and useful life of an asset have to be reviewed at least at each financial year-end.

The changes have been applied prospectively in accordance with the transitional provisions of the revised standard, except that consideration of the costs of asset dismantlement, removal and restoration, have been applied retrospectively.

3.2.4 Investment Properties

Since January 1, 2011, the Group has applied Thai Accounting Standard No.40 (revised 2009) – Investment Property.

Under the revised accounting standard, investment property, defined as property owned to earn rentals; capital appreciation; or both, is disclosed in the financial statements separately from other property, plant and equipment and measured using the cost model.

The Group has selected the cost model for accounting for its investment properties under the revised accounting standard. The change in accounting policy has been applied retrospectively and for comparative purposes, investment properties presented in the financial statements for the year ended December 31, 2010have been reclassified from ‘property, plant and equipment’ to present separately under ‘investment properties’. Moreover, the cost and accumulated depreciation as at January 1, 2010 and December 31, 2010 of the Group’s investment properties previously included inproperty, plant and equipment, have been reclassified and presented separately under ‘investment properties’. Apart from this reclassification, the change in policy has no impact on the 2010 financial statements. Details of investment properties are disclosed in Note 15.

3. Accounting Policies(Continued)

3.2.4 Investment Properties (Continued)

property, plant and equipment, have been reclassified and presented separately under ‘investment properties’. Apart from this reclassification, the change in policy has no impact on the 2010 financial statements. Details of investment properties are disclosed in Note 15.

3.2.5 Employee Benefits

Since January 1, 2011, the Group has applied Thai Accounting Standard No.19 – Employee Benefits.

Under the new accounting policy, the Group’s obligation in respect of post-employment benefits, provision for employee pension, is recognized in the financial statements based on calculations performed annually by a qualified actuary using the projected unit credit method. Previously, this obligation was recognized as and when payments were made. The Group has opted to recognize actuarial science estimates in the statement of income in that period.

The change in this accounting policy has been applied retrospectively and the Group’s 2010 financial statements have been restated for comparative purposes to the Group’s 2011 financial statements. Details of employee benefit obligations are disclosed in Note 26.

3.2.6 Share-based Payments

Since January 1, 2011, the Group has applied Thai Financial Reporting Standard No.2 – Share-based Payment.

Thai Financial Reporting Standard No.2, share-based payment is a transaction in which the entity receives or acquires goods or services either as consideration for

  • its equity instruments (equity settled share-based payment) recognized in equity.
  • cash or other assets for amounts based on the price of the entity's shares (cash settled share-based payment) recognized in liability

The entity shall make no subsequent measurement to equity settled share-based payment after a granted date. However, the entity shall measure the fair value of goods or services received at each reporting date and at the date of settlement, with any changes in fair value recognized in profit or loss for the period.

The Group has not applied the above accounting policy for share-based payment awards granted before January 1, 2011 in accordance with transitional provisions of Thai Financial Reporting Standard No.2. The adoption of this standard has had no material impact on the financial statements of the Group. Details of share-based payment awards granted before January 1, 2011 are disclosed in Note 32.

3. Accounting Policies(Continued)

3.2 Changes in Accounting Policies (Continued)

3.2.7 Business Combinations

Since January 1, 2011, the Group has adopted Thai Financial Reporting Standard No.3 (revised 2009) – Business Combinations and Thai Accounting Standard No.27 (revised 2009) – Consolidated and Separate Financial Statements.

Under the revised standard, for acquisitions on or after January 1, 2011, the Group measures goodwill at the acquisition date as:

  • The fair value of any consideration transferred plus
  • The recognized amount of any non-controlling interest in the acquiree, plus
  • The fair value of the existing equity interest in the acquiree, if the business combination is achieved in stages, , less
  • The net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.

The consideration transferred excludes amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.

Costs related to the acquisition, other than those associated with the registration and issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Any contingent consideration payable is recognized at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.

When share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards) and relate to past services, then all or a portion of the amount of the acquiree’s replacement awards are included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree’s awards and the extent to which replacement awards relate to past and/or future service.