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Petronas Achieves Record Group Results for the Financial Year Ended 31st March 2006

Posted on: Thursday, 29 June 2006, 06:00 CDT

KUALAR LUMPUR, Malaysia, June 29 /Xinhua-PRNewswire-FirstCall/ -- FINANCIAL YEAR ENDED 31 MARCH 2006 +/- 2005 2004 (in RM million) Revenue 166,891 21.8% 137,046 97,512 Profit Before Tax 70,180 20.9% 58,030 37,442 EBITDA 80,836 18.7% 68,116 47,754 Profit After Tax and Minority Interests 43,590 22.6% 35,556 23,659 Total Assets 269,249 12.6% 239,077 203,205 Shareholders' Funds 155,968 20.5% 129,383 102,698 (in USD million) Revenue 44,282 22.8% 36,070 25,664 Profit Before Tax 18,621 21.9% 15,273 9,854 EBITDA 21,449 19.6% 17,928 12,568 Profit After Tax and Minority Interests 11,566 23.6% 9,358 6,227 Total Assets 73,086 16.2% 62,923 53,482 Shareholders' Funds 42,337 24.3% 34,053 27,029 Average RM/US$ exchange rate 3.7688 3.7995 3.7995 KEY FINANCIAL AND OPERATIONAL RATIOS FINANCIAL YEAR ENDED MARCH 2006 2005 Return on Revenue (PBT/Revenue) 42.1% 42.3% Return on Assets (PBT/Total Assets) 26.1% 24.3% Return on Average Capital Employed 39.8% 37.4% Debt / Assets Ratio 0.16x 0.22x Reserves Replacement Ratio - Domestic 1.8x 1.0x - International 1.1x (1.1x) OVERVIEW

PETRONAS Group delivered an outstanding performance for the financial year ended 31 March 2006 amid an increasingly competitive and challenging global oil and gas industry environment filled with heightened volatility and uncertainties.

Revenue soared to an all-time high of RM166.9 billion. Profit before tax was a record RM70.2 billion, a 20.9% increase from the previous year. Correspondingly, the Group's balance sheet continued to strengthen with total assets rising 12.6% to RM269.2 billion. Shareholders' funds expanded 20.5% to RM156.0 billion while Return on Average Capital Employed remained strong at 39.8%, a reflection of the Group's ability to efficiently generate returns and profits that compare favourably with more established major players in the industry.

The year's strong financial and operational achievements bear testimony to the Group's determination and focus on its overall strategy to integrate, add value and globalise its operations, coupled with its emphasis on sound management policies, business improvements, operational excellence and strategic growth, enabled the Group to turn challenges into opportunities and capitalise on the synergistic benefits of its fully integrated business to deliver outstanding results.

The heightened level of uncertainties on the back of a multitude of pressing issues during the review period exerted enormous strain on the volatile, technology-driven and capital-intensive oil and gas industry. Against this backdrop, global demand for oil and gas continued to increase primarily due to the strong growth in the emerging economies of China and India. Meanwhile, the on-going tensions in the Middle East, recurring supply disruptions in Venezuela, Nigeria and Iraq, uncertainties in Russia, Africa and Latin America, coupled with disruptions brought about by Hurricanes Katrina and Rita heightened concerns over security of supply.

Stronger demand combined with threats of supply disruptions, compounded by shortage of refining capacity globally as well as increased speculative oil trading and stock-building activities, resulted in oil prices remaining high throughout the year. The average price of West Texas Intermediate (WTI) and Brent crudes increased by 32.9% and 37.8% during the review period to USD59.86 per barrel and USD58.01 per barrel respectively. The weighted average price of Malaysian Crude Oil (MCO) rose in tandem to USD61.60 per barrel, an increase of 36.9%. Prices of petroleum products also increased with gasoline and diesel, used mainly by the transport sector, reaching an average price of USD66.87 and USD68.59 per barrel respectively.

The year also saw significant escalations in costs as industry players intensified exploration, development and production activities to capitalise on the high oil price scenario. The upward pressure on cost was compounded by the fact that new reserves are located not only in deeper waters but also in harsher climatic and environmentally sensitive regions, making access more difficult, technologically more demanding and riskier.

In summary, the year under review saw the global oil and gas industry operate in a highly challenging and uncertain environment on the back of not only high energy prices but also escalating cost. Nonetheless, PETRONAS' continuous emphasis on operational efficiency and reliability has enabled the Group to optimise the benefits of its long-term strategies of integration, value adding and globalisation, and deliver an outstanding performance during the review period.

REVIEW OF RESULTS Highlights -- Highest-ever revenue at RM166.9 billion, a 22% increase from RM137.0 billion in the previous year: -- Manufacturing activities contributed nearly RM100 billion to Group revenue, or 58% compared to 57% last year, as the Group continued to add value to its oil and gas resources. -- Revenue from international operations and exports increased by 23% to RM130.2 billion, accounting for 78% of Group revenue. -- Exports accounted for 44% or RM73.6 billion of revenue, representing 13% of total Malaysian exports. -- Increase in profit before tax by 21% and net profit by 23% to RM70.2 billion and RM43.6 billion respectively, as the Group successfully contained costs and improved its margins. -- Stronger balance sheet with total assets increasing to RM269.2 billion -- Improved Return on Average Capital Employed of 39.8% and Return on Total Assets of 26.1%, on par with, if not exceeding, industry average. -- Strong cash flow from operations, more than sufficient to cover the Group's current investing and financing needs. Record earnings and profits, driven both by prices and volume increases

The PETRONAS Group posted a record revenue of RM166.9 billion, a 21.8% increase compared to RM137.0 billion registered in the previous financial year. While higher prices were a factor, the Group's ability to record higher sales volume of Liquefied Natural Gas (LNG) and petrochemical products in a highly competitive and challenging environment was also a key contributor to the higher revenue :

-- Refined petroleum products continue to be the key revenue generator for the Group. The Group's revenue from sales of petroleum products increased by 24.9% from RM44.5 billion to RM55.6 billion, constituting about one-third of Group revenue. Strong performance from marketing and retail businesses together with higher prices, accounted for the increase in revenue. Sales volume nevertheless declined marginally from 218.5 million barrels last year to 208.8 million barrels during the review period primarily due to lower petroleum products trading activities by the Group due to unfavourable trading conditions. -- The Group's revenue from sales of crude oil and condensates amounted to RM41.0 billion, up 25.4% compared to the previous year, on the back of higher global crude oil prices, particularly MCO, which averaged USD61.60 per barrel from USD45.00 per barrel last year. Sales volume, however, decreased from 207.1 million barrels to 184.9 million barrels due to the Group's lower crude oil production domestically, in Sudan and Chad. -- During the year, the Group sold a total of 23.6 million tonnes of LNG, a 5.4% increase from the 22.4 million tonnes sold in the previous year, supported by higher volume produced and sold from the PETRONAS LNG Complex in Bintulu as well as from the Group's Egyptian LNG (ELNG) plant. The Group realised an average LNG price of USD310.04 per tonne for its cargoes during the review period compared to USD256.07 per tonne in the previous period. The higher volume sold and stronger price resulted in a 30.4% increase in LNG revenue for the Group from RM21.7 billion to RM28.3 billion. -- The Group's petrochemical business achieved its best-ever operational performance during the review period with improved plant reliability and utilisation rates, resulting in higher production volume. Consequently, sales volume increased by 9.4% to 7.0 million tonnes and generated revenue of RM12.7 billion, an increase of 5.8%.

PETRONAS remains focused on value-adding activities to enhance the value of its oil and gas resources. The review period saw a substantial increase in revenue from the Group's manufacturing activities, comprising the manufacture of petroleum products, LNG, processed gas and petrochemicals, from RM78.2 billion to RM97.4 billion. Revenue from manufacturing activities continue to account for a higher proportion of Group revenue at 58.4% compared to 57.1% in the previous period.

The Group's globalisation strategy continues to yield rewards. Its international business revenue, which comprises revenue from international operations and exports from Malaysia, grew 22.9% to RM130.2 billion, accounting for 78.0% of Group revenue. Export revenue amounted to RM73.6 billion, representing about 13.4% of Malaysia's exports over the same period, earning valuable foreign exchange revenue for the nation, and at the same time contributing positively towards the country's balance of payments.

As industry players intensified exploration, development and production activities to capitalise on the high oil prices, demand for related materials, equipment and services has increased, resulting in higher costs of operations.

Group profit before tax was RM70.2 billion compared to RM58.0 billion in the last financial year, an increase of 20.9% and profit after tax and minority interests was RM43.6 billion, an increase of RM8.0 billion.

Strong growth in asset base and shareholders' funds

The Group's balance sheet continued to grow stronger. Total assets grew to RM269.2 billion, up 12.6% from RM239.1 billion last year. Shareholders' funds also increased to RM156.0 billion from RM129.4 billion last year, an increase of 20.5%.

Return on Total Assets (profit before tax over total assets) rose to 26.1% compared to 24.3% in the previous financial year, while Return on Average Capital Employed (ROACE) improved to 39.8% compared to 37.4% in the previous year.

The Group generated strong cashflow from operations this year. Cash generated from operations was more than sufficient to cover the Group's investing and financing needs. With this surplus, the Group's cash and fund investment balance increased to RM93.1 billion, which will be utilised to fund future capex and growth strategies.

Total borrowings were reduced to RM43.9 billion compared to RM52.8 billion in the previous period following scheduled payments of Notes and Term Loans made during the year, reducing the total debt to total asset ratio to 0.16 times.

SALES VOLUME AT A GLANCE FY2006 FY2005 Crude Oil ('000 barrels) 184,942 207,089 Natural Gas ('000 mmbtu) 217,175 212,840 Processed Gas ('000 mmbtu) 690,580 622,000 LNG (million tonnes) 23.6 22.4 Petroleum Products ('000 barrels) 208,834 218,472 LPG (million tonnes) 3.2 2.6 Petrochemicals (million tonnes) 7.0 6.4 REVIEW OF BUSINESS EXPLORATION AND PRODUCTION BUSINESS

Maximising value and growth to domestic resources, capitalising on select opportunities abroad

PETRONAS Group's exploration and production (E&P) business activity is driven by the need to augment Malaysia's reserves and ensure growth in line with its strategy of integration, adding value and globalisation. The domestic upstream sector saw intensified efforts during the year to enhance the nation's reserves with greater focus in the deepwater areas and to sustain production amidst a costlier environment as a result of high oil prices. On the international front, the Group strengthened its position in its host countries by securing new acreages while progressing in various development projects. The Group's E&P arm, PETRONAS Carigali Sdn Bhd, continued to enhance its upstream capacity, capability and competency especially in the areas of technology and human capital in line with its aspiration to be a leading global E&P player.

EXPLORATION AND PRODUCTION BUSINESS AT A GLANCE FY2006 FY2005 Total reserves (billion boe) 25.85 25.29 Domestic 19.91 19.36 International 5.94 5.93 Total Production ('000 boe per day) 1,596.5 1,598.0 Domestic 1,164.2 1,213.0 International 432.3 385.0 Highlights -- Strong total reserves at 25.85 billion barrels of oil equivalent (boe), with new discoveries of 754.3 million boe. International reserves account for 23.0% of the Group's total reserves. -- Achieved Reserve Replacement Ratio (RRR) of 1.8 times in Malaysia and 1.1 times internationally, amongst the highest in the industry. -- International production rose to 432,300 boe per day, equivalent to 27.1% of the Group's total production. -- Awarded nine new Production Sharing Contracts (PSCs) in Malaysia and secured six new PSCs abroad, bringing the number of ventures to 62 in 23 countries. Domestic Exploration and Production MALAYSIA RESERVES AND PRODUCTION AT A GLANCE FY2006 FY2005 Reserves (billion boe) 19.91 19.36 Crude Oil and Condensates 5.25 5.16 Natural Gas 14.66 14.20 Production ('000 boe per day) 1,656.1 1,690.7 Crude Oil and Condensates 699.1 735.7 Natural Gas 957.0 955.0 Reserves Replacement Ratio 1.8x 1.0x

As at 1 January 2006, Malaysia's total reserves rose to 19.91 billion boe compared to 19.36 billion boe in the preceding year as a result of new discoveries made following continued investment in the nation's upstream sector. Crude oil and condensates reserves rose from 5.16 billion barrels to 5.25 billion barrels while natural gas reserves increased from 85.20 trillion standard cubic feet (tscf) to 87.95 tscf, equivalent to 73.6% of Malaysia's total reserves.

The Group's continuous effort to replenish the nation's hydrocarbon resources have resulted in a fairly constant reserve life for Malaysia -- an average of 20 years for crude oil and condensates and 34 years for natural gas reserves respectively, at current rates of production. One of the Group's significant achievements in the E&P sector during the year was its success in replacing more hydrocarbons than what was produced in Malaysia, with a respectable Reserves Replacement Ratio (RRR) of 1.8 times, which is amongst the highest in the industry.

During the year, the Group reviewed the guidelines on the classification and reporting of Malaysia's reserves to be in line with the industry's evolving conventions. The new reporting standard, which came into effect on 1 January 2006, allows standardisation with the industry's practice and at the same time improves clarity and transparency in reserves reporting and classification. (The previous reporting standard, based on the "expected value" concept, was developed in 1997 and utilises the integrated approach of the proved, probable and possible reserves. The new reporting standard does not take into account possible reserves.)

A total of 604.5 million boe of crude oil and natural gas, or an average of 1.66 million boe per day (boepd), was produced in Malaysia during the review period, slightly lower compared to 617.1 million boe (1.69 million boepd) recorded in the previous period. The slight decline in Malaysia's production was due to shutdowns for major maintenance and repair works in several fields operated by the Production Sharing Contractors. The lower national production resulted in lower share of production for PETRONAS at 424.9 million boe or 70.3% compared to 442.8 million boe previously.

Two new fields, namely South Angsi (oil) offshore Peninsular Malaysia and Shallow Clastics (gas) offshore Sarawak, started production, bringing the number of producing fields in Malaysia to 77.

The level of activities in the country's E&P sector increased significantly during the year under review. Exploration activities were most active with the acquisition of some 439,182 line kilometres of 3D seismic data. A total of 53 new exploration wells were drilled compared to 47 before, resulting in the discovery of 645.3 million boe of oil and gas reserves. Significant discoveries were made in the deepwater Blocks K and G as well as in shallow water blocks of PM 3 CAA, PM 301, PM 314 and SK 306. The deepwater discoveries accounted for nearly 60% of reserve additions during the year.

The high potential of Malaysia's acreages especially the frontier areas is reflected in the signing of nine new PSCs last year, of which six was for the ultra deepwater blocks. This brings the number of PSCs in operation to 60 -- a historic high. Eighteen of the PSCs in operation are in deepwater and ultra deepwater areas. Production from Malaysia's deepwater areas will commence with the Kikeh field expected to come onstream in the third quarter of 2007, followed by Gumusut-Kakap and Malikai fields by 2010 and 2012 respectively. These developments, will help spur the development of Malaysia's support services and will position Malaysia closer to its aspiration to become the region's centre for deepwater capability.

About RM16.1 billion was spent by PETRONAS and its PSC contractors in Malaysia's E&P sector compared to RM12.3 billion last year, of which nearly 75% was in the form of foreign direct investment (FDI) brought in by the PSC partners. Of this, RM8.1 billion or 50.6% was for development and production activities, RM2.0 billion or 12.4% for exploration activities and the balance for operations. The dynamism of Malaysia's E&P sector has created enormous spin off benefits not only to the oil and gas players and service providers but also to the Malaysian economy in general. Future prospects for Malaysia's E&P sector remain promising as frontier deepwater and ultra deepwater acreages provide new growth opportunities for the industry.

While the industry has intensified its exploration and development efforts, it has led to a significant increase in the cost of materials, equipment and services required by the industry. To mitigate the situation, PETRONAS has stepped up cost optimisation efforts such as the chartering of drilling rigs and vessels on long term basis and procuring Production Sharing Contractors' supply of equipment and services through joint tender exercises in order to capture economies of scale.

PETRONAS and its PSC partners are embarking on a Sabah Oil and Gas Terminal (SOGT) integrated project, involving the construction of a pipeline from offshore Sabah to an onshore oil and gas processing terminal in Kimanis, Sabah with a storage capacity of 300,000 bpd of oil and an onshore gas terminal. The processed gas from the terminal will be transported via a 480- km gas pipeline to be constructed from Kimanis to the PETRONAS LNG Complex in Bintulu, Sarawak.

International Exploration and Production INTERNATIONAL EXPLORATION AND PRODUCTION AT A GLANCE FY2006 FY2005 Total reserves (billion boe) 5.94 5.93 Crude Oil and Condensates 2.35 2.16 Natural Gas 3.59 3.77 Total Production ('000 boe per day) 432.3 385.0 Crude Oil and Condensates 184.9 196.1 Natural Gas 247.4 188.9 Reserves Replacement Ratio 1.1x (1.1x)

The year under review saw considerable progress made in the Group's international E&P operations. PETRONAS' international reserves as at 1 January 2006 amounted to 5.94 billion boe (5.93 billion boe last year), equivalent to 23.0% of the Group's total reserves. About 41% of PETRONAS' international reserves are located in Africa, 32% in Central Asia and the Middle East, and the balance 27% in South East Asia, with natural gas accounting for about 60% of the Group's international reserves portfolio.

The Group's international Reserves Replacement Ratio stood at a respectable 1.1 times, driven by an aggressive exploration campaign that yielded international oil and gas discoveries of 109 million boe.

PETRONAS' international production rose from 140.5 million boe (385,000 boepd) to 157.8 million boe (432,300 boepd) in the review period as a result of higher production from Egypt and the Malaysia-Thailand Joint Development Area (JDA). The early completion of Simian/Sienna and Sapphire development projects in the West Delta Deep Marine (WDDM) block tripled production from the Group's Egyptian operations. The completion of the Trans Thailand- Malaysia (TTM) project allows PETRONAS to bring Malaysia's share of natural gas production from the JDA into the Peninsular Gas Utilisation (PGU) system, further enhancing the reliability of gas supply to the national gas grid.

Combined, the Group's total production during the review period amounted to 582.7 million boe or 1.60 million boepd, of which international production accounted for 27.1% of the Group's total production compared to 24.1% the year before. The growing international reserves and production are clear indication of the Group's success in the international E&P arena.

The Group further strengthened its position in Africa, with six new ventures secured during the year. In Sudan, PETRONAS signed the Exploration and Production Sharing Agreement for offshore Block 15 in the Red Sea, marking its entry into the offshore operation in the country following active involvement in Sudan's onshore sector since 1997. The Group also expanded its presence in Egypt, with the signing of the Concession Agreement for El Burg block and in Ethiopia with the signing of the Petroleum Production Sharing Agreement for Ogaden Block 3 & 4, Block 12 & 16 and Block 17 & 20. PETRONAS also secured a Petroleum Concession Agreement for onshore Block 2567-10 (Daphro) in Pakistan, bringing the Group's total international upstream interests to 62 ventures in 23 countries. Of this, PETRONAS is the operator for 27 ventures, joint operator for 12 and active partner in the other 23 ventures, evidence of the Group's growing reputation as a global E&P player.

The Group spent RM6.3 billion in its international E&P activities during the review period, a significant portion of which was spent on development projects in Sudan, Egypt and Turkmenistan.

OIL BUSINESS

Maximising synergy and returns through expansion of integrated and value-adding activities

The Group's oil business sector continued to harness value through its marketing, trading, refining and retailing activities, delivering another year of strong performance. Timely operational improvement initiatives allowed the sector to capitalise on high refining margins. The year also saw the oil business sector making further inroads in downstream expansion beyond Malaysian borders with its retailing business in Indonesia, LPG business in Vietnam and aviation business and a new refinery project in Sudan. Strong emphasis on product and service quality solidified the Group's retail market leadership, both at home and in South Africa.

Highlights -- Signed a Shareholders Agreement with Sudan's Ministry of Energy and Mining to jointly invest, develop and operate a new 150,000 barrels per day (bpd) complex refinery in Port Sudan. -- Successfully completed the de-bottlenecking of Kertih Refinery, increasing the Group's total net refining capacity from 356,500 bpd to 367,300 bpd. -- Strengthened domestic petroleum product market leadership in Malaysia and retained petroleum product market leadership in South Africa (at 40.7% and 24.3% market shares respectively). -- Opened the first PETRONAS service station in Jakarta, marking the Group's entry in the petroleum product retail business in Indonesia. OIL BUSINESS AT A GLANCE FY2006 FY2005 (in million (in million barrels) barrels) Marketing Export of Malaysian Crude Oil (MCO) 117.3 123.7 Export of Petroleum Products 52.5 51.7 Sales of Foreign Equity Crude Oil (FEC) 39.0 46.3 Crude Oil Refining Processing of MCO 77.4 84.3 Processing of Non-MCO 56.3 61.8 -Domestic 21.8 21.3 -International 34.5 40.5 Petroleum Products Retail Domestic (incl. Commercial) 74.4 73.2 International 65.4 63.0 Trading Crude Oil 28.7 29.7 Petroleum Products 50.3 61.6 Marketing

During the year under review, PETRONAS exported 117.3 million barrels or about 59% of its share of MCO, compared to 123.7 million barrels last year. The lower export was due to lower production of MCO during the year. About 74% of the MCO exports went to the Asian region and the balance was sold to markets in Australia, USA and New Zealand. The Group also exported 52.5 million barrels of petroleum products from its domestic refineries, a slight increase compared to last year's export of 51.7 million barrels.

The Foreign Equity Crude Oil (FEC) from the Group's international production experienced a decrease in sales volume to 39.0 million barrels from 46.3 million barrels in the previous year, mainly due to the lower crude oil entitlement from the Group's Chad operations. The Group's FEC was sold to the USA, Europe and the Asian region.

Crude Oil Refining

Refined petroleum products continued to be the largest contributor to the Group's revenue. The Group's refineries continued to play a key role to capitalise on the stronger global demand for petroleum products.

PETRONAS' total net refining capacity increased from 356,500 barrels per day (bpd) to 367,300 bpd, as a result of the successful de-bottlenecking of its refinery in Kertih, Terengganu. The de-bottlenecking exercise, which was completed in May 2005, increased the refinery's nameplate capacity from 103,500 bpd to 114,300 bpd.

During the year, the Group's three refineries in Melaka and Terengganu processed an average of 361,300 bpd of crude oil, about 15% higher than the combined capacities of the domestic refineries. The high capacity utilisation of the three refineries was made possible through operational efficiency and increased plant reliability. The world-class performance continues to place the refineries in the top quartile of the refinery utilisation index of Solomon Tracking. The Solomon Index is an industry standard that compares the world's oil refining facilities performance outputs.

PETRONAS' Melaka refinery awarded an Engineering, Procurement and Commissioning (EPCC) Contract for the construction of Malaysia's first Group III Base Oil plant in December 2005. The plant, scheduled to be completed by mid-2008 will supply 6,500 bpd of Group III base oil to top tier automotive and industrial lubricants manufacturers in the domestic and international markets.

In Sudan, PETRONAS signed a Shareholders Agreement with the Ministry of Energy and Mining in August 2005 to jointly invest, develop and operate a new refinery in Port Sudan. The complex refinery, which is due to be operational by 2009 will process the Dar Blend crude oil from Sudan's Melut Basin Blocks 3 & 7 in which PETRONAS holds 40% equity. The refinery will produce high quality petroleum products to meet the Euro 4 specifications.

Petroleum Products Retail

In the year under review, PETRONAS through its domestic retail arm PETRONAS Dagangan Berhad (PDB) weathered an increasingly competitive retail business environment to register a higher sales volume of 74.4 million barrels of petroleum products compared to 73.2 million barrels last year. (This has strengthened the company's leadership in the domestic market with 40.7% market share.) PDB also expanded its retail network, adding 59 new service stations to bring the total to 785 stations nationwide.

In South Africa, subsidiary Engen Ltd also retained its leadership position with 24.3% market share of the South African petroleum product retail business. Engen currently has 1,363 service stations in the African continent, of which 1,230 are located in South Africa.

In Sudan, PETRONAS Marketing Sudan Ltd. (PMSL) completed its acquisition of Shell's Aviation Business in the country during the review period, enabling it to provide into-plane service at Khartoum International Airport. In addition, PMSL also commissioned the into-plane service at El-Obeid Airport, the main commercial airport in Western Sudan. El-Obeid is also used as a base for the United Nations World Food Programme serving Southern Sudan and Darfur.

In Vietnam, PETRONAS incorporated a new subsidiary, PETRONAS Vietnam LPG (PVL) following the Group's acquisition of the Liquefied Petroleum Gas (LPG) assets and business from ExxonMobil Unique (Vietnam) Co. Ltd. PVL is responsible for importing, storing, processing and distributing LPG particularly in southern Vietnam to complement the Group's existing LPG business in northern Vietnam.

Nearer to home, PETRONAS PT Niaga launched its first service station in Cibubur, Jakarta, demonstrating the Group's commitment to expand its presence in the Indonesian retail market. The station markets high-octane fuel products under the brand names Primax 92 and Primax 95 as well as PETRONAS' range of Syntium and Sprinta lubricants. The service station is also equipped with a wide range of facilities to provide added convenience to customers.

Trading

The Group continued to be active in crude oil and petroleum product trading in order to optimise its position in the market and to enhance its value-adding capability in oil business. However, volume was lower at 79.0 million barrels compared to 91.3 million barrels previously, mainly due to the tight market conditions.

GAS BUSINESS

Ensuring reliable gas supply to the nation while growing in the global LNG business

The Gas Business Sector delivered another solid performance during the year under review. The gas processing and transmission business consistently operated at a world-class standard to support the nation's increasing demand for processed gas from the power and industrial sectors. Meanwhile, the LNG business further strengthened its position in its traditional Far Eastern markets and continued to make headway in the developing Atlantic LNG market, most notably with the commencement of its jointly operated Egyptian LNG project. Higher LNG sales volume also enabled the business to capitalise on record-level prices during the review period.

Highlights -- Higher domestic sales gas volume by 7.8% to 2,122 million standard cubic feet per day (mmscfd), driven by the resilient economy. The PGU system transported 2,031 mmscfd, of which 66.8% was consumed by the power sector. -- Continued to supply gas at regulated prices to the nation's power and industrial sectors resulting in a higher subsidy of RM14.2 billion, an increase of almost 100%. The cumulative subsidy since May 1997 amounted to RM42.6 billion. -- Higher sales volume of 23.6 million tonnes of LNG, with 21.4 million tonnes from PETRONAS LNG Complex, 1.0 million tonnes from Egyptian LNG and 1.2 million tonnes from trading activities. -- Strengthened presence in the emerging Atlantic Basin LNG market with the commencement of operations of Egyptian LNG, which simultaneously increased the Group's total net production capacity to 25.4 million tonnes per annum. GAS BUSINESS AT A GLANCE FY2006 FY2005 Total Sales Gas Volume (mmscfd) 2,122 1,969 Sales Gas through PGU (mmscfd) 2,031 1,869 Domestic Gas Subsidy (RM billion) - Total 14.2 7.4 - Power 11.5 6.2 - Non Power 2.7 1.2 LNG Sales Volume (million tonnes) - Malaysia LNG 21.4 21.2 - Egyptian LNG 1.0 -- - ASEAN LNG Trading Company Ltd 1.2 1.2 Gas Processing and Transmission

The Group sold an average volume of 2,122 mmscfd of sales gas during the review period, a 7.8% increase compared to the previous year's 1,969 mmscfd, as a result of higher demand for gas from the power, industrial and petrochemical sectors.

Of this amount, 2,031 mmscfd was transported by the Peninsular Gas Utilisation (PGU) system. The power sector remained the largest gas consumer, accounting for 66.8% of gas sales through PGU followed by the industrial, petrochemical and other users at 27.5%. The Independent Power Producers (IPPs) consumed almost two-thirds of the total gas supplied to the power sector. A further 5.7% of sales gas was exported to Singapore.

During the review period, the Group secured additional supplies from gas fields offshore Terengganu, as well as through imports from Vietnam, Indonesia, and the Malaysia-Thailand Joint Development Area (JDA) to cater to the higher demand. Gas imports increased by 188% from 148 mmscfd to 426 mmscfd during the review period, representing 17.8% of total gas supplied into the PGU system.

The Group continues to supply gas to the domestic power and non-power sectors at regulated rates. The higher volume of gas consumed by the domestic power and industrial sectors coupled with high market prices resulted in PETRONAS subsidising about RM14.2 billion for the gas during the review period. The subsidy represents an increase of 91.9% over the previous year and brings the cumulative subsidy to RM42.6 billion since the regulated price came into effect in May 1997.

The Group's gas processing plants and pipeline system sustained a world- class performance with reliability rates of over 98%. The Group also revised the Gas Processing and Transportation Agreement (GPTA) with its subsidiary PETRONAS Gas Berhad (PGB), effective from 1 April 2005 to 31 March 2010, to include performance-based incentives that will improve the efficiency and reliability of the gas processing and transmission systems.

The Group successfully completed the rejuvenation and de-bottlenecking project of GPP-1 that extended the plant's life for another 20 years and increased the plant's capacity by 25% or about 60 mmscfd, enhancing the Group's total gas processing capacity to 2,060 mmscfd.

Other significant developments during the year include the completion of a Gas Separation Plant (GSP) in Songkhla, Thailand as part of the TTM joint venture project in October 2005, enabling further gas supplies to the PGU system. LPG extracted at the GSP is transported by pipeline to the Group's depot in Butterworth, Penang.

The Group made another breakthrough in gas exports to Singapore with the signing of a Gas Sales Agreement (GSA) with Keppel Energy for a period of up to 18 years, commencing from mid-2006. The contract, the second with a Singapore customer, further enhances PETRONAS' position in Singapore's gas market, strengthening its long-standing reputation as a reliable gas supplier to the island nation.

Liquefied Natural Gas (LNG)

PETRONAS is currently the second largest equity owner of LNG production capacity in the world and the PETRONAS LNG Complex in Bintulu, Sarawak, remains the world's largest LNG production facility at a single location with a combined capacity of about 23 million tonnes per annum. During the year, the Complex produced 21.6 million tonnes of LNG compared to 21.2 million tonnes previously. Of this, 13.4 million tonnes (13.1 million tonnes last year) or 62% was exported to Japan, 4.8 million tonnes (4.9 million tonnes last year) or 22% to South Korea and 3.3 million tonnes (2.5 million tonnes last year) or 15% to Taiwan.

The Group increased its market share in Japan and Taiwan to 23% and 42% respectively and retained its market share in South Korea at 21%. During the year, three new long-term contracts were signed with Hiroshima Gas Co. Ltd., Korea Gas Corporation and Toho Gas Co. Ltd.

PETRONAS is currently de-bottlenecking the MLNG Dua Plant to increase its production capacity by 1.2 million tonnes per annum, thereby increasing the combined production capacity from the PETRONAS LNG Complex to about 24 million tonnes per annum. The de-bottlenecking project is scheduled for completion in 2009.

The ELNG project commenced operations ahead of schedule and produced 4.3 million tonnes of LNG during the year. The Group's LNG trading arm, ASEAN LNG Trading Company Ltd. (ALTCO) continues to support the widening reach of PETRONAS' LNG business. ALTCO sold a total of 21 cargoes, amounting to 1.2 million tonnes of LNG to customers in the USA, Spain, Belgium and South Korea.

The construction of the Dragon LNG receiving and regasification terminal in the UK continues to progress and is expected to be operational in 2008. The terminal will provide the Group with access to a new gas market and a home for future LNG cargoes.

PETROCHEMICAL BUSINESS Robust Operational Performance

The Petrochemical Business Sector recorded its best-performing year ever. Continuous operational excellence initiatives, backed by favourable market conditions enabled the sector to achieve record production and sales volume during the year under review. The availability of gas-based feedstock from the PGU system and interdependency of feedstock supply between integrated plants have also enabled the sector to maintain its competitive cost structure.

Highlights -- Increase in total production of petrochemical products by 12.8% to 8.8 million tonnes due to significant improvement in plant reliability and utilisation rates. -- Higher sales volume recorded, amidst favourable market conditions for petrochemical products. PETROCHEMICAL BUSINESS AT A GLANCE FY2006 FY2005 Production Volume (million tonnes) 8.8 7.8 Sales Volume (million tonnes) 7.0 6.4 Overall plant's reliability rate 93.3% 90.2% Overall plant's utilisation rate 88.3% 77.4%

The Group's integration and value adding strategy continue to yield dividends to the Petrochemical Business, enabling it to add further value to the Group's earnings and record its highest production and sales volume during the review period.

During the year, the Group's (including its associates) total production of petrochemical products increased 12.8% to 8.8 million tonnes, compared to 7.8 million tonnes previously. Sales volume also increased from 6.4 million tonnes to 7.0 million tonnes in the review period.

The improved performance was due to continuous operational improvement efforts that commenced three years ago. The sector attained record reliability and utilisation rates, at 93.3% and 88.3% respectively, as compared to 90.2% and 77.4% in the previous financial year.

The Group's Petrochemical Business embarked on concerted cost reduction initiatives three years ago and to date has successfully realised cumulative cost savings of USD200 million. This success was built upon continuous measures to trim and increase overall cost competitiveness, leveraging on synergies derived from improved processes, logistics, as well as resource and feedstock allocation optimisation efforts.

Expansion of the business continues to progress well. The construction of the Mega Methanol Project in Labuan is progressing as scheduled and is expected to be operational by early 2008.

While the commendable progress made by the Petrochemical Business bears testimony to the success of the Group's integration and value adding strategy, the sector has also provided an immense contribution to the development of the nation's petrochemical industry, particularly in the Eastern Corridor, in line with the country's Industrial Masterplans and has positioned Malaysia as a regional petrochemical hub.

LOGISTICS AND MARITIME BUSINESS Exploring new synergies for growth

The Group's logistics and maritime business undertaken by its subsidiary MISC Berhad (MISC), the leading international shipping line of Malaysia. The principal business of the sector consists of ship-owning, ship management and other related logistics and maritime transportation services. The Group's strategic integration and the sector's focus on energy transportation and logistics again emerged as the main drivers for strong performance. The logistics and maritime business is primarily supported by ongoing long-term contracts and timely contributions from the offshore and engineering business, backed by a strong emphasis on building internal capabilities and the effective execution of carefully planned strategies and synergies.

-- Strengthened position as the largest owner/operator of LNG tankers through delivery of three new LNG tankers -- Puteri Mutiara Satu, Seri Alam and Seri Amanah. -- Signed a 20-year long-term contract for the provision of two new LNG tankers with Yemen LNG. -- Completed and delivered the Group's first Floating, Storage and Offshore (FSO) facility to Talisman Malaysia Ltd. for Angsi field. -- Signed a 15-year long-term contract with Sonatrach for the provision of one Very Large Crude Carrier (VLCC), one Aframax and one Suezmax class tankers. LOGISTICS AND MARITIME BUSINESS AT A GLANCE Fleet numbers (by vessel type) FY2006 FY2005 LNG 21 18 Petroleum 49 51 Chemical 18 13 FPSO/FSO 2 1 Liner 20 20 Total 110 103

During the year, MISC continued to chart significant progress and enhanced its role as a strategic value creator within PETRONAS' business value chain.

The year in review saw three new LNG vessels added to MISC's LNG tankers portfolio, increasing the size of the LNG fleet to twenty-one tankers. With the delivery of new LNG tankers Puteri Mutiara Satu, Seri Alam and Seri Amanah during the year, MISC continued to strengthen its global market position as the single largest owner/operator of LNG tankers. Each new vessel is employed on a twenty-year time charter contract with the Group's subsidiary MLNG, strengthening synergies within the PETRONAS Group as a whole.

MISC successfully concluded its first long-term third party shipping contract with Yemen LNG to provide two new LNG carriers for a twenty-year contract beginning in 2009. MISC also strengthened its relationship with Gaz de France (GdF) following the extension of its charter party contract, secured a time charter contract with BG of the United Kingdom for, and Pertamina of Indonesia.

MISC's reorganisation of its petroleum shipping business under its subsidiary AET, completed in April 2005, saw the creation of three regional centres in London, Houston and Singapore. AET made a significant debut into the Suezmax tanker market through a joint venture with Sonatrach, to own and operate one VLCC, one Aframax and one Suezmax class tankers for a fifteen-year long-term contract to haul Algerian crude oil and condensates commencing in 2008.

In the offshore business, MISC continued to strengthen its position in the Floating, Production, Storage and Offloading (FPSO)/ FSO sector, successfully completing and delivering its first FSO facility to Talisman Malaysia Ltd. for its Angsi field in August 2005. MISC's marine and heavy engineering business arm, Malaysia Marine and Heavy Engineering Berhad (MMHE) constructed the facility, which is currently under an eleven-year term contract. The construction of FPSO Kikeh for Murphy Oil (Sabah) Ltd. at MMHE's shipyard in Pasir Gudang, destined to serve Malaysia's first deepwater field, is progressing well, with completion targeted for 2007.

MMHE made a significant breakthrough in its business focus by making a strategic shift towards the oil & gas industry and high value added marine repairs, which included the undertaking of several Engineering, Procurement, Construction, Installation and Commissioning (EPCIC) projects.

PETRONAS remains committed to honing the nation's industrial capabilities, creating various spin-off effects by continuously searching and capitalising on opportunities available within the logistics and maritime industry.

Conclusion

For PETRONAS, the financial year ended 31 March 2006 was indeed challenging as it continued to compete in the global arena to deliver the results amidst an increasingly competitive, highly challenging, volatile and uncertain global industry environment. The outstanding financial results and operational performance delivered have enabled the Group to continue to be an effective value creator as it steadfastly pursues its aspiration to become a Global Champion.

Driving this performance excellence is the Group's strategy of integration, adding value and globalisation. PETRONAS remains fully committed to this strategy, which has enabled the Group to evolve and grow into what it is today. The strategy has served PETRONAS well in addressing the challenges faced in the volatile and uncertain oil and gas industry. This uncertain environment is likely to remain in the foreseeable future with oil prices anticipated to remain firm. PETRONAS, however, is confident that it has the resolve to adapt to this uncertain and volatile environment.

PETRONAS believes that having the right strategies and the right people are crucial in paving the way for the future as it continues to uphold a culture of trust and integrity, firmly guided by its Shared Values of Loyalty, Integrity, Professionalism and Cohesiveness.

As PETRONAS continues the journey to transform the Group into becoming a Global Champion, it remains devoted to raising the level of its performance to not only meet, but to exceed the expectations of its partners, customers and stakeholders.

Contact: Azman Ibrahim Media Relations PETRONAS Level 70, Tower 1 PETRONAS Twin Towers 50088 KUALA LUMPUR Tel: +603-2051-2140 Fax: +603-2051-7747 Email: azmanc@petronas.com.my Web sites: http://www.petronas.com/ http://www.petronastwintowers.com.my/

PETRONAS

CONTACT: Azman Ibrahim, +603-2051-2140, or fax, +603-2051-7747, orazmanc@petronas.com.my

Source: PRNewswire

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