PSE Circular for Brokers No. 163-00

January 26, 2000 PSE CIRCULAR FOR BROKERS NO. 163-00 PETRON'S 1999 INCOME SLIDES BY 43% In the first quarterly board meeting, Petron reported a 1999 consolidated net income of P2.1 billion. This is 43 percent lower than last year's P3.7 billion income. The steep decline reflects the company's inability to recover crude cost increases in the second half of 1999. LexLib A paper adjustment on income by P300 million brought Petron's bottom line to P2.4 billion. This resulted from a change in inventory valuation method. However, this is still 32 percent lower than net income earned in the previous year. Petron continued to shoulder the burden of increased crude costs since crude prices started increasing in March. The cost of Dubai-Oman crude increased by 140 per cent, from around $10 per barrel in February to $24 per barrel by the end of the year. Because of socio-political concerns and market forces, however, product price adjustments only amounted to 32 per cent and remain frozen at their October levels. Due to reduced demand, overall sales volume as of the end of the year was 9 per cent lower than that registered for the same period in 1998. Petron registered total sales of 52.5 million barrels, about 5 million barrels lower than last year's figure. This largely reflects the decline in fuel oil and diesel oil sales to NAPOCOR, which switched a significant portion of its fuel requirements to other energy sources during the year. Sales to other domestic customers outside of NAPOCOR actually grew by 8.8 per cent. In particular, LPG, gasoline and jet fuel sales show healthy growth rates of 10 per cent, 7 and 5 per cent, respectively. The company's revenue for the year was P61.8 billion. This reflects a 5 per cent or P2.8 billion increase over last year. Petron's year-end consolidated asset base stood at P52.9 billion, 23.5 per cent higher than the 1998 figure of P42.8 billion. It remains the biggest local oil company, maintaining a share of around 36 per cent of the domestic market. Management attributes last year's low profitability to unstable crude prices which was further fuelled by the company's inability to recover cost increases. In the same board meeting, Management approved a P854 million capital program, which was reduced by P1.5 billion from an originally proposed P2.3 billion. The reduction was necessary to adjust to the company's reduced profitability and tight cash flows.