PSE Circular for Brokers No. 1727-98

July 24, 1998 PSE CIRCULAR FOR BROKERS NO. 1727-98 July 23, 1998 Disclosure Department Listing and Disclosure Group Philippine Stock Exchange, Inc. (PSE) Philippine Stock Exchange Center Exchange Road, Ortigas Center Pasig City, Metro Manila Gentlemen/Mesdames : This is in connection with your fax message dated July 22, 1998 regarding a July 21, 1998 news item appearing in the newspaper Today titled "Airline's woes affect Petron," dealing with the effect of Philippine Airline's financial crisis on Petron. With respect to the matters you inquire on: 1. The sales generated from Petron's fuel supply to PAL and its percentage to gross sales . Before the PAL crisis, Petron's average monthly sales volume of jet fuel to PAL was about 149,000 barrels, which amounted to 3% of Petron's total sales. Since the crisis, average monthly sales volume of the same product to PAL has been at around 44,000 barrels which amount to 0.9% of total sales. 2. The effect of PAL's crisis on Petron's operations and activities . PAL's crisis has not only affected Petron's sales but it has also affected Petron's collections on PAL's unpaid account. PAL has filed a petition with the SEC for approval of a rehabilitation plan. In connection therewith, in an Order dated July 1, 1998, the SEC appointed an Interim Receiver and suspended the payment of all claims against PAL. Petron has notified the SEC that PAL's unpaid account as of June 30, 1998 was P201,773,074.39, exclusive of interest. Furthermore, the SEC Order has constrained us to continue supplying PAL with jet fuel but, to protect our Company, we have been selling the fuel on a strictly cash basis. aisadc The newspaper item also mentioned that Petron's average capacity for the first six months of 1998 dropped to 130,000 barrels due to the PAL strike. Petron's refining capacity remains at 180,000 barrels per stream day (bsd). However, Petron has recently slowed down its crude feed to an average of about 140,000 to 50,000 bsd. This reduction in refining activity, however, is not due solely to the reduction in PAL's demand for jet fuel. There are many factors that influence a decision to reduce refining operations. For one, the prices of finished petroleum products in the international market are currently low. Hence, Petron finds it more advantageous to import certain petroleum products. This also contributes to the reduction in refining activity. We hope the foregoing satisfies your request. Very truly yours, (SGD.) LIBERADOR V. VILLEGAS General Counsel