PNOC Exploration Corporation, the upstream petroleum and coal arm of state-owned Philippine National Oil Company, posted a net income of PhP 2.6 billion for 2006, 95.6% of which comes from its 10% interest in the Malampaya Project. The Company’s total sales revenue for 2006 was PhP 6.2 billion, down by 7% from PhP 6.7 billion in 2005 due mainly to the diminished cost available for recovery in the Malampaya Project. The full recovery of PNOC EC’s investments in the Malampaya Project substantially reduced its cost recovery entitlement from PhP 4.1 billion in 2005 to PhP 2.4 billion in 2006.

“Cost recovery” is an incentive granted by the Department of Energy (DOE) to the contractors of the Malampaya to deduct certain “Approved Costs” up to a maximum of 70% of the monthly sales revenue before sharing the remainder Profit Petroleum with the Government. Since the expenditures that can be subjected to cost recovery from the government have already been significantly reduced, the Company expects lower cash remittance from the operator of the Malampaya Project to its partners in the succeeding years.

PNOC EC’s earnings in 2006 resulted to equity growth from PhP 2.6 billion in 2005 to PhP 5.2 billion in 2006. As a result, the book value per share doubled from PhP 1.35 in 2005 to PhP 2.64 in 2006. From its unrestricted earnings, dividends amounting to PhP 100 million was declared on December 12, 2006 and paid on January 29, 2007 to shareholders of record on January 3, 2007.

PNOC EC’s revenue from the Malampaya Project for 2006 is P4.8 billion, 5% lower compared to P5 billion revenue in 2005. Meanwhile, revenue generated from its coal mining and trading operations of P1.2 billion in 2006 is 21% lower from 2005 revenue of P1.5 billion. This is due to the reduction in sales volume from 601.85 MT to 477.70 MT metric tons that was partially offset by the increase in average selling price from P2,139 to P2,504 per metric ton.

The revenue from the Company’s Energy Supply Base in Batangas of P114 million increased by 29% from 2005 revenue of P89 million due to the increase in fuel sales. Meanwhile, its San Antonio Power Plant produced a revenue of P79 million for its 2006 full year operation which is 392% higher than 2005’s 4-month operation.

The company generated P4.0 billion from operating activities in 2006. P3.3 billion of this fund was used to pay the SC38 loan while P219 million was used to finance exploration and development activities, capital expenditures and joint venture projects. Operating fund balance as of December 31, 2006 was P621 million.

In 2006, PNOC EC contributed an aggregate of P831.40 million of income tax which was remitted by the Department of Energy in behalf of PNOC EC from its 10% share on the Malampaya related revenue.