2018-perc-definitive-is

PETROENERGY RESOURCES CORPORATION 7th Floor, JMT Building, ADB Avenue Ortigas Center, Pasig City

637-2917 Telephone Number

31 December 2017 Fiscal Year Ended

Notice of Regular Annual Stockholders’ Meeting

SEC Form 20-IS Information Statement Pursuant to Section 20 of the Securities Regulation Code Form Type

7/F JMT Building, ADB Avenue' Ortigas Center Pasig City 1600, Metro Manila, Philippines Fax: (632) 6346066 ret:

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.ROENERGY RESOU RCES CORPORATION

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5E@qs TO OUR STOCKHOLDERS:

NoT|cE|SHEREBYG|VENthatthereg!!1r.3nn.ya|meetinqofthestockho|ders

wilt be held-at Rooms 526-528 of pETRoENERGy nesounCEs coRponiiron sen. Gil J' Puyat Avenues' cor. ylAS. Level 5, podium ;, RaEc -Plaza, Ayala p'm' Makati Gity on July 26' 2018 at 1:30 The agenda of the meeting is as follows: Certification of Service of Notice; 2.. Determination of Quorum/Call to Order: on July 3. Approval ot tne Minutes of the last Stockho6dt' Meeting held

1.

4.

26,2017; Approval of Managemelt

[9qgt and the 2017 in the 2017 Annual Report;

Audited Financial

Siatements contained and investments confirmation ano natirication of all acts, contracts of Directors Board lvlanagemg$ by into made anO -11{01 "ntereO zola;. z9' to ioiz ouring th" peri;Jut io, 'J-uty luding6. Election of N three(3)lndependentDirectors)fortheyear2018-2019; 7. Appointment of External Auditors; 8. Other Matters; and

5.

-

9. Adjoumment

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Pleasebeadvisedthattherecorddate'ofstockho|dersentitledtovoteatsaid tn" meeting shall commence at 1:00

meetinq shalt be rrnav z-sl ioi-e.' negistrati;loi venue' p.m. on"Ttrursday' July 26' 2018' atthe above

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Samuel V. Torres-r,,, CorporateSecrelary

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RATIONALE AND BRIEF DISCUSSION OF THE AGENDA OF THE 2018 ANNUAL STOCKHOLDER’S MEETING (THE “ANNUAL STOCKHOLDERS’ MEETING”) 1.

Call to Order The Chairman of the Board of Directors (or the Chairman of the meeting, as the case maybe) (the “Chairman”) will call the meeting to order.

2.

Determination of Quorum/Report on Attendance The Corporate Secretary (or the Secretary of the meeting, as the case may be) (the “Secretary”) will certify the date when the written notice of the Annual Stockholders’ Meeting was sent to the stockholders as of the record date of May 25, 2018 and the date of publication of the notice in the newspapers of general circulation.

The Secretary will likewise certify the presence of a quorum. Under the By-Laws of the Corporation (the “Corporation’s By-Laws”), the holders of a majority of the issued and outstanding capital stock of the Corporation entitled to vote shall, if present in person or by proxy, constitute a quorum for the transaction of business.

Voting Procedures - Cumulative Voting for Directors Only Section 7 of Article III of the By-Laws of the Corporation provides that at all elections of Directors, each stockholder may vote the shares registered in his name in person or by proxy for as many persons as there are Directors, or he may cumulate said shares and give one candidate as many vote as the number of Directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit, provided, however, that the whole number of votes cast by him shall not exceed the number of shares owned by him as shown on the Company’s stock transfer books multiplied by the whole number of Directors to be elected.

In the same vein, Section 24 of the Corporation Code of the Philippines provides that each stockholder may vote in any of the following manner: 1) 2) 3)

he/she may vote such number of shares for as many persons as there are Directors to be elected; he/she may cumulate said share and give one candidate as many votes as the number of Directors to be elected multiplied by his/her shares; he/she may distribute them on the same principle among as many candidates as he/she may see fit. In any of these instances, the total number of votes cast by the stockholders should not exceed the number of shares owned by him/her as shown in the books of the Corporation multiplied by the total number of Directors to be elected.

The voting procedure for election and approval of corporate actions in which Stockholders’ approval will be required shall be by “viva voce”, unless voting by ballot is decided upon during the meeting.

If by ballot, the external auditor of the Corporation will be requested to supervise the voting procedure.

Question and Answer The Chairman of the meeting will advise the stockholders of the holding of an open forum after the Management’s Report was delivered by the President of the Corporation.

3.

Approval of the Minutes of the last Stockholders’ Meeting held on July 26, 2017 The Minutes of the meeting held on July 26, 2017 are posted at the PetroEnergy Resources Corporation website, www.petroenergy.com.ph. Copies of which will also be distributed to the stockholders before the meeting.

4.

Approval of Management Report and the 2017 Audited Financial Statements The Company’s audited financial statements as of December 31, 2017 is integrated and made part of the Company’s Information Statement. The Information Statement will be sent to the stockholders at least fifteen (15) business days prior to the ASM, and the same will be posted at the Company’s website at www.petroenergy.com.ph.

A resolution approving the Management Report and the 2017 Audited Financial Statements shall be presented to the stockholders for approval.

The stockholders will be given the opportunity to ask questions or raise concerns.

5.

Confirmation and Ratification of all acts, contracts and investments made and entered into by Management and Board of Directors during the period July 26, 2017 to July 26, 2018 The resolutions approved by the Board in its regular and special meetings refer to acts done by the Board, Corporate Officers and Management in the ordinary course of business. The Company also regularly discloses material transactions approved by the Board. These disclosures are available for viewing and downloading at the Company’s website at www.petroenergy.com.ph.

The stockholders will be requested to ratify all acts of the Board of Directors and Management since the last stockholders’ meeting in 2017.

6.

Election of Seven (7) members of the Board of Directors (including Independent Directors) for the year 2018-2019 At its meeting held on June 18, 2018, the Corporate Governance Committee, as the standing committee of the Board of Directors constituted for the purpose of reviewing and evaluating the qualifications of persons nominated to become members of the Board of Directors (including the independent directors) and pursuant to the provisions of the Code of Corporate Governance for Publicly-Listed Companies, as the same are adopted in the Company’s 2017 Manual on Corporate Governance, reviewed the candidates for director to ensure that they have all the qualifications and none of the disqualifications for nomination and election as members of the Board of Directors.

The seven (7) nominees will be submitted for election to the Board of Directors by the stockholders at the Annual Stockholders’ Meeting. The profiles of the nominees are provided in the Definitive Information Statement for the Annual Stockholders’ Meeting.

7.

Appointment of the Company’s External Auditors The Company’s Board Audit Committee assessed and evaluated the performance for the previous year of the Company’s external auditor, SYCIP GORRES VELAYO & CO. (SGV). Based on the Board Audit Committee recommendation, the Board of Directors will recommend the reappointment of SGV as the Company’s external auditor for 2018.

SGV is one of the top auditing firms in the country and is fully accredited by the Securities and Exchange Commission (SEC).

A resolution for the appointment of the Company’s external auditor for 2018 shall be presented to the stockholders for approval.

8.

Other Matters The Chairman of the meeting will inquire whether there are other relevant matters and concerns to be discussed.

9.

Adjournment Upon determination that there are no other relevant matters to be discussed, the meeting will be adjourned on motion duly made and seconded.

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SECURITIES AND EXCHANGE COMMISSION

sEc FoRM-2o{S

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INFORMATION STATEMENT PURSUANT SO

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JUN 2 6

Check the appropriate box:

_Preliminary lnformation Statement { Definitive Information Statement

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2018

MAkKvf /tEGULATION

Name of Registrant as specified in its charter

PETROENERGY RESOURCES CORPORATION

Province, country or other jurisdiction of Incorporation or organization

Philippines

SEC ldentification Code

AS094-008880

BIR Tax ldentification Code

004471419

Address of the principal office

7th Floor, JMT Building ADB Avenue, Ortigas Center Pasig City

Registrant's telephone number including area code

(02) 637-2917

Date, time and place of meeting of security holders

July 26, 2018, 1:30 p.m.

Rooms 526-528, YIAS, Level5 Podium 4, RCBC Plaza Building 6819 Ayala Avenue Cor Sen. Gil J. Puyat Avenues, Makati City

Anororimate rlafe on whinh lha lnformatinn Sfafamanl is first to be sent or given to security

holders

:

June 28,2018

10. Securities

registered pursuint to Seclions 8 and 12 of the Code or Sections 4 and 8 of SRC (information on number of shares and amount of debt is applicable only to corporate registrants): Title of Each Class Common

11.

Number of Shares of Stock Outstanding or Amount of Debt Outstandinq

568.711.U2

Are any or all the Registrant's securities listed on a Stock Exchange?

Yes {

No

lf so, disclose name of the Exchange: Philippine Stock Exchange, Inc.

PETROENERGY RESOURCES CORPORATION INFORMATION STATEMENT

A. GENERAL INFORMATION

1.

Date, Time and Place of Meeting of Security Holders

The Regular Annual Stockholders’ Meeting of PetroEnergy Resources Corporation will be held at Rooms 526-528 YIAS, Level 5, Podium 4, RCBC Plaza, Ayala Cor. Gil J. Puyat Avenues, Makati City on Wednesday, July 26, 2018 at 1:30 p.m.

Mailing Address – 7th Floor, JMT Building, ADB Avenue, Ortigas Center, Pasig City The approximate date on which this Information Statement is first to be sent or given to security holders is on June 28, 2018.

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

2.

Dissenter’s Right of Appraisal

There are no corporate matters or actions that will entitle dissenting stockholders to exercise their right of appraisal as provided in the Title X of the Corporation Code.

Although the following actions are not among the matters to be taken up during the 2018 Regular Annual Stockholders’ Meeting, the stockholders are herein apprised of their appraisal rights pursuant to Title X of the Philippine Corporation Code. A stockholder shall have the right to dissent and demand payment of fair value of the share in case he voted against the following proposed corporate actions: (a) in case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholders or class of shares, or of authorizing preferences in any respect superior to those outstanding shares of any class, or extending or shortening the term of corporate existence; (b) in case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets; and (c) in case of merger or consolidation.

The appraisal right may be exercised by the dissenting stockholder by making a written demand for payment of the fair value of his shares on the company within thirty (30) days after the date on which the vote was taken and within ten (10) days after demanding payment on his shares, he shall submit the certificate of stocks representing his shares to the company for notation thereon that such shares are dissenting shares.

If the proposed corporate action is implemented and if there is agreement as to the fair value of the shares, the company shall pay the fair value of the shares to such stockholder upon surrender and transfer of the certificate of stocks. The fair value of the share shall be determined as to the day prior to the date on which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate actions.

Provided, that no payment shall be made to any dissenting stockholder, unless the company has unrestricted retained earnings in its books to cover such payment. If within a period of sixty (60) days from the date of the corporate action was approved, the withdrawing stockholder of the company cannot agree on the fair value of the shares, it shall be determined and appraised by three (3) disinterested persons, one of whom shall be named by the dissenting stockholder, another by the company and third by the two previously chose.

The findings of the majority of the appraisers will be final and the award shall be paid by the company within thirty (30) days after the award is made. Upon payment of the agreed or awarded price, the stockholder shall forthwith transfer his share to the company. From the time of demand for payment of the fair value of the stockholder shares, all rights accruing to such shares, including voting and dividend rights shall be suspended.

None of the items in the Agenda of the meeting entitles a dissenting stockholder to appraisal right.

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3.

Interest of Certain Persons in Matters to be Acted Upon

The incumbent directors or officers of the Company, since the beginning of the last fiscal year, do not have substantial interest, direct or indirect, by security holdings or otherwise, in any matter to be acted upon. None of the incumbent directors informed in writing that he/she intends to oppose any action to be taken during the annual meeting of the stockholders.

B. CONTROL AND COMPENSATION INFORMATION

4.

Voting Securities and Principal Holders Thereof: a)

Number of Shares Outstanding as of May 31, 2018:

568,711,842

Number of Vote each share is Entitled:

One (1) vote per share

b)

All stockholders as of May 25, 2018 are entitled to notice and to vote at the Regular Annual Stockholders Meeting.

c)

Of the total outstanding common capital stock as of May 31, 2018, 566,724,109 or 99.65% are owned by Filipino citizens, while 1,987,733 or 0.35% are owned by Foreigners.

d)

Manner of Voting

Section 7 of Article III of the By-Laws of the Corporation provides that the stockholders may vote at all meetings the number of shares registered in their respective names either in person or by proxy executed in writing. Section 6 of the same Article provides that no proxy shall be recognized unless presented to the Secretary for inspection and registration at least three (3) calendar days before the date of said meeting. The By-Laws of the Corporation does not require notarization of proxies.

In the same vein, Section 24 of the Corporation Code of the Philippines and Section 7, Article III of the Corporation’s By-Laws provide that each stockholder may vote in any of the following manner: 2)

he/she may vote such number of shares for as many persons as there are Directors to be elected;

3)

he/she may cumulate said shares and give one candidate as many votes as the number of Directors to be elected multiplied by his/her shares;

4)

he/she may distribute them, on the same principle, among as many candidates as he/she may see fit. In any of these instances, the total number of votes cast by the stockholders should not exceed the number of shares owned by him/her as shown in the books of the Corporation multiplied by the total number of Directors to be elected.

e) Security ownership of certain record and beneficial owners and management.

1)

Security ownership of certain record and beneficial owners of more than 5% of Registrant securities as of May 31, 2018:

Title of Class Common

Common

Common TOTAL

Name, Address of record Owner and relationships With the Issuer PCD Nominee Corp.

G/F MSE Bldg., 6767 Ayala Ave., Makati City House of Investments, Inc. 3rd Flr., Grepalife Building, 221 Sen. Gil J. Puyat Ave. Makati City Others

Name of Beneficial Owner and relationship with the record owner PCD Nominee* (Various stockholders)

Citizenship Filipino

No. of Shares Held 531,453,635

% 93.45%

House of Investments, Inc. (Mr. Medel T. Nera, President and Chief Executive Officer)

Filipino

21,805,861

3.83%

(Various stockholders)

Filipino

15,452,346 568,711,842

2.72% 100.00%

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*Under PCD account, the following companies owned more than 5%: i.

RCBC Securities, Inc. – 296,924,579 or 52.21% of the Company’s outstanding capital stock. The current nominee of RCBC Securities, Inc. is Mr. Raul M. Leopando. (Under RCBC Securities, Inc. with 5% of the Registrant securities). The breakdown of the shareholdings are as follows: a. b. c. d.

GPL Holdings, Inc. House of Investments, Inc. RCBC Capital, Inc. Other Stockholders

– – – –

80,418,121 shares or 4.14% 139,509,123 shares or 24.53% 60,773,808 shares or 10.69% 16,223,527 shares or 2.85%

ii.

RCBC Trust and Investment Division – 64,517,123 or 11.34% of the Company’s outstanding capital stock. RCBC Trust and Investments are trust accounts between RCBC and Beneficial Owners. The corporate acts of RCBC are carried out by its management through the guidance of its Board of Directors. Ms. Helen Y. Dee is the current Chairman of the Company.

2)

Security Ownership of Management (as of May 31, 2018):

The following are the number of shares owned and of record by the Directors, the Chief Executive Officer and each of the key officers of the Company and the percentage of shareholdings of each: Title of Class Common Common

Common Common Common Common Common Common Common Common Common Common

Name of Beneficial Owner Name and Position Helen Y. Dee Chairman Milagros V. Reyes President/Director Basil L. Ong Independent Director Cesar A. Buenaventura Independent Director Raul M. Leopando Director Yvonne S. Yuchengco Director/Treasurer Eliseo B. Santiago Independent Director Francisco G. Delfin, Jr. Vice President Samuel V. Torres Corporate Secretary Arlan P. Profeta Asst. Corporate Secretary Carlota R. Viray AVP for Finance Maria Victoria M. Olivar AVP for Technical

Total

Amount and Nature of Beneficial Ownership Direct 10,662 Indirect 5,006,574

Citizenship

Percent of Class

Filipino

0.88%

Indirect

125,695

Filipino

0.02%

Direct Direct Indirect

1 1,300 117,844

Filipino

-

Filipino

0.02%

1

Filipino

-

Indirect

349,956

Filipino

0.06%

Direct Direct Indirect

1 55,000 27,500

Filipino

-

Filipino

0.02%

-

Filipino

-

6,216 69,001

Filipino

-

Filipino

0.01%

Filipino

-

Direct

Direct Indirect

5,769,751

1.01%

As of May 31, 2018, the Company’s directors and executive officers owned an aggregate of 5,769,751 shares equivalent to 1.01%.

f)

Voting Trust Holders of 5% or more

The Company is not aware of any voting trust or similar arrangement among persons holding more than 5% of a class of shares. g)

Changes in Control

There had been no change in the control of the Company since the beginning of last fiscal year. The Company has no existing voting trust or change in control agreements.

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5.

Directors and Executive Officers:

The members of the Board of Directors are elected at the general meeting of stockholders, who shall hold office for a term of one (1) year or until their successors shall have been duly elected and qualified.

The Board Committee members and other Officers of the Company, unless removed by the Board of Directors, shall serve as such until their successors are elected or appointed. a.

Directors and Executive Officers

The following are the names, ages, positions and periods of service of Directors and Executive Officers: Name Helen Y. Dee Cesar A. Buenaventura Basil L. Ong Milagros V. Reyes Yvonne S. Yuchengco Raul M. Leopando Eliseo B. Santiago Francisco G. Delfin, Jr. Samuel V. Torres Arlan P. Profeta

Age 74 88 65 76 64 66 67 55 53 44

Position Chairman (NED) Director / Independent * (NED) Director / Independent * (NED) Director / President Director / Treasurer Director (NED) Director / Independent (NED) Vice President Corporate Secretary Asst. Corporate Secretary

Citizenship Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino

Period of Service 2001 to present 1998 to present 2011 to present 1998 to present 2004 to present 2010 to present 2013 to present 2008 to present 2006 to present 2008 to present

NED - Non-Executive Director * - Cumulative Term of Nine Years for Independent Directors elected prior to 2012 is reckoned from 2012.

None of the above-mentioned Directors, Independent Directors and Executive Officers of the Company is appointed or is an employee of any Government Agency in compliance with Article 9(B) Section 8 of the Philippine Constitution Code.

Business Experiences During the Past five (5) Years and Educational Background.

Directors

MS. HELEN Y. DEE, 74, Filipino, Chairman (Non-Executive Director) Publicly-Listed Companies: Ms. Dee has been a Director of the Company since 2001 and Chairman of the Board since 2011. She is also presently the Chairman of House of Investments, Inc., Rizal Commercial Banking Corporation, and EEI Corporation, and Director of PLDT Inc. Non-Listed: She is the Chairman of RCBC Excom Forex Brokers Corporation, Landev Corporation, Mapua Information Technology, Inc., Hi-Eisai Pharmaceuticals, Inc., Pan Malayan Realty Corporation, RCBC Savings Bank, Merchants Bank, La Funeraria Paz-Sucat, Malayan Insurance Company, National Reinsurance Corp of the Philippines, Xamdu Motors, Inc., Manila Memorial Park Cemetery, Inc., Petrowind Energy Inc. and Malayan High School of Science, Inc. She is the Chairman/President of Hydee Management & Resources, Inc.; Financial Brokers Insurance Agency, Inc., RCBC Leasing and Finance Corporation and Mijo Holdings, Inc.; She is also Chairman and CEO of Tameena Resources, Inc. She is the President of Moira Management, Inc., YGC Corporate Services, Inc. and GPL Holdings, Inc. She is the Vice Chairman of Pan Malayan Management and Investment Corporation and West Spring Development Corporation and Vice President of A.T. Yuchengco, Inc. She is also a Member, Board of Trustees of Mapua Institute of Technology, Inc. a leading engineering school in the Philippines, Malayan Colleges Laguna, Inc and Philippine Business for Education, Inc. She also sits in the Board of the following companies, South Western Cement Corp., Great Life Financial Assurance Corp., MICO Equities, Honda Cars Philippines, Inc., Isuzu Philippines, Inc., A.Y. Holdings, Inc. Pan Malayan Express, Honda Cars Kalookan, Sun Life Grepa Financial, Inc., Philippine Integrated Advertising Agency, Inc., Y Realty, Inc., Luis Miguel Foods.

Educational Background: Bachelor of Science in Commerce Major in Administration from the Assumption College; Master in Business Administration Degree from the De La Salle University.

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MR. CESAR A. BUENAVENTURA, 88, Filipino, Independent Director.

Publicly-Listed Companies: Mr. Buenaventura is a Non-Executive Director of DMCI Holdings, Inc., iPeople, Inc., Semirara Mining and Power Corporation, Concepcion Industrial Corporation, and Pilipinas Shell Petroleum Corporation.

Non-Listed and Civic Affiliations: Mr. Buenaventura is also holding the following positions: Chairman at Buenaventura, Echauz and Partners, Inc., Mitsubishi Hitachi Power Systems (Phils.), Inc. He is a director of various companies such as: D.M. Consunji, Inc., The Country Club, and trustee of various foundations such as Pilipinas Shell Foundation, Inc. (Chairman), Bloomberry Cultural Foundation and ICTSI Foundation.

Educational Background and Other Information: Bachelor of Science in Civil Engineering from the University of the Philippines; Master’s degree in Civil Engineering majoring in Structures from Lehigh University, Bethlehem, Pennsylvania as a Fulbright Scholar. In 1991, Mr. Buenaventura was made Honorary Officer of the Order of the British Empire (OBE) by Her Majesty Queen Elizabeth ll.

MR. BASIL L. ONG, 64, Filipino, Independent Director.

Non-Listed: Transnational Diversified Group, Inc., Adventure International Tours, Inc. (Philippine

representative of American Express, Inc.), Planet Sports, Inc. (Philippine Licensee and Operator of Athlete’s Foot Stores, Nike Stadium Stores and Kidz Station Stores) and Wordtext Systems, Inc. (WSI) and W.S. Pacific Publications, Inc. Educational Background: Mr. Ong, received his Bachelor’s Degree in Management from the Ateneo de Manila University and he completed his post graduate, the Program for Management Development, at the Harvard Business School.

MS. MILAGROS V. REYES, 76, Filipino, Director/President Publicly-Listed Companies: Seafront Resources Corporation (President) and iPeople, Inc. Non-Listed: She is the President/Director of PetroWind Energy Inc. and PetroSolar Corporation; President/Chairman of PetroGreen Energy Corporation; Chairman of Maibarara Geothermal, Inc.; and Director and Treasurer of Hermosa Ecozone Development Corporation. She previously served as President of Petrofields Corp. (now iPeople, Inc.); Senior Vice President of Basic Consolidated, Inc. (formerly Basic Petroleum and Minerals, Inc.); Vice President and Chief Operating Officer of Mapua Institute of Technology, Inc.; Director and Consultant of PNOC-EC. Educational Background: Bachelor of Science in Geology and Physical Sciences (Double Degree) from the University of the Philippines. She pursued various technical trainings from the National Iranian Oil Co., University of Illinois, and Ajman Fields in U.A.E.

YVONNE S. YUCHENGCO, 64, Filipino, Director/Treasurer Publicly-Listed Companies: House of Investments, Inc., Seafront Resources Corporation, and iPeople, Inc. Non-Listed: She is also the President/Director of Malayan Insurance Company, Inc., Mico Equities, Inc., Philippine Integrated Advertising Agency, Inc., Alto Pacific Corporation, RCBC Land, Inc. She also holds the position of Chairperson of First Nationwide Assurance Corporation, The Malayan Plaza Cond.

Owners Association, Inc., RCBC Capital Corporation and XYZ Assets Corporation.

Chairperson/President of Royal Commons, Inc., Y Tower II Office Cond Corp., Yuchengco Tower Office Condominium Corp. Director/Treasurer and CFO of Pan Malayan Mgm’t. & Inv’t. Corp., Director Seafront Resources Corporation; Honda Cars Kalookan, Mona Lisa Development Corporation, Asst. Treasurer, Enrique T. Yuchengco, Inc.; Member, Board of Trustees AY Foundation, Inc, Mapua Institute of Technology, Inc., Phil-Asia Assistance Foundation, Inc., Yuchengco Museum, Inc. She is a member of the Advisory Committee of Rizal Commercial Banking Corporation. She also sits in the board of several companies such as: HYDee Management and Resource Corp., La Funeraria Paz, Inc.-Sucat, Luisita 10

Industrial Park Corp., Malayan College Laguna, Inc., Malayan Colleges, Inc., Malayan High School of Science, Inc., Malayan Insurance (H.K.), Malayan International Insurance Corporation, Manila Memorial Park, Inc., National Reinsurance Corporation of the Philippines, Pan Malayan Express, Inc., Pan Malayan Realty Corporation, Asia-Pac Reinsurance Co., Ltd., AY Holdings, Inc., DS Realty, Inc., Pan Pacific Computer Center, Inc., Shayamala Corporation and YGC Corporate Services, Inc. Educational Background: Bachelor of Arts in Interdisciplinary Studies from the Ateneo De Manila University.

MR. RAUL M. LEOPANDO, 66, Filipino, Non-Executive Director Publicly-Listed Company: Seafront Resources Corporation Non-Listed: Chairman of the Board and Nominee to the Philippine Stock Exchange of RCBC Securities, Inc., Director and Vice Chairman of RCBC Bankard Services Corporation, Director: RCBC Capital Corporation, PetroGreen Energy Corporation and Maibarara Geothermal, Inc., and formerly, Executive Director of the Investment House Association of the Philippines.

Educational Background: Bachelor of Arts in Economics from the University of the Philippines and Bachelor of Science in Commerce-Accounting from San Beda College.

MR. ELISEO B. SANTIAGO, 67, Filipino, Independent Director Non-Listed: MR. Santiago sits in the Board and is a member of the Executive Committee of Isla Petroleum and Gas Corporation. He is also an Independent Director of Supply Oilfield Services, Inc. He was formerly Chairman of the Board of the Clark Development Corporation; formerly, Chief Executive of the Shell Eastern Caribbean Group of Companies covering Supply & Trading, Sales & Marketing and Chemicals businesses of the Shell Group in 15 island countries based in Barbados; Managing Director of Pilipinas Shell Petroleum Corporation; Senior Adviser to the Regional Managing Director for Asia Pacific, based in London; Country Chairman of the Shell companies in Thailand and concurrently the Vice President for Retail for the ASEAN countries and Hong Kong, based in Bangkok; Country Chairman of the Shell companies in the Philippines in addition to his regional Retail Sales and Operations for the East, based in Manila.

Educational Background: Mr. Santiago is a graduate of Bachelor of Science degree in Mechanical Engineering from the Mapua Institute of Technology in 1971 and received his professional license as a Mechanical Engineer in the same year.

Executive Officers:

MILAGROS V. REYES, 75: Other Business Experience: President/ Director President/Chairman Chairman/Director Director Director/Treasurer Former Senior Vice President Former Director Educational Background:

President and CEO (1998 to present)

Seafront Resources Corporation, PetroWind Energy Inc. PetroSolar Corporation PetroGreen Energy Corporation Maibarara Geothermal, Inc. iPeople, Inc. Hermosa Ecozone Development Corporation Basic Petroleum and Minerals Corporation PNOC-EC Ms. Reyes, graduated from the University of the Philippines with a Bachelor of Science degree in Geology and Physical Sciences Double Degree. She pursued Specialization and Training in National Iranian Oil Co., in Teheran, University of Illinois and in Ajman Fields in U.A.E.

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FRANCISCO G. DELFIN, JR. 54: Other Business Experience: President / Director Vice President / Director Vice President Former Undersecretary Former Assistant Secretary Former Professor, Public Administration & Governance Geophysics Supervisor

Vice President (2008 to present)

Maibarara Geothermal, Inc. PetroGreen Energy Corporation and PetroSolar Corporation PetroWind Energy Inc. Department of Energy Department of Energy University of the Philippines, Diliman Campus PNOC-EDC

Educational Background:

Mr. Francisco G. Delfin, Jr. is a graduate of Bachelor of Science in Geology from the University of the Philippines (6th place in 1982 the Geologist Licensure Examination). He received his Master’s Degree in Geology from the University of South Florida, Tampa, and his Ph.D. in Public Administration from the University of Southern California.

SAMUEL V. TORRES, 52

Corporate Secretary (2006 to present)

Other Business Experience: General Counsel/Corporate Secretary AY Foundation, Inc., Alto Pacific Company, Inc. (Formerly: The Pacific Fund, Inc.), Bankers Assurance Corp., FBIA Insurance Agency, Inc., Bluehounds Security & Invt. Agency, Enrique T. Yuchengco, Inc., First Nationwide Assurance Corp., GPL Holdings, Inc. GPL Cebu Tower Office Cond.

Corp., GPL Holdings, Inc., Grepaland, Inc., Grepa Reality Holding Corporation, Hexagon Integrated Financial & Insurance Agency, Hi-Eisai Pharmaceutical, Inc., Honda Cars Kalookan, Inc, House of Investments, Inc., Hexagon Integrated Fin. Ins. Agency, Inc., Hexagon Lounge, Inc., iPeople, Inc., Investment Managers, Inc., Landev Corporation, La Funeraria Paz-Sucat, Inc., Malayan High School of Science, Inc., Malayan Insurance Co., Inc., Mico Equities, Inc., Malayan Colleges, Inc., Malayan Colleges Laguna, Inc., Malayan Securities Corporation, Mapua Information Technology Center, Inc., MJ888 Corporation, Mona Lisa Development Corporation, Pan Malayan Management & Investment Corporation, Pan Malayan Realty Corporation, Pan Malayan Express, Inc., Pan Pacific Computer Center, Inc., People eServe Corporation, Philippine Integrated Advertising Agency, Inc., Royal Commons, Inc., RCBC Forex Corporation, RCBC Realty Corporation, RCBC Land, RCBC Securities, Inc., RCBC Bankard Services Corporation, RCBC Securities, Inc., RP Land Development Corporation, Sun Life Grepa Financial, Inc., Yuchengco Museum, YGC Corporate Services, Inc., Y Realty Corporation, Y Tower II Office Condominium Corp., Yuchengco Tower Office Condominium Corp. and Xamdu Motors, Inc. Educational Background:

Atty. Samuel V. Torres is a graduate of Bachelor of Science in Business Economics from University of the Philippines and Bachelor of Laws from Ateneo de Manila University.

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ARLAN P. PROFETA, 44

Other Business Experience: Corporate Secretary

Asst. Corporate Secretary (2008 to present) Compliance Officer (2017 to present) Asst. Vice President (2015 to present)

Corporate Secretary and AVP

Maibarara Geothermal, Inc. PetroGreen Energy Corporation PetroSolar Corporation PetroWind Energy, Inc.

Asst. Corporate Secretary / Compliance Officer Formerly, Tax Manager

Seafront Resources Corporation Punongbayan & Araullo

Educational Background:

Atty. Arlan P. Profeta graduated with a degree of Bachelor of Science in Accountancy from San Beda College. He is a Certified Public Accountant. He took his Bachelor of Laws degree from the Arellano University School of Law.

Nominations for Independent Directors and Procedures for Nomination Following rules and procedures shall apply to the nomination and election of Independent Directors: 1.

There shall be at least three (3) independent directors. An independent director is one who is independent of management and free from business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgement in carrying out his responsibilities as director, and must possess all of the qualifications, and none of the disqualifications as prescribed by the Bangko Sentral Ng Pilipinas, Securities and Exchange Commission and other regulatory authorities from time to time.

2.

The Corporate Governance Committee composed of at least three (3) members, all of whom are independent directors, shall promulgate the guidelines or criteria to govern the conduct of the nominations.

3.

Nominations of Independent director shall be conducted by the Corporate Governance Committee prior to the stockholders’ meeting.

4.

The Corporate Governance Committee, pursuant to the Company’s By-Laws, the 2017 Manual on Corporate Governance, and the Code of Corporate Governance for Publicly-Listed Companies, proceeded to deliberate on the qualifications of the Nominees, reviewing their respective signed and the duly notarized Certificates of Qualification as Independent Directors. (please see Annex “A”).

5.

The Corporate Governance Committee found the Nominees qualified to be elected as members of the Board of Directors and resolved to endorse their nominations to the stockholders for re-election during the Annual Stockholders’ Meeting to be held on July 26, 2018.

6.

The Corporate Governance Committee has adopted the SRC Rule 38 (Requirements on Nomination and Election of Independent Directors) and compliance therewith has been made. Only nominees whose names appear on the Final List of Candidates shall be eligible for election as Independent Director. No further nominations shall be entertained or allowed on the floor during the actual annual stockholders’ meeting.

The following are the Chairman and members of the Corporate Governance Committee for the year 2017-2018 Chairperson Members

– –

Mr. Basil L. Ong (Independent Director) Mr. Cesar A. Buenaventura (Independent Director) Mr. Eliseo B. Santiago (Independent Director)

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The following incumbent directors have been nominated to the Board of Directors of the Company for the ensuing year, and have been approved for election by the Corporate Governance Committee at its meeting on June 18, 2018.

Regular Directors: 1. Helen Y. Dee 2. Milagros V. Reyes 3. Yvonne S. Yuchengco 4. Raul M. Leopando

– – – –

Regular Director Regular Director Regular Director Regular Director

Independent Directors: 1. Cesar A. Buenaventura 2. Basil L. Ong 3. Eliseo B. Santiago

– – –

Independent Director Independent Director Independent Director

The nominees for independent directors were advised of SEC Memorandum Circular No 5, Series of 2017 on the required submission of Certificate of Qualification of Independent Directors that should include, among others, disclosure of any pending criminal or administrative investigation or proceedings, positions held in Government-Owned and Controlled Corporations and the required written permission or consent from the head of Department/Agency for those in government service.

The Independent Directors were likewise advised of SEC Memorandum Circular No. 4, Series of 2017 on the term limits for Independent Directors, i.e., independent directors shall serve a maximum cumulative term of nine (9) years, after which, they shall be perpetually barred from re-lection as such in the Company. The cumulative term of nine (9) years is reckoned from 2012. None of the independent directors has served beyond the maximum cumulative term of nine (9) years.

Ms. Shirley Cueva, as stockholder of record of the Company and who is not in any way related to the nominees, formally nominated Mr. Basil L. Ong, Mr. Cesar A. Buenaventura and Mr. Eliseo B. Santiago as Independent Directors.

b.

Legal Proceedings

The Company is not aware of any legal case, presently or during the last five (5) years, involving the present members of the Board of Directors or Executive Officers or their property before any court of law or administrative body in the Philippines or elsewhere. Moreover, the Company has no information that the above named persons have been convicted by final judgment of any offense punishable under the laws of the Philippines or of any other country. c.

Significant Employees

The Corporation has no employee who is not an executive officer that is expected to make a significant contribution to the business. The Corporation values its human resources. It strives to develop and maintain a safe, healthy, challenging, rewarding, participative, and fair working environment for all employees, and intends to utilize their full talents and expertise through effective selection, mentoring and development. The Company likewise seeks to offer career opportunities to qualified employees, regardless of gender, belief, ethnic or regional origin, and physical condition. It expects each employee act as a team player and do his or her share in achieving the Corporation’s set goals. d.

Family Relationships

Ms. Helen Y. Dee and Ms. Yvonne S. Yuchengco are siblings. e.

Certain Relationships and Related Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions.

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party in making financial and operating decisions or the parties are subject to common control or common significant influence (referred to as ‘Affiliates’). Related parties may be individuals or corporate entities.

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Significant transactions with related parties are as follows:

Related Party/Nature Stockholder HI Internal audit services Joint Venture PetroWind Due from PetroWind Rental income Management income Advances

Transactions for the Years Ended December 31 2017 2016

Outstanding Balance Receivables (Payables) 2017 2016

Terms and Conditions

($13,333)

($20,052)

($5,625)

($8,166)

Note a

$− 17,006 159,809 108,191

$828,293 49,657 169,376 90,159

$− − − − ($5,625)

$− − − 1,854 $1,854

Note b Note b Note c Note d

a.

PetroEnergy has engaged HI to perform internal audit services on PetroEnergy. HI charges retainer fee of P = 672,000 ($13,333), inclusive of VAT per annum. Also, on March 22, 2016, PetroEnergy engaged HI for IT General Controls and System Implementation Review.

b.

On March 6, 2015, PetroWind availed of a P = 20.00 million (or $0.42 million) loan from PGEC at 5.6% annual interest payable in June 2016. This was rolled over and paid on December 29, 2016. On May 4, 2015, PetroWind availed of an additional loan from PERC amounting P = 20.00 million (or $0.42 million) payable in May 2016 at annual interest rate of 6.104%. This was rolled over and paid on December 28, 2016.

c.

Management income refers to time-writing charges, management fees for accounting, legal, management and other support services rendered by PetroEnergy and PetroGreen to PetroWind.

d.

Advances represents minimal reimbursement of costs and expenses.

e.

On November 12, 2015, PetroSolar, together with PGEC and EEIPC, as the third party mortgagors and pledgors, entered into a P = 2.60 billion (or $52.07 million) OLSA with PNB and DBP. PetroSolar mortgaged all of its property and equipment as collateral in connection with the loan (see Note 10).

Terms and conditions of transactions with related parties Outstanding balances at year-end are unsecured, interest-free and settlement occurs in cash.

There have been no guarantees provided or received for any related party receivables or payables. The Group has not recognized any impairment on amounts due from affiliated companies for the years ended December 31, 2017 and 2016. This assessment is undertaken each financial year through a review of the financial position of the related party and the market in which the related party operates.

Compensation of Key Management Personnel The Group has a profit-sharing plan for directors, officers, managers and employees as indicated in its ByLaws. The amount, the manner and occasion of distribution is at the discretion of the BOD, provided that profit share shall not exceed 5% of the audited income before income tax and profit share.

The remuneration of the Group’s directors and other members of key management are as follows:

Salaries and wages and other short-term benefits Directors’ fees Retirement expense

g.

2017

2016

2015

$374,590 5,952 29,494 $410,036

$320,822 6,561 27,261 $354,644

$320,586 90,578 29,071 $440,235

Disagreement with the Company

No Director has resigned from the Board of Directors since the date of the last meeting of shareholders due to disagreement with the Company on any matter relating to its operations, policies and practices.

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6. Compensation of Directors and Executive Officers Summary of Annual Compensation Table Name and Principal Position

Year

Top 5 Highest paid key officers: Milagros V. Reyes President Francisco G. Delfin Vice President Carlota R. Viray AVP - Finance Arlan P. Profeta AVP - Legal and Administration Maria Victoria M. Olivar AVP - Technical Affairs Total salaries top 5 highest paid officers 2015 2016 2017 2018 est All Directors and Officers as a group 2015 2016 2017 2018 est

Salary

216,803 223,186 225,325 247,857 216,803 223,186 225,325 247,857

Bonus

68,104 37,198 104,669 115,136 68,104 37,198 104,669 115,136

Other Annual Compensation

35,679 60,438 17,255 17,255 126,257 66,999 23,207 23,207

Total

320,586 320,822 347,249 380,248 411,164 327,383 353,201 386,200

The Company’s fiscal year ends in the month of December of every year. Estimated compensation of all Directors and officer for the year 2018 is US$386,200.

There are no other arrangements pursuant to which any director of the Company was compensated, or is to be compensated, directly or indirectly.

Section 3 of Article VII of the By-Laws of the Company provides that the Board of Directors, Officers and employees shall share in the profit in the amount of five (5%) percent of the audited income before tax and profit share of the Corporation. The Board of Directors receives a per diem of P5,000.00, or its dollar equivalent, per meeting attended. No warrants or options were granted to the Directors and Officers from 2001 to 2017.

There are no other arrangements pursuant to which any director of the Company was compensated, or is to be compensated, directly or indirectly, other than those stated in the above table during the Company’s last completed fiscal year and the ensuing year for any service provided as an executive officer or member of the Board of Directors.

There is no director, executive officer, nominee for director, beneficial holder and family member involved in any business transaction of the Company.

7.

External Auditors a.

Appointment of External Auditors

The external auditor of the Corporation is the firm SyCip Gorres Velayo & Co. (SGV & Co.), with address at SGV Building, 6760 Ayala Avenue, Makati City, Philippines. The same auditing firm has been reappointed during the scheduled annual meeting on July 26, 2017. The representatives of SGV & Co. have always been present at the shareholders’ meeting held during prior years and shall likewise be present during this year’s stockholders’ meeting to respond to appropriate questions or make statements with reference to matters for which their services were engaged.

The Company is in compliance with SRC Rule 68 requiring the rotation of external auditors or engagement partners who have been engaged by the Company for a period of five consecutive years or more. The engagement partner who conducted the audit for 2017, Ms. Ana Lea C. Bergado, has not been involved as engagement partner for more than five (5) years.

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b. Audit and Other Related Fees Audit and Other Related Fees External audit fees (inclusive of VAT) of the Parent Company amounted to: Particulars SGV - Audit and review of the registrant’s annual financial statements and other services rendered in connection with filing of said financial statements with SEC and BIR. SGV - Review of quarterly and annual summary of application of proceeds in stock rights offering Ernts & Young - Filing of tax return to the Gabonese Government and other services Total

2017

2016

$15,888

$15,363

1,711

7,187

23,204 $40,803

48,691 $71,241

The Audit Committee approved the above fees based on the services rendered and the amount paid from the previous year’s audit fees. c.

Changes and Disagreements with Accountants on Accounting and Financial Disclosure.

The Company has not changed SGV & Co. as its auditor and has not had any disagreements on any matter relating to accounting principles or practices, financial statement disclosures, or auditing scope or procedure during the last three years or any subsequent interim periods.

8.

Compensation Plans No action is to be taken with respect to any plan pursuant to which cash or non-cash compensation may be paid or distributed.

C. ISSUANCE AND EXCHANGE OF SECURITIES

9.

Authorization or Issuance of Securities Other than for Exchange There is no matter or corporate action to be taken up in the meeting with respect to issuance of securities.

10. Modification or Exchange of Securities No modification of Outstanding Securities 11. Financial and Other Information The Company’s financial statements for the year ended December 31, 2017 and Management’s Discussion and Analysis or Plan of Operations are contained in the Management Report portion of this Information Statement.

12. Mergers, Consolidation, Acquisition and Similar Matters Not Applicable 13. Acquisition or Disposition of Property Not Applicable 14. Restatement of Accounts None

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D. OTHER MATTERS 15. Actions with Respect to Reports During the scheduled Regular Annual Stockholders’ Meeting, the following shall be submitted to the stockholders for their approval: a)

The Minutes of the Annual Stockholders’ Meeting held on July 26, 2017;

b)

Approval of Management Report and the 2017 Audited Financial Statements contained in the 2016 Annual Report.

c)

Confirmation and Ratification of all acts, contracts and investments made and entered into by Management and/or Board of Directors during the period of July 26, 2017 to July 26, 2018.

1.

Constitution of various Committees and Appointment of Chairman and Members: (Organizational Meeting held on July 26, 2017), such as: Audit Committee Chairman Members

- Cesar A. Buenaventura (Independent Director) - Basil L. Ong (Independent Director) - Helen Y. Dee (Non-Executive Director)

Corporate Governance Committee Chairman - Basil L. Ong (Independent Director) Members - Cesar A. Buenaventura (Independent Director) - Eliseo B. Santiago (Independent Director) Board Risk Oversight Committee Chairman - Eliseo B. Santiago (Independent Director) Members - Cesar A. Buenaventura (Independent Director) - Raul M. Leopando (Non-Executive Director)

2.

Approval of the Second Quarter 2017 Financial Statements (SEC Form 17-Q). (BOD July 26, 2017).

3.

Approval of the Stock Rights Offering to raise approximately One Billion Pesos (P1,000,000,000.00). (BOD July 26, 2017).

4.

Approval on the Availment of Rizal Commercial Banking Corporation’s Internet Based Banking Facility. (BOD July 26, 2017).

5.

Approval of the Third Quarter 2017 Financial Statements (SEC Form 17-Q). (BOD November 23, 2017).

6.

Approval to Enter into Receiving Bank Agency and Escrow Agreements with Rizal Commercial Banking Corporation. (BOD November 23, 2017).

7.

Approval of the 2017 Audited Financial Statements. (Special BOD April 11, 2018).

8.

Approval for the renewal of Directors’ and Officers’ Liability Insurance. (BOD February 22, 2018).

9.

Approval of the 1st Quarter 2018 Financial Statements (SEC Form 17-Q). (BOD April 19, 2018).

10. Approval for the holding of Regular Annual Stockholders’ Meeting on July 26, 2018 at 1:30 p.m.

(BOD April 19, 2018).

16. Matters Not Required to be Submitted a) Proof of the required notice of the meeting. b) Proof of the presence of a quorum.

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17. Amendments of Charter, By-Laws and Other Documents None 18. Other Proposed Action None 19. Voting Procedures Section 7 of Article III of the By-Laws of the Corporation provides that: “At all elections of Directors, each stockholder may vote the shares registered in his name in person or by proxy for as many persons as there are Directors, or he may cumulate said shares and give one candidate as many vote as the number of Directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit, provided, however, that the whole number of votes cast by him shall not exceed the number of shares owned by him as shown on the Company’s stock transfer books multiplied by the whole number of Directors to be elected.”

With respect to amendments to various provisions of Articles of Incorporation, the approval of the stockholders owning two-thirds (2/3) of the outstanding capital stock is required. Other items that need action of the stockholders require simple majority.

The voting procedure for election and approval of corporate actions in which Stockholders’ approval will be required shall be by “viva voce”, unless voting by ballot is decided upon during the meeting.

The methods by which votes will be counted, except in cases where voting by ballots is applicable, voting and counting shall be by “viva voce”. If by ballot, counting shall be supervised by external auditors.

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the inJormation set forth in this After reasonable inquiry and to the best of my knowledge and be!9-f, I certify that 30' 2018' June on Pasig City of in the is signed report This report is true, complete anO correct.

PETROENERGY RESOURCES CORPORATION

BY:

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CorPorate Secretary

Undertaking to Provide Annual Report

UPoNTHEWR|TTENREQUEST_oI4.T.qCKHoLDER.I1EJ9]IPANYUNDERTAKESToFURNISHSA|D ou sec F.RM rz-A, FREE oF .HARGE. ANy srocKHoloen wrri Aibpv or rxe anr,iirn-ii.Eponr ri+ SHOULD BE ADDRESSED TO THE FOLLOWING: WRITTEN REQUEST iO{E COPV Or SEC iONNA

Office of the CorPorate Secretary PETROENERGY RESOU RCES CORPORATION 7e Floor, JMT Building, ADB Avenue Ortigas Center, Pasig EitY

MANAGEMENT REPORT TO STOCKHOLDERS PART I - BUSINESS AND GENERAL INFORMATION Item 1 - Business Development PetroEnergy Resources Corporation (“PERC” or “PetroEnergy” or the Parent Company) is a publicly-listed domestic corporation. Its registered office and principal place of business is 7/F, JMT Building, ADB Avenue, Ortigas Center, Pasig City.

PERC was organized on September 29, 1994 as Petrotech Consultants, Inc. to provide specialized technical services to its then parent company, Petrofields Corporation, and to companies exploring for oil in the Philippines.

In 1997, PERC simultaneously adopted its present name and changed its primary purpose to oil exploration and development and mining activities. Subsequently in 1999, PERC assumed Petrofields’ oil exploration contracts in the Philippines and the Production Sharing Contract covering the Etame discovery block in Gabon, West Africa.

On August 11, 2004, PERC’s shares of stock were listed at the PSE by way of introduction.

In 2009, following the enactment of Republic Act No. 9513, otherwise known as the “Renewable Energy Act of 2008”, PERC amended its articles of incorporation to include among its purposes the business of generating power from renewable sources such as, but not limited to, biomass, hydro, solar, wind, geothermal, ocean and such other renewable sources of power.

On March 31, 2010, PERC incorporated it’s now 90%-owned subsidiary, PetroGreen Energy Corporation (PetroGreen or PGEC), to act as its renewable energy arm and holding company. PGEC ventured into renewable energy development and power generation through its subsidiaries and affiliate: (a) Maibarara Geothermal, Inc. (MGI, 65%-owned) - owner and developer of the 20 MW Maibarara Geothermal Power Project (MGPP-1) in Santo Tomas, Batangas and its expansion, the 12 MW MGPP-2; (b) PetroSolar Corporation (“PetroSolar”, 56%owned) - owner and developer of the 50MWDC Tarlac Solar Power Project (TSPP-1) in Tarlac City; and (c) PetroWind Energy, Inc. (“PetroWind”, 40%-owned) – owner and developer of the 36 MW Nabas Wind Power Project (NWPP-1) in Nabas and Malay, Aklan.

As of December 31, 2017, MGI and PetroSolar are effectively indirect subsidiaries of PetroEnergy through PetroGreen. PetroGreen owns majority of the voting power of MGI and PetroSolar. PetroEnergy, PetroGreen, MGI and PetroSolar are collectively referred to as the “Group” and were incorporated in the Philippines.

Business of Issuer Description of Business The Group’s four (4) main energy businesses are petroleum, geothermal, solar; and wind through the Group’s affiliate, PetroWind.

A.

Oil Exploration

Oil and gas are usually buried several thousand meters underneath the earth. The explorationist, therefore, neither sees nor touches his objective. This lack of physical access, however, is compensated by the employment of state-of-the art technology in remote sensing via seismology, geology, and chemistry.

In the actual testing of prospects, computer-guided drills dig rock layers several kilometers below the surface. In offshore exploration and production, robot submarines are used to emplace and control subsea equipment and materials. The intensive application of modern technology is supported by large amounts of capital. Oil exploration companies worldwide had adopted the prudent strategy of pooling together, as consortia, in pursuing their projects in order to distribute risk and minimize financial exposures.

The common financial arrangement between host countries and the exploration companies is the sharing in costs and revenues from the sale of the hydrocarbon products. The host country partakes in the costs by allowing the explorationists to recover an agreed percentage of the historical costs before the net proceeds are divided between the government and the consortia.

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Oil Exploration and Development Projects The principal properties of the Company consist of various oil areas located in the Philippines and in Gabon.

Petroleum production is ongoing in the Etame (Gabon) concession, while the other petroleum concessions in the Philippines are still in the advanced exploration stages or pre-development stages The following is a brief description and update of each.

Foreign Operations Gabon, West Africa Background The Group holds approximately 2.525% participating interest in the Exploration Production Sharing Contract (“EPSC”) covering the Etame block in Gabon, West Africa, or the “Etame Permit”). The EPSC is a contract with the Gabon Government that gives the holder of the said EPSC exclusive rights and obligations to perform exploration, exploitation and production activities within the Etame Permit area. The other parties and their respective participating interests in the EPSC are as follows: Addax Petroleum Etame, Inc. (33.90%); Sasol Petroleum West Africa Limited (30.00%); VAALCO Gabon (Etame), Inc. (33.58%) (the “Gabon Consortium”), all are leaders in their respective areas of operation. VAALCO is the Consortium’s operator, and as such, has the exclusive charge of conducting the exploration and production activities in the Gabon contract area.

The Etame Permit consists of an offshore exploration area of 307,360 hectares that extends from depths of 200 meters in the Atlantic shelf to near-shore Gabon. The Gabon Consortium was able to develop four (4) oil fields, namely, Etame, Avouma,Tchibala, and Ebouri oil fields. Aside from the EPSC, other licenses were required for the Gabon Consortium to conduct exploration, production and exploitation in these areas within the EPSC. Three Production Licenses are currently issued – the Etame Exclusive Exploitation Authorization (G5-88), the Avouma Exclusive Exploitation Authorization (G5-95), and the Ebouri Exclusive Exploitation Authorization (G5-98).

Meanwhile, exploration activities outside of these three production license areas are authorized through the Etame Exploration License (G4-160).

Production is routed to the spread-moored Floating Production Storage and Offloading (FPSO) vessel from the Avouma-Tchibala and Ebouri platforms, and from the wells tied to the subsea Etame manifold. The produced oils are processed and exported from the FPSO Petroleo Nautipa, which has a storage capacity of one million barrels.

The amount of oil that could be produced from the wells have been limited by the capacity of the processing facilities and the storage space of the FPSO, although, oil production averaged 7 million barrels during each of the past 7 years.

Update on Production The Etame Consortium (Consortium) managed twelve (12) liftings in 2017 and 2016, resulting in a net crude export of 5.62 million barrels of oil (MMBO) in 2017 and 6.15 MMBO in 2016, with daily oil production ranging from 11,740 - 22,910 barrels of oil per day (BOPD) from four oil fields (Etame, Avouma, Ebouri and North Tchibala). Two (2) Avouma wells were worked-over in 2017 and 2016, stabilizing overall production. Crude oil market prices for the years 2017 and 2016 ranged from $45.12 - $64.11 per barrel and $27.80 - $56.80 per barrel, respectively.

Update on Development Avouma Workover Program The Avouma field, with remaining recoverable reserves of ~10 MMBO, currently has three (3) producing wells, with electric submersible pumps (ESPs) which are now over two (2) years old. Workover operations were conducted in end 2016 in order to replace the defective submersible pumps in two (2) of the wells (ETBSM-2H and EAVOM-2H). This resulted in the respective recovery of ~ 1,500 and ~3,300 BOPD from both wells.

However, in October 2017, workover operations were again conducted in order to replace defective submersible pumps and to bring back ~4,200 BOPD to the overall production of the field.

Field Life Extension and Integrated Field Development Plan In light of the policy changes imposed by the new Gabonese Government and the passing of Gabon’s new Hydrocarbon Law, the Etame Consortium has been conducting a comprehensive economic modeling and valuation of the Etame Marin reserves, which will be subject to the provisions of the new Gabonese Production Sharing Contract (PSC) system. The new Hydrocarbon Law introduces new fiscal terms for all upstream operators, which include increased government shares and royalties, decreased cost recovery, and the imposition of 35% income tax on oil profit, all of which will significantly work in favor of the Gabonese Government.

22

This new fiscal regime will take effect once the first of the exploitation licenses (Etame) expires in July 2021 (followed by Avouma in 2025 and Ebouri in 2026). The Consortium has applied for an extension of the existing EPSC, merging the three (3) fields to run until 2026. The Consortium is currently examining the most optimal drilling program to ensure maximum recoverable oil while ensuring positive returns for the Consortium members.

Since the Gabon oilfield has been put online in 2002, it has maintained a total of 13,000 BOPD from its current 11 producing wells. A total of 103 MMBO has been extracted to date over the last 15 years.

Philippine Operations A. Oil Projects SC 6-A - Octon-Malajon Block This is one of the first exploration areas in offshore Palawan. It includes about 165,000 hectares of relatively shallow water areas where a string of wells has found non-commercial oil accumulations in varied reservoir horizons. DOE granted in June 2009 the final 15-year extension of the SC-6A service contract.

In 2016, The Philodrill Corporation (Operator of the SC-6A Block), conducted G&G evaluation of the northern portion of the contract area through broadband reprocessing of the 3D seismic dataset acquired in 2013, seismic interpretation works on the newly processed data, and quantitative interpretation (QI) works on the Octon datasets. These were carried over to 2017. Contractor DownUnder Geosolutions (DUG) has finished the preliminary processing works of the 2013 3D seismic dataset and is currently integrating the new data for the QI works. For 2018, the Consortium is looking to continue with said G&G activities to include i) reintegration of the 2017 QI results and (ii) preliminary well design and scoping economics, and settling of the remaining DOE training fund balance.

SC 14-C2 - West Linapacan, Northwest Palawan West Linapacan was discovered in the early 1990s. It produced oil from 1992 to 1996, peaking at 18,000 BOPD, before it was shut-in due to early water incursion. A 1,083 km 3D seismic survey was conducted and processed in 1997 to 1998, however, the farminees opted not to drill a well. The block was in suspension mode until 2006.

In 2007 to 2015, two new farminees joined the Consortium and committed to conduct Geological and Geophysical (G&G) studies and to drill one well. However, the farminees defaulted and eventually left the Consortium.

Philodrill took over as Operator and has been conducting its G&G studies to further strengthen the West Linapacan block to be revived for production. The Consortium is looking to further assess the viability of the redevelopment via 1) scoping study for possible re-entry and Extended Production Test (EPT) of the original WLA-1 well, 2) oil spill trajectory modeling, and 3) securing a Strategic Environmental Plan (SEP) clearance.

The investment in WLO included in “Wells, platforms and other facilities” account under “Property and equipment” amounted to $6.66 million as of December 31, 2017 and 2016.

SC 47 - Offshore Mindoro and Panay After lack of substantial development in SC 47 since 2012, a Letter of Withdrawal of the Joint Venture was sent to DOE on July 28, 2015. DOE sent a letter dated January 16, 2016, stating that the DOE no longer recognize SC 47 among the service contracts in which PERC is a member. The DOE formally approved the JV’s relinquishment of SC 47 on March 10, 2016, with the official termination date of January 10, 2012, reckoned as the end of the 7-year exploration period.

As a result, the Group has written off the deferred oil exploration cost related to this amounting to $32,980 in 2016.

SC 51 - East Visayas The block covers the East Visayan basin in two parcels aggregating 444,000 hectares. In 2007, 3D seismic surveys were conducted in the Argao (Cebu) and Cabilao (Bohol) prospects and were subsequently processed and were used to produce the prospect maps for these two potential trapping structures. In 2010, then Operator, NorAsian Energy Ltd., proposed the drilling program for an onshore well in San Isidro, Northern Leyte, in lieu of an exploration well in offshore Cebu. The DOE approved the program and Duhat-1 was spudded in April 2011.

After it was sidetracked, the well (Duhat-1A) reached a total depth of 321 meters (m) but had to be abandoned after persistent mechanical problems. A 102 line-km 2D seismic survey over the Duhat prospect was conducted in 2012. The drilling of Duhat-2 commenced in July 2013. Upon reaching the depth of 201 m, voluminous salt water flow occurred, prompting the decision to plug and abandon Duhat-2 due to safety and environment issues.

The other Consortium members are PHINMA Petroleum and Geothermal Inc. (PPGI) and Alcorn Petroleum and 23

Minerals Corporation (APMC) with 33.35% and 46.60% participating interests respectively.

SC 75 – Offshore Northwest Palawan The block is the latest addition to the Group’s local oil projects. It is located in the deep-water portion of Northwest Palawan and covers an area of 616,000 hectares. Activities completed so far include the acquisition of 2,200 line-km seismic data and the processing of the supplementary gravity and magnetics data, including the broadband processing of the entire 2D seismic data to enhance its quality. On September 9, 2015, the DOE placed SC 75, along with adjacent blocks SC 58 (West Calamian) and SC 72 (Recto Bank), under force majeure due to the geopolitical tensions in the West Philippine Sea. To date, the block is still under force majeure, putting exploration activities on hold. Other Consortium members are Operator PXP Energy Corporation, with 50% participating interest, and PNOC Exploration Corporation, with 35% participating interest.

Summary of Petroleum Properties:

Production Sharing Contract (PSC) 93 - Etame Marine Service Contracts (SC) - Philippines SC 6A - Octon Malajon Block SC 14C2 - West Linapacan SC 51 - East Visayas SC 75- NW Palawan

2021 2024 2025 2019 2020

2.525% Gabon Offshore 16.670% 4.137% 4.010% 15.000%

Northwest Palawan Northwest Palawan East Visayan Sea East Visayan Sea

The oil revenues are derived from Gabon Operations. All contractual obligations with the Gabonese Government are complied with. The Philippine contracts are in exploration stage and some contracts are being farmed out to reduce risk inherent to the business.

B. Renewable Energy Maibarara Geothermal Power Project Geothermal Renewable Energy Service Contract (GRESC) No. 2010-02-012 Following the Department of Energy’s (DOE) Philippine Energy Contracting Round for Geothermal in 2009, PetroEnergy signed the Service Contract for the Maibarara Geothermal Power Project (MGPP) on February 1, 2010. PERC then conducted pre-development activities in 2010 to 2011. In order to carry out the development and operations of the MGPP, PERC (through its subsidiary, PGEC) then created MGI along with Trans-Asia Oil and Energy Development Corporation (now PHINMA Energy Corporation or “PHEN”) and PNOC Renewables Corporation (PNOC RC), with 65%, 25%, and 10% equity ownerships, respectively.

20 MW Maibarara Geothermal Power Project (MGPP-1) The DOE confirmed the commerciality of the 20-MW MGPP-1 in 2011, allowing MGI to proceed with the MGPP’s development stage, involving 1) the drilling of two (2) wells to complete the steam production and reinjection well capacities, and 2) the construction of the steamfield and power plant facilities. The MGPP’s 115kV Transmission Line system was successfully connected to the existing MERALCO line in September 2013. Upon completion of the reliability and performance testing, the MGPP-1 went on commercial operations on February 8, 2014. All electricity generated are sold to offtaker, PHEN. In March 2016, the MGPP completed its first scheduled Preventive Maintenance Shutdown (PMS). Opening, inspection, cleaning and necessary repairs and modifications were carried out on both the steamfield and power plant facilities. It was the first comprehensive maintenance since the facility started its commercial operations.

The total energy exported to the grid was 161,677.01 MWh and 153,067.70 MWh in 2017 and 2016, respectively.

Major power plant components from Fuji Electric Co. Ltd. (“Fuji”, the same supplier as the MGPP-1) were delivered and installed on site in March to April 2017. Construction was completed in 2017, and individual plant equipment testing started in early 2018, culminating in the synchronization and first delivery of power to the Luzon grid on March 9, 2018 during commissioning. Following the conduct of a thorough inspection of Maibarara2, the ERC approved the MGPP-2’s Certificate of Compliance (COC) on April 16, 2018. The MGPP-2 started commercial operations on April 30, 2018.

Both the MGPP-1 and the MGPP-2 are registered with the Board of Investments (BOI) and are enjoying the incentives under the Renewable Energy (RE) Act of 2008.

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Nabas Wind Power Project (through the Group’s affiliate, PetroWind) Wind Energy Service Contract (WESC) No. 2009-09-002 The service contract for the NWPP covers 2,000 hectares of public and private lands in rolling terrain located near the northwestern tip of Panay Island. It lies about 6 km southeast of Caticlan, and electricity-deficient Panay and Boracay islands are natural markets of future power from Nabas or the Nabas WESC. In 2012, activities were focused on securing critical government permits, completing technical feasibility studies and initiating requests for engineering, procurement and construction bids. PGEC incorporated PetroWind Energy, Inc. (PetroWind) on March 6, 2013 to undertake the NWPP. It was decided that the NWPP will be constructed in two phases. Phase 1 for the existing 36MW NWPP-1 consisting of 18 Wind Turbine Generators (“WTG”); while Phase 2 will be a 14MW development that will have seven (7) WTGs (NWPP-2).

On May 26, 2013, the DOE issued the Confirmation of Commerciality of the 36 MW NWPP-1, making it the third WESC to be declared commercial. This converted the Nabas WESC from the Pre-Development Stage to the Development Stage, enabling PetroWind to proceed with the construction and development of the NWPP-1. EEI Corporation (“EEI”) was engaged to conduct the civil works consisting of the construction of the access roads, temporary landing pad and the WTG foundation. Cendaur Engineering was contracted to undertake the construction of the transmission line and substation. Gamesa Eolica SL Unipersonal, a Spanish company, and its Philippine branch were engaged to supply, transport and install the WTGs. Construction of NWPP-1 started in December 2013 and was completed in the first half of 2015.

On March 24, 2015, PETROWIND successfully energized and dispatched power from 8 WTGs (WTG’s 1-8) to the Visayas grid. On April 17, 2015, the DOE issued its Nomination for FIT Eligibility of NWPP 1. The DOE also released on April 30, 2015, its Certificate of Endorsement of NWPP 1, which is one of the requirements for the ERC to process PETROWIND’s Certificate of Compliance (“COC”) for the power facility and for FIT eligibility. By June 2015, all 18 WTG’s became operational. On June 16, 2015, the DOE released the Certificate of Endorsement (“COE”) for FIT Eligibility endorsing the official start of commercial operation to be June 10, 2015.

The ERC also completed the site visit for DOE’s COE-FIT validation on June 24-25, 2015. On August 17, 2015, the ERC approved PetroWind’s COC for NWPP 1. This confirms the commercial operation date of the wind farm to be June 10, 2015.

In 2017, recently-merged WTG supplier Siemens-Gamesa completed the following maintenance works on site: 1) 24-month wind turbine-generator (WTG) maintenance in June, 2) 30-month WTG maintenance in November, 3) semi-annual electrical maintenance in October, and 4) several and specific corrective works on the WTG blades and electrical modules.

Major and long-lead equipment spares, such as WTG transformer, generator, and gearbox, were acquired to avoid long and unplanned shutdowns due to sudden equipment failure similar to those that recently plagued other Philippine wind developers.

Total energy exported to the grid is 97,853.58 MWh and 103,495.76 MWh for the Project’s Phase 1, in 2017 and 2016, respectively.

Tarlac Solar Power Project Solar Energy Service Contract (SESC) No. 2015-03-115 The Solar Service Contract for the TSPP was awarded by the DOE on March 19, 2015.

On June 17, 2015, PGEC and affiliate EEI Power Corporation (“EEIPC”, 100% subsidiary of EEI Corporation), incorporated PetroSolar Corporation (PetroSolar) to undertake the development of the TSPP. On June 22, 2015, PGEC and solar farm lot owner, Luisita Industrial Park Corporation (LIPCO) executed a Lease Agreement for the 55-hectare solar farm development. This was assigned to PetroSolar on September 15, 2015.

As the LIPCO property is within the Central Technopark, which is under the jusrisdiction of the Philippine Economic Zone Authority (PEZA), PetroSolar was able to register as an Ecozone Utilities Enterprise on July 28, 2015, entitling it to the incentives available to PEZA locators.

The TSPP was declared commercial by the DOE in September 2015, enabling the start of the construction of the 50 MW DC TSPP-1. The major solar equipment supply contract was awarded to German firm Conergy Asia & ME Pte. Ltd. (Conergy). Conergy’s local Philippine contractor was Phesco Inc. The civil and structural works were awarded to Media Construction and Development Corporation, while Philcantech Enterprises (an electrical firm based in Tarlac City) undertook the supply, delivery and installation of the 5.9-kilometer 69-kV transmission line linking the TSPP to the grid.

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After only four (4) months of ground works, the TSPP-1 was completed by mid-January 2016 and was able to export power to the grid on January 27, 2016. The DOE eventually gave its Certificate of Endorsement (COE) – Feed-in-Tariff (FiT) for TSPP-1, with the official Commercial Operations Date on February 10, 2016.

Subsequently, on April 6, 2016, PSC executed its Renewable Energy Payment Agreement (REPA) with the National Transmission Corporation (TransCo), assuring the TSPP-1’s revenues from the FiT payment of P8.69/kWh from 2016 to 2036.

From January 01 to December 31, 2017, the TSPP-1 exported a total of 71,585 MWh to the grid. From February 10 to December 31, 2016, the total energy exported to the grid is 64,272 MWh. Solar Energy Service Contract for Puerto Princesa Solar Energy Service Contract (SESC) No. 2017-01-360 On February 27, 2017, PetroGreen signed with the DOE a service contract for the proposed Puerto Princesa Solar Power Project in Puerto Princesa City, Palawan: Solar Energy Service Contract No. 2017-01-360.

PetroGreen intends to immediately commence its two-year pre-development DOE-approved work program with technical and financial due diligence studies for this solar project.

Summary of Renewable Energy Service Contract:

Contract No. Wind Energy Service Contract No. 2009-09-002 Geothermal RE Service Contract No. 2010-02-012 Solar Energy Service Contract No. 2015-03-115 Solar Energy Service Contract No. 2017-01-360

Contract Expiry 2034 2035 2040 2042

Location Nabas -Buruanga-Malay, Aklan Maibarara,Batangas/Laguna Tarlac City, Tarlac Puerto Princesa City, Palawan

Products The Group’s main products are revenues from electricity sales from renewable energy projects and crude oil production.

Electricity sales contributed 77.07% to the total revenues (including other income) as of December 31, 2017. These were generated by the MGPP-1 and TSPP-1.

Oil revenues are derived largely from PERC’s share of producing offshore oil fields in Gabon, West Africa, which contributes 17.39% of the total revenues as of December 31, 2017.

4% of the total revenues are from the Group’s share in net income of a joint venture, PetroWind (Nabas Wind Power Project), and other income.

Distribution Method Electricity Sales For the MGPP-1 that started commercial operations on February 8, 2014, all the energy exported is sold to Aggregator, PHEN. For the Tarlac Solar Power Project which started its commercial operations on February 10, 2016, all energy is exported to the grid and is distributed to various consumers who are connected to the grid. Wholesale Electricity Spot market (WESM) facilitates the collection of payments from consumers and remits the same to Transco then to the generators.

Crude oil The Consortium entered into a crude sales agreement with Glencore where a single buyer is committed to buy a minimum of 400,000 bbls per lifting based on a pricing scheme that is benched mark on Dated Brent and Rabi Light.

Dated Brent and Rabi Light are prices of crude during particular dates or period. Dated Brent reflects the price of crude oil produced in the North Sea in Northern Europe, while Rabi Light reflects the price of crude in Gabon. With this type of agreement, the Consortium will be assured of its crude oil being purchased at a fixed pricing scheme.

Physical transfer of the oil was effected at the offshore production site from the Floating Production Storage and Offloading Vessel (FPSO) to the buyer’s oil tanker.

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Competition In the upstream (oil) local industry and energy industry, companies form a consortium or joint venture to explore certain areas due to high cost of exploration and development. Competition arises when two or more parties bid for a single block offered by the government and have to come up with the best program for exploration.

Oil companies with local presence in the Philippines include: Philodrill Corporation, PHINMA Energy, Forum Energy Philippines Corporation, Philex Petroleum Corporation, and Pitkin Petroleum Plc., among others. The Company formed consortiums with these companies in some Philippine service contracts.

Sources and Availability of Raw Materials and Names of Principal Suppliers The Company is not into manufacturing and has no need for raw materials for its business.

Dependence on a single customer or few customers For the MGPP-1, an Electricity Supply Agreement was signed with PHEN for a period of 20 years, wherein PHEN will buy all of the energy exported for a fixed agreed price, reviewed every 5 years.

For the TSPP-1, consequent to the issuance of FIT COC in its favor, PetroSolar entered into a REPA with the National Transmission Corporation (TransCo) on April 6, 2016. Under the REPA, TransCo shall pay the FIT Rate of Php8.69/kWh for all metered generation of PetroSolar for a period of twenty (20) years from start of Commercial Operations.

For the oil liftings, these are sold to a single buyer, Glencore Energy UK Ltd. Transaction with and/or Dependence on Related Parties Please see “Item 12” for discussion on Related Party transactions.

Summary of principal terms and expiration dates of all patents, trademarks, copy rights, licenses, franchises, concessions and royalty agreements Aside from the Petroleum Properties and Renewable Energy Service Contracts discussed, there are no other patents, trademarks, copyrights, licenses, franchises, concessions, and royalty agreements entered into by the Group as of December 31, 2017 and 2016.

Need for Government approvals of Principal Products Oil industry in the Philippines is regulated by the policies and rules and regulations provided by government agencies like the Departments of Energy, Finance and Environment and Natural Resources. Moreover, generation and sale of electricity need prior approval from the Energy Regulatory Commission.

Effect of existing or probable governmental regulations and Costs and Effects of Compliance with Environmental Laws For the Renewable Energy Project, the Company conducted extensive studies to determine the environmental impact and possible mitigating actions to reduce, if not eliminate, potential threats to the environment connected with the conduct of geothermal, wind, and solar operations. Moreover, active coordination and consultation with the Department of Environment and Natural Resources (DENR) local government units (LGUs), including other stakeholders, is constantly observed. More importantly, proactive and self-monitoring activities are being observed by the respective Environmental Officers for each project in compliance with existing environmental laws, rules, and regulations.

The Environmental Compliance Certificate (ECC) for the MGPP was issued by the DENR on August 10, 2010 for the development of up to 42 MW of geothermal power project; the ECC for the NWPP was issued on June 10, 2012 for the development of up to 50 MW of wind energy project; and the ECC for the TSPP was issued on August 4, 2015 for the development of 50 MW solar power project, which was later amended on October 12, 2017 to cover up to 98 MW of solar power project development.

All operating companies have shown outstanding performance in ensuring environment-friendly business operations. These are shown in the environmental programs and projects of the respective companies with the following components: Site Restoration and Protection, Conduct of Annual Environmental Activities, Compliance with Regulatory Agencies and Monitoring Mechanism and Community Involvement and Participation.

It is also worth noting that the operating companies have received the following citations: PetroWind:  “Environmental Upgrade of the Year Award” from Asian Power Awards given in November 2017 in Bangkok, Thailand.

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

Letter of Commendation from DENR PENRO Aklan in January 2017 for Outstanding Environmental Compliance through Implementation of Slope Stabilization Measures.

PetroSolar  PEZA Outstanding Community Awards for 2016 & 2017” from the Philippine Economic Zone Authority 

“Success Story Exemplary Awards” for the Solar Sharing Project from 38 th PCAPI Environmental Awards given on May 9, 2018



DENR NCR Awards and Department of Education-Tarlac Certificate given last November 2017

Amount spent on research and development activities and its percentage to revenues A. Oil Exploration and development – the additions to the Deferred Oil Exploration (Note 11 of the Consolidated AFS) pertains to the minimal expenditures for the Gabon Assets and G&G studies of the Philippine SCs. B. Renewable Energy Research and Development Bulk of this pertains to the construction and development of the MGPP-2, as of December 31, 2017, the group has additions to construction in progress account amounting to $20.93 million.

Total Number of Employees and Number of Full-Time Employees As of December 31, 2017, there were 137 regular employees of the Group. The Group may hire employees in the next twelve (12) months due to increased volume of business, specifically for its renewable energy business.

Below is the break-down of regular employees of PERC and its subsidiaries PetroEnergy PetroGreen Maibarara PetroSolar Total Employees

16 24 92 5 137

Risk Factors Political, Economic and Legal Risks in the Philippines The Philippines has, from time to time, experienced military unrest, mass demonstrations, and similar occurrences, which have led to political instability. The country has also experienced periods of slow growth, high inflation and significant depreciation of the Peso. The regional economic crisis which started in 1997 negatively affected the Philippine economy resulting in the depreciation of the Peso, higher interest rates, increased unemployment, greater volatility and lower value of the stock market, lower credit rating of the country and the reduction of the country’s foreign currency reserves. There has also been growing concerns about the unrestrained judicial intervention in major infrastructure project of the government.

There is no assurance that the political environment in the Philippines will be stable and that current or future governments will adopt economic policies conducive to sustained economic growth.

Continuous and peaceful operations in the project areas are dependent on the Company’s good relationships with the host local government units. The Company’s renewable energy projects are located in three provinces: Batangas for its geothermal energy project; Tarlac, for its solar power project; and Aklan for the wind energy project. Currently, a new solar service contract has been secured in Puerto Princesa City. The local governments in these areas-- from the provincial, municipal and barangay levels, including the Palawan Council for Sustainable Development (PCSD) -- are supportive of these projects. Local government endorsements and resolutions have therefore not been a problem in these areas. The Company’s oil projects, on the other hand are located in Palawan and Visayas. Since these are oil exploration projects, getting local government support have been challenging.

To ensure that host local government units give their support and to mitigate the risk of their withdrawal of support of the Company’s projects, the Company invests in corporate social responsibility projects (CSR). These CSR 28

projects are geared towards providing long term and sustainable development to the communities within the host local government units, particularly in the areas of health, education, and livelihood.

Political, Economic and Legal Risks in Gabon Despite its internal problems, the State of Gabon is said to be politically stable by African standards. Gabon was led by President Omar Bongo, the continent's second longest-serving head of state, who has been in power since 1967 until his death in 2009. Through an election held soon after, his son, Ali-Ben Bongo Ondimba, succeeded him as President. Its political stability and ample natural resources have helped make Gabon a wealthy nation compared to the rest of Sub-Saharan Africa. It must be noted however that Gabon's wealth is not distributed equitably, and almost half of the population lives below the poverty line.

Gabon held a presidential election in August 2016, and the change in the administration also introduced new fiscal terms that will likewise change and could negatively impact the Company’s business. A new Hydrocarbon Law, which took effect since 2014, introduces new fiscal terms for all upstream operators – which include increased government shares and royalties, decreased cost recovery, and the imposition of 35% income tax on profit oil – all of which will significantly work in the favor of the Gabonese government.

The oil industry is the key to Gabon’s economy although the government is trying to distance itself from oil dependence and focus on non-oil businesses such as forestry products due to concerns over the life of the oil reserves.

The general political situation in and the state of economy of Gabon may thus influence the growth and profitability of the Company. Any future political or economic instability in Gabon may have a negative effect on the financial results of the Company.

Furthermore, the continuity of the Gabon Operations is dependent on the validity of the permits and licenses issued the Gabon Consortium. A stable regulatory environment that would allow unhampered operations in Gabon is crucial to the Company’s continuous profitability.

Technical Risk The petroleum exploration industry is a high risk, capital intensive and highly speculative industry. Risks in upstream petroleum exploration include 1) prospectivity of the concession area in terms of actually finding oil in commercial quantity, 2) varying oil prices and project economics, 3) joint venture structuring and key personnel management, among others. Finding oil in commercial quantity is highly dependent on appropriate geologic conditions for oil to accumulate, and be able to be extracted by drilling. Once commercial oil is found, one has to make capital expenditures in terms of field appraisal (determining the extent of the reserves) for proper field development. The Company mitigates this high degree of technical risk through the use of advanced and sophisticated tools, engagement of experienced consultants, and constant intensive discussion and informationsharing with joint venture partners.

From late 2016 onwards, much of the discussions of the consortium has been over the economic life of the Etame Marin complex. To date, the consortium has already recovered 50% of the estimated ultimate recoverable reserves, which means that production from the Gamba sand reservoir will soon start to decline. The planned future drillings in the area are mostly from the deeper Dentale sands. These sands are not as well characterized as the Gamba, thus, putting uncertainty in its production. Two (2) wells are currently producing from these sands.

Moreover, there is not much area to produce the Gamba from within the Etame Marin permit as some acreage has been relinquished to the government in 2012. There is also the current issue on production of sour gas (hydrogen sulfide gas) within the Gamba sands in the northern Ebouri production sector. Souring usually happens when extraction of oil has already reached deeper in the reservoir.

Souring of wells is a concern which may extend further to the other production fields as extraction continues.

Currently, all wells that turned sour are kept shut since the facilities are not designed to handle this corrosive oil.

Production from these sour wells may be realized either thru installation of processing platforms or re-installation of sour-resistant pipes at the surface facilities. Both options entail high costs.

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Operational Risk The production of crude oil may involve many risks such as breakdown of equipment, unexpected levels of output or efficiency, natural disasters, and the need to comply with further directions of the relevant government authority. Moreover, like most oil discovery areas, there are concerns over how long these reserves will last.

Any of the foregoing circumstances could significantly reduce revenues or increase the cost of operating the contract area.

The Consortium entered into a crude sales agreement with Glencore Energy UK Ltd. as a single buyer and committed to buy a minimum of 400,000 bbls per lifting based on a pricing scheme that is benched mark on Dated Brent and Rabi Light. Dated Brent and Rabi Light are prices of crude during particular dates or period.

Dated Brent reflects the price of crude oil produced in the North Sea in Northern Europe, while Rabi Light reflects the price of crude in Gabon. With this type of agreement, the Consortium will be assured of its crude oil being purchased at a fixed pricing scheme. Aside from this, the Consortium also plans to balance its operating expenses and to increase oil production to ensure that revenues do not drop drastically as a result of low oil prices.

The Consortium is considering the application of a new contract merging all three (3) licenses after July 2021 under the new Gabonese fiscal terms. The Consortium is currently examining the most optimal drilling program to ensure maximum recoverable oil, while ensuring positive returns for the consortium members. This includes an optimal drilling program in which the Consortium could further extract as much of the Gamba and Dentale reservoirs and address the sour oil from the affected wells while keeping capital expenditures and operating expenses at manageable levels to hope for positive returns. These are all heavily dependent on the global oil price trends. The Consortium is hoping that prices will rise up to almost US$100.00/bbl in order to make the Integrated Field Development Plan technically and economically feasible for the Gabonese Government.

Risk of Venturing into Renewable Energy Projects The following risks on the Group’s ventures in geothermal, solar, and wind energy development may have significant effect in the Group’s business, financial condition, and results of operations:                   

Offtake risks or market risks; Collection risks from offtaker and the FIT-Allowance Administrator; breakdown or failure of power generation equipment, steam supply equipment, transmission lines, pipelines or other necessary equipment or processes, leading to unplanned outages and other operational issues; flaws in the design of equipment or in the construction of an electric generation or steam supply plant; problems with the quality and quantity of geothermal and wind resources; material changes in law or in governmental permit requirements; operator error; performance below expected levels of output or efficiency; labor disputes, work stoppages, and other industrial actions by employees affecting the projects directly; pollution or environmental contamination affecting the operation of the plants; planned and unplanned power outages due to maintenance, expansion and refurbishment; the inability to obtain required governmental permits and approvals including the FIT allocation; opposition from local communities and special interest groups; social unrest and terrorism; engineering and environmental problems; construction and operational delays, or unanticipated cost overruns; force majeure and other catastrophic events such as fires, explosions, earthquakes, floods and acts of terrorism and war that could result in forced outages, personal injury, loss of life, severe damage or destruction of a plants and suspension of operations; Grid failure, and Denial of Land Conversion Application with the Department of Agrarian Reform.

The Group cannot assure that future occurrences of any of the events listed above or any other events of a similar or dissimilar nature would not significantly decrease or eliminate the expected revenues from any of its power or steam generating assets, or significantly increase the costs of operating any such assets.

The Group avoids or mitigates the operational risks through proper maintenance of machinery and equipment and by making sure that Operations and Maintenance (O&M) contracts with competent third-party service providers are always active and effective. The Group also ensures that the operating units would hire competent 30

personnel. Design flaws are addressed by professional indemnity insurances that could cover losses from the same. Constant communication with regulators and maintenance of good relations with them help in planning ahead for any potential change in regulations or regulatory requirements. For the social aspects of the projects, the Group maintains a good Corporate Social Responsibility Program, with focus on health, education and livelihood programs, thus helping in achieving host community acceptance, and reduction of social unrest and terrorism. The Group also ensures that the operating units are adequately covered by sabotage and terrorism insurance policies.

Foreign Currency Risk The revenues of PetroEnergy are predominantly denominated in U.S. Dollars. However, the obligation and expenses of the local areas which do not contribute revenues to the Company are denominated in Philippine Peso. In addition, a substantial portion of the PERC’s future capital expenditures in Gabon are denominated in currencies other than the Peso. During the last decade, the Philippine economy has from time to time experienced instances of devaluation of the Peso and limited availability of foreign exchange. Recurrence of these conditions may adversely affect the financial condition and results of operations of the Company. The Company does not normally hedge its foreign currency exposures as it believes that it has sufficient revenues in U.S. Dollar and/or Philippine Peso, as the case may be, to answer for corresponding obligations.

Equity Partnership Risk The Company has been participating in various oil exploration and development activities in Gabon and the Philippines with other parties. The Company is currently engaged in a production sharing contract with an equity share of 2.525% covering the Etame discovery block in the Atlantic shelf along with its Gabon Consortium partners. Such equity partnership requires the sharing in costs and revenues from the sale of the Etame crude oil. This situation may involve special risks associated with the possibility that the equity partner (i) may have economic or business interests or goals that are inconsistent with those of the Company; (ii) take actions contrary to the interests of the Company; (iii) be unable or unwilling to fulfill its obligations under the production sharing contract or sales contract; or (iv) experience financial difficulties. These conflicts may adversely affect the Company’s operations. To date, the Company has not experienced any significant problems with respect to its equity partners.

In the Philippines, the Company, through its subsidiary, PetroGreen, partnered with different foreign and local companies. For MGI, the Company (65.00% through PetroGreen) partnered with PHEN (25.00%) and PNOC RC (10.00%); in PetroWind, the Company (40.00% through PetroGreen) partnered with EEIPC (20.00%) and CapAsia ASEAN Wind Holdings Cooperatief U.A. (40.00%) (CapAsia was later acquired by BCPG Public Company Ltd. and renamed to BCPC Wind Cooperatief U.A.); and for PetroSolar, the Company (56.00%) partnered with EEIPC (44.00%). This situation may involve special risks associated with the possibility that the equity partner (i) may have economic or business interests or goals that are inconsistent with those of the Company; (ii) take actions contrary to the interests of the Company; (iii) be unable or unwilling to fulfill its obligations under the production sharing contract or sales contract; or (iv) experience financial difficulties. These conflicts may adversely affect the Company’s operations. Further to these, the Company continues to evaluate joint venture or partnership opportunities.

Cooperation among the joint venture and consortium partners on business decisions is crucial to the sound operation and financial success of these joint venture companies. Although the Company believes it maintains good relationships with its partners, there is no assurance that these relationships will be sustained in the future or that problems will not develop. For example, the Company’s joint venture partners may be unable or unwilling to fulfill their obligations, take actions contrary to its policies or objectives, or may experience financial difficulties.

If any of these events occur, the businesses of these joint ventures could be severely disrupted, which could have a material adverse effect on PERC’s business, financial condition and results of operations.

In order to avoid or mitigate these risks, PERC employs care and prudence in its partner selection. The backgrounds of would be partners are heavily scrutinized; attention is given in knowing the personalities behind the potential partners, their culture, and their industry reputation. The shareholders’ agreements or joint venture agreements contain penalty provisions in case a partner refuses or fails to fulfill its obligations. There are likewise exit mechanisms that could be utilized in case the relations among partners become sour.

Risks Relating to Change in Regulations The Group is compliant with the laws, rules and regulations in the Philippines and Gabon that enable it to legally operate or participate in the energy projects it has invested in. In the same manner, the relevant permits, endorsements, clearances applicable to the respective energy projects which the Group has invested in have 31

either been secured or are currently being processed. These permits are based on present rules, regulations and laws of the Philippines and Gabon. There is a risk that the Philippines and Gabon would change any rule, regulation and law that may affect the Group’s and its projects’ existing permits. To mitigate this risk, the Group constantly monitors the policy direction of both the governments of the Philippines and Gabon in order to anticipate any change in regulation that may affect the Group and its projects.

Risks relating to the Environment The Group’s projects involve energy exploration, development and utilization, which entail putting up of infrastructure, erection and installation of equipment and facilities, extraction and utilization of natural resources –all of which may involve temporary disturbances to the environment. To minimize and mitigate the risks involved in these temporary disturbances, the Group ensures that environmental risks (such as erosion and siltation) have been considered during the planning stage of the construction activities and thus the necessary mitigating measures and plans have been incorporated in the projects’ environmental management plan. In the case of the NWPP, PetroWind installed slope protection measures to prevent erosion and degeneration of the land.

Risk from Natural Calamities The Philippines is prone to natural calamities such as typhoons, floods, volcanic eruptions, earthquakes, mudslides, and droughts, and thus, the Company’s operations and those of its subsidiaries and affiliates may be disrupted by the occurrence of such natural calamities, and could thereby materially and adversely affect the Company’s and its subsidiaries’ and affiliate’s ability to generate revenues. There is no assurance that the insurance coverage maintained by the Company and its subsidiaries and affiliates would adequately compensate them for all damages and economic losses resulting from natural calamities including possible business interruptions. To mitigate this, insurance policies are regularly reviewed and updated as are necessary in accordance with industry standards. Furthermore, the Company and its subsidiaries and affiliates formulated emergency preparedness plans in order to lessen the impact of natural calamities to their respective operations.

Financial Risk Management Objectives and Policies The Group’s principal financial instruments include cash and cash equivalents, trading and investment securities (financial assets at FVPL) and receivables. The main purpose of these financial instruments is to fund the Group’s working capital requirements.

The Group manages and maintains its own portfolio of financial instruments in order to fund its own operations and capital expenditures. Inherent in using these financial instruments are the following risks on liquidity, market and credit.

Please refer to the 2017 Consolidated Audited Financial Statements, Note 27 for the discussion of main financial risks arising from the Group’s financial instruments.

Capital Management The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholders’ value.

Please refer to the 2017 Consolidated Audited Financial Statements, Note 20 for the discussion the Group’s Capital Management.

There were no changes made in the objectives, policies or processes for the years ended December 31, 2017 and 2016, respectively.

Item 2 - Properties PERC owns a 714-square meter office unit located at 7th Floor, JMT Building, ADB Avenue, Ortigas Center, Pasig City. The title of the Company over the property is clean and free from any lien and encumbrance.

In April 2012, Maibarara entered into a 25-year Land Lease Agreement (LLA) for its steamfield and access road with Power Sector Assets and Liabilities Management Corp. (PSALM) and paid upfront fees for the entire term.

Also, Maibarara has a US$0.760 million worth of purchased lot to be used as MGPP plant site, access road and transmission line.

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The Group may acquire additional property in the next twelve (12) months due to the increased volume of business, specifically for its renewable energy business.

The principal properties of the Group consist of various oil areas located in the Philippines and in Gabon, and renewable energy service contracts, as follows: Petroleum Service Contracts (SC) EPSC SC 6A SC 14C2 SC 51 SC 75

– – – – –

Gabon, West Africa Octon, Northwest Palawan West Linapacan East Visayan Basin Offshore NW Palawan

Wind Energy Service Contract (WESC) WESC No. 2009-09-002 – (Nabas-Malay-Buruanga, Aklan) Geothermal Renewable Energy Service Contract (GRESC) GRESC No. 2010-02-012 – (Laguna and Batangas) Solar Energy Service Contract (SESC) SESC No. 2015-03-115 – (Tarlac) Solar Energy Service Contract (SESC) SESC No. 2017-01-360 – (Puerto Princesa)

Participating Interest 2.525% 16.670% 4.137% 4.010% 15.000% Participating Interest

40% (through PetroGreen)

Participating Interest

65% (through PetroGreen) Participating Interest 56% (through PetroGreen)

Participating Interest 100% (through PetroGreen)

For details on the above Production Sharing Contact in Gabon and Service Contracts in the Philippines, please see discussion on “Business of Issuer.

Item 3 - Legal Proceedings MGI applied for VAT refund with the BIR and Court of Tax Appeals (CTA). As of December 31, 2017 and 2016, the outstanding input VAT claims which are still pending with the BIR and CTA amounted to P126.96 million and P112.03 million, respectively (Please see Note 14 of the 2017 Consolidated AFS).

Aside from the discussions above, The Group is neither a party to, nor is involved in, any litigation that affects or will affect its interests. It has neither any knowledge of any litigation, present or contemplated, against the Company.

There are no other pending legal proceedings to which the Group is a party or which any of its property is subject to.

Item 4 - Submission of Matters to a Vote of Security Holders There were no matters that were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

33

PART II - OPERATIONAL AND FINANCIAL INFORMATION Item 5 - Market for Registrant’s Common Equity and Related Stockholder Matters Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters

A)

1.

Market Information Stock Market Price and Dividend on Registrant’s Common Equity (last 2 years) 1st Q uarte r

Particulars Par value High Low Volume

2017

2016

Php1.00 Php4.22 Php4.00

Php1.00 Php3.98 Php2.61

.995MM 2.686MM

2.

2nd Q uarte r 2017

2016

Php1.00 Php7.90 Php3.97 32.481MM

Php1.00 Php4.40 Php3.60 2.392MM

3rd Q uarte r 2017 Php1.00 Php9.10 Php6.52

4th Q uarte r 1st Q uarte r 2018

2016

2017

2016

Php1.00 Php4.25 Php3.90

Php1.00 Php7.07 Php5.80

Php1.00 Php1.00 Php4.25 Php6.10 Php3.80 Php4.45

34.048MM 1.976MM 11.524MM

.958MM

36.628MM

Holders As of May 31, 2018, the Company has 2,007 stockholders.

Hereunder is the list of the top 20 Stockholders (as of May 31, 2018):

STOCKHOLDERS 1 PCD NOMINEE CORPORATION 2 HOUSE OF INVESTMENTS, INC.

SHARES 529,466,611

PERCENTAGE 93.10%

21,805,861

3.83%

3 PCD NOMINEE CORPORATION 4 HYDEE MANAGEMENT & RESOURCES CORP.

1,987,024

0.35%

1,880,779

0.33%

5 BAGUYO, DENNIS G. 6 IPEOPLE, INC.

1,698,888

0.30%

1,240,651

0.22%

355,468

0.06%

327,030

0.06%

9 R.P. LAND DEVELOPMENT CORP. 10 TAN, JUANITA UY

309,078

0.05%

300,781

0.05%

11 DAVID GO SECURITIES CORP. 12 LEY, FELY

277,949

0.05%

266,600

0.05%

13 CHEN HUA BI 14 PAN MALAYAN MANAGEMENT

266,599

0.05%

266,592

0.05%

15 MENDOZA, ALBERTO &/OR JEANIE C. 16 YU, JOHN PETER C. YU &/OR JUAN G.

251,492

0.04%

180,000

0.03%

17 PHIL. ASIA EQUITY SEC. INC. U-055 18 ORIENTRADE SECURITIES, INC.

159,959

0.03%

121,500

0.02%

19 UY-TIOCO, GEORGE 20 ROQUE JR., GONZALO

106,640

0.02%

7 YAN, LUCIO 8 ONG PAC, SALLY C.

Subtotal: Others: Grand Total:

90,234

0.02%

561,359,736

98.71%

7,352,106

1.29%

568,711,842

100.00%

34

Minimum Public Ownership The Company is compliant with the required Minimum Public Ownership of at least 10% of the total issued and outstanding capital stock, as mandated by Section 3, Article XVIII of the Continuing Listing Requirements of the Listing and Disclosure Rules. As of May 31, 2018, the Company’s public float was 34.44%.

3.

Dividends In accordance with the Corporation Code of the Philippines, the Company intends to declare dividends (either in cash or stock or both) in the future. The shareholders of the Company are entitled to receive a proportionate share in cash dividends that may be declared by the Board of Directors out of surplus profits derived from the Company’s operations. The same right exists with respect to a stock dividend, the declaration of which is subject to the approval of stockholders representing at least two-thirds (2/3) of the outstanding shares entitled to vote. The amount will depend on the Company’s profits and its capital expenditure and investment requirements at the relevant time.

Dividend declaration in two (2) most recent years Date of Declaration April 26, 2012 April 26, 2012 July 04, 2013

4.

Dividends per S hare Cash S tock 10% 10% 5%

Record Date M ay 18, 2012 September 21, 2012 July 25, 2013

Payment Date June 14, 2012 October 17, 2012 August 20, 2013

Recent Sale of Unregistered Securities PERC requested for confirmation of exemption transaction filed on September 26, 2017 and was approved on December 8, 2017.

The provision of Section 10.1 of the Code under which exemption is based: Section 10.1 (e) The sale of capital stock of a corporation to its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock.

Section 10.1 (i) Subscription for shares of the capital stock of a corporation prior to the incorporation thereof or in pursuance of an increase in its authorized capital stock under the Corporation Code, when no expense is incurred, or no commission, compensation or remuneration is paid or given in connection with the sale of disposition of such securities, and only when the purpose for soliciting, giving or taking of such subscription is to comply with the requirement of such law as to the percentage of the capital stock of a corporation which should be subscribed before it can be registered and duly incorporated, or its authorized capital increased.

Section 10.1 (l) The sale of securities to any number of qualified buyers.

The Company filed its application for listing and trading on September 29, 2017 and was approved by the Philippines Stock Exchange (PSE) on December 13, 2017. The Company offered 157,975,512 common shares to all existing eligible shareholders of record as of January 12, 2018 (Ex-date January 9, 2018), at a ratio of one (1) Rights Share for every two and six-tenths (2.6) common shares held at an Offer Price of P4.80 per share. The Offer Period started on January 22, 2018 and ended on January 26, 2018. The Stock Rights Offering was fully subscribed and fully paid-up, and has been listed at the PSE on February 2, 2018.

B) Description of Registrant`s Securities 1. Common Stock The details of the Company’s capital stock as of May 31, 2018 are as follows: Authorized - 700 million shares at PhP 1.00 par value

2.

3.

4.

5.

6.

7.

Issued and outstanding 568,711,842 Debt Securities - Not Applicable Stock Options - Not Applicable Securities Subject to Redemption call – Not Applicable Warrants – Not applicable Market Information for Securities Other than Common Equity – Not Applicable Other Securities – Not Applicable

$12,500,454

35

Item 6 - Management’s Discussion and Analysis or Plan of Operation 1. Management’s Discussion and Analysis (Amounts are in U.S. Dollar)

a. Consolidated Financial Position (As of December 31, 2017 and 2016) As of December 31 (Audited) 2017 ASSETS Cash and cash equivalents

2016

% Change

% in Total Assets

$20,110,581

$12,914,588

55.72%

8.40%

Financial assets at fair value through profit and loss Receivables

181,215 7,789,463

162,445 7,860,439

11.55%

0.08%

-0.90%

3.25%

Prepaid expenses and other current assets Property and equipment-net

5,332,588 162,806,394

6,766,450 145,075,547

-21.19%

2.23%

12.22%

67.98%

Deferred oil exploration cost

3,982,542

3,929,256

1.36%

1.66%

Investment in a joint venture

28,196,245

26,843,396

5.04%

11.77%

31,417

31,417

0.00%

0.01%

242,686

308,168

-21.25%

0.10%

10,815,279

10,408,066

3.91%

4.52%

$239,488,410

$214,299,772

11.75%

100.00%

5,698,427 21,867,859

4,619,107 15,982,090

23.37% 36.83%

2.38% 9.13%

56,952

45,532

100.00%

0.02%

1,781,640

-100.00%

0.00%

108,504,253

99,505,183

9.04%

45.31%

1,642,504 572,638

1,366,511 1,537,586 183,148

20.20% -100.00% 212.66%

0.69% 0.00% 0.24%

138,342,633

125,020,797

10.66%

57.77%

69,000,791

65,276,897

5.70%

28.81% 13.42%

Investment properties-net Deferred tax assets-net Other noncurrent assets TOTAL ASSETS LIABILITIES AND EQUITY Accounts payable and accrued expenses Current portion of loans payable Income tax payable Deposits for future stock subscriptions Loans payable - net of current portion Asset retirement obligation Deferred tax laibilities Other noncurrent liability TOTAL LIABILITIES EQUITY Attributable to equity holders of the Parent Company Non-controlling interest

-

32,144,986

24,002,078

33.93%

TOTAL EQUITY

$101,145,777

$89,278,975

13.29%

42.23%

TOTAL LIABILITIES AND EQUITY

$239,488,410

$214,299,772

11.75%

100.00%

Total assets amounted to US$239.488 million and US$214.300 million as of December 31, 2017 and December 31, 2016, respectively.

Cash and cash equivalents consist of cash on hand, cash in banks and money market placements with original maturities of not more than three months. The 55.72% net increase from US$12.915 million as of December 31, 2016 to US$20.110 million as of December 31, 2017 is mainly due to the proceeds from sale of electricity, sale of crude oil, and proceeds from additional loan of MGI for MGPP-2. This is offset by the capital and operating expenses incurred during the period.

36

Financial assets at fair value through profit and loss (FVPL) amounted to US$0.181 million and US$0.162 million as of December 31, 2017 and 2016, respectively. The 11.55% net increase in this account is due to the positive changes in the market prices of the Company’s investments in stocks traded in the Philippine Stock Exchange (PSE).

The Receivables account mainly consists of receivables from electricity sales and lifting/sales of crude oil revenue. This account slightly changed by -0.90% from US$7.86 as of December 31, 2016 to US$7.789 million as of December 31, 2017 due to lower outstanding receivable from oil liftings.

Prepaid expenses and other current assets consist of advances to contractor, deferred financing costs, prepaid insurance, supplies inventory, crude oil inventory, refundable deposits, restricted cash and other prepayments. This account amounted to US$5.333 million and US$6.76 million as of December 31, 2017 and December 31, 2016, respectively. The 21.19% net decrease is mainly due to recoupment of the advances made to the contractors of MGPP-2 against the progress billings.

Property, plant and equipment (PPE) amounted to US$162.806 million and US$145.076 million as of December 31, 2017 and December 31, 2016, respectively. The 12.22% net increase is mainly due to the construction of the MGPP-2.

Deferred oil exploration cost amounted to US$3.983 million and $3.929 million as of December 31, 2017 and December 31, 2016, respectively. The 1.36% net increase is due to minimal expenses for the Philippine Service Contracts (Note 11 of the Consolidated AFS).

Investment in a joint venture refers to the remaining 40.00% shareholdings in PetroWind. This amounted to US$28.196 million and US$26.84 million as of December 31, 2017 and December 31, 2016, respectively. The 5.04% net increase mainly pertains to the Group’s share in net income generated during the period, net of translation adjustments.

Investment properties remained unchanged as of December 31, 2017.

Deferred tax assets – net occurs due to timing differences in recognizing temporary deductible expenses and temporary taxable revenues such as accrued profit share, accretion expenses, accrued retirement liability, provision for probable losses, unrealized gains or losses and change in crude oil inventory. As of December 31, 2017 and December 31, 2016, this amounted to US$0.243 million and US$0.308 million.

The group also recorded a US$1.538 million deferred tax liability as of December 31, 2016 relative to PetroGreen’s unrealized gain on re-measurement of investment. However, in 2017, this amount was reversed because the Group, as a joint venturer, assessed that it can control the timing of the distribution of its share in profits in the joint arrangement and its share in profits will not be distributed in the foreseeable future. Therefore, deferred tax liability is not recognized.

Other non-current assets amounted to US$10.815 million and US$10.408 million as of December 31, 2017 and December 31, 2016, respectively. This account mainly consists of input vat carry overs, non-current portion of advance rent, and restricted cash. The 3.91% net increase is mainly due to the additional input taxes during the period relative to the development costs for MGPP - 2.

Accounts payable and accrued expenses amounted to US$5.698 million and US$4.619 million as of December 31, 2017 and December 31, 2016, respectively. The 23.37% increase mainly pertains to the progress billings from suppliers/contractors for the development of MGPP - 2.

Current portion of loan payable as of December 31, 2017 amounted to US$21.868 million and US$15.982 million as of December 31, 2016. The 36.83% increase is mainly due to proceeds from additional short-term loan and reclassification of the current portion of the long-term loans payables.

Income tax payable pertains to PetroSolar’s outstanding tax payable - 5.00% provision for income tax under the PEZA rules.

The deposit for future stock subscription as of December 31, 2016 pertains to total consideration received from non-controlling interests in excess of the authorized capital of entities within the Group, with the purpose of applying the same payment for future issuance of shares. As of December 31, 2017, these are reclassified to equity portion upon approval of the SEC of the increase in capital stock (Note 17 of the Consolidated AFS).

37

Loans payable – noncurrent amounted to US$108.504 million and US$99.505 million as of December 31, 2017 and December 31, 2016, respectively. The 9.04% net increase is mainly due to additional loans for the construction of the MGPP-2.

Asset retirement obligation amounted to US$1.643 million and US$1.366 million as of December 31, 2017 and as of December 31, 2016, respectively. The 20.20% increase in this account resulted from the amortization of the net present value of abandonment costs estimate.

Other non-current liabilities pertains to accrued rent payable arising from the application of straight line amortization of operating lease and accrued retirement liability. This amounted to US$0.573 million and US$0.183 million as of December 31, 2017 and December 31, 2016, respectively. The 212.66% net increase mainly pertains to the initial set-up of retirement funding of MGI and rent levelization of PetroSolar’s land lease.

Equity attributable to equity holders of the Parent Company amounted to US$69 million as of December 31, 2017 as compared to US$65.277 million as of December 31, 2016.

Non-controlling interest (NCI) pertains to the following:  10% share of EEIPC in PetroGreen;  25% share of PHEN, the 10% share of PNOC RC, and 10% of the 65% share of EEIPC (indirect) in MGI;  44% share of EEIPC (direct) and 10% of 56% share (indirect) in PetroSolar; Non-controlling interest increased by 33.93% from US$24.002 million as of December 31, 2016 to US$32.145 million for the same period in 2017. This is due to the higher net income shared by other joint venture partners in the RE projects of the Group and additional equity infusion.

38

b. Consolidated Results of Operation (As of December 31, 2017, 2016 and 2015) Years Ended December 31 (Audited) 2017 REVENUES Electricity sales Oil revenues

COST OF SALES Cost of electricity sales Oil production Depletion GROSS INCOME GENERAL AND ADMINISTRATIVE OTHER INCOME (CHARGES) - net Gain (loss) on derivatives Share in net income (loss) of a joint venture Interest income Net foreign exchange gains (losses) Net gain on fair value changes on financial assets at FVPL Interest expense Impairment loss Accretion expense Miscellaneous income NET INCOME BEFORE INCOME TAX Provision for (benefit from) income tax NET INCOME

2016

2015

% Change % in Total 2017 vs. Revenues 2016 2016*

$28,850,781 6,510,755 35,361,536

$28,290,322 5,339,338 33,629,660

$16,967,907 6,574,675 23,542,582

1.98% 21.94% 5.15%

77.07% 17.39% 94.46%

11,903,974 4,087,581 1,986,540 17,978,095 17,383,441 2,907,252

12,199,861 3,704,709 2,795,358 18,699,928 14,929,732 3,217,253

7,113,087 4,239,457 1,681,618 13,034,162 10,508,420 3,911,082

-2.43% 10.33% -28.93% -3.86% 16.44% -9.64%

31.80% 10.92% 5.31% 48.02% 46.44% 7.77%

1,496,888 371,815 (47,340)

10,760,704 1,129,923 284,127 40,457

(734,060) 241,481 112,537 (178,876)

-100.00% 32.48% 30.86% -217.01%

0.00% 4.00% 0.99% -0.13%

18,343 (7,159,803) (1,945,425) (66,530) 186,718 (7,145,334) 7,330,855 (1,132,218) 8,463,073

16,404 (9,076,674) (8,831,689) (156,955) 197,087 (5,636,616) 6,075,863 217,631 5,858,232

1,392 (4,934,680) (140,635) 211,638 (5,421,203) 1,176,135 (3,432,935) 4,609,070

11.82% -21.12% -77.97% -57.61% -5.26% 26.77% 20.66% -620.25% 44.46%

0.05% -19.13% -5.20% -0.18% 0.50% -19.09% 19.58% -3.02% 22.61%

3,793,701

1,772,841

2,680,207

113.99%

10.13%

4,669,372 $8,463,073 $0.0092

4,085,391 $5,858,232 $0.0043

1,928,863 $4,609,070 $0.0076

14.29%

12.47%

44.46%

22.61%

NET INCOME ATTRIBUTABLE TO: Equity holders of the Parent Company Minority interest NET INCOME Basic/Diluted Earnings Per Share (EPS)

Note: Differences in amounts are due to rounding off. *includes all revenue accounts (electricity sales oil revenues, share in net income of a joint venture, interest income, net gain on fair value changes on FVPL and miscellaneous income) The Group generated a consolidated net income amounting to US$8.463 million and US$5.858 million as of December 31, 2017 and 2016, respectively, representing a 44.46% growth.

The Group generated consolidated net income attributable to equity holders of the Parent Company amounting to US$3.794 million or $0.0092 earnings per share and US$1.773 million or $0.0043 earnings per share as of December 31, 2017 and 2016, respectively.

Revenues: Electricity sales refer to the electricity power generated by MGPP and TSPP. The 1.98% increase from US$28.29 million in December 31, 2016 to US$28.851 million as of December 31, 2017 is mainly due to higher energy generated by MGI and PetroSolar’s full operations in 2017. It should also be noted that MGI had a 22day maintenance shutdown in 2016, and PetroSolar only started commercial operations in February 2016.

Oil revenues likewise increased by 21.94% from US$5.339 million as of December 31, 2016 to US$6.511 million as of December 31, 2017. The increase is mainly due to the increase in crude oil prices from range of $27.80 39

$56.80 per barrel in 2016 to $45.12 - $64.11 per barrel in 2017 which was partly offset by the decrease in production volume compared to the same period in 2016.

Costs and Expenses: Costs of electricity sales pertain to the direct costs of generating electricity power including operating and maintenance costs (O&M) of power plant and fluid collection and reinjection system (FCRS), depreciation, and other costs directly attributed to producing electricity. This amounted to US$11.904 million and US$12.20 million as of December 31, 2017 and December 31, 2016, respectively. In 2017, costs of electricity sales increased due to the full operations of the solar plant. This was however positively offset by the difference in the forex rate used for the translation to US$ values, which resulted to an overall decline in cost of electricity sales by 2.43%.

Cost of oil production increased by 10.33% from US$3.705 million as of December 31, 2016 to US$4.088 million as of December 31, 2017 mainly due to well work-overs to stabilize production.

The 28.93% decline in depletion from US$2.795 million to US$1.987 million is due to lower depletable cost resulting from the impairment of the Gabon assets in December 2016.

General and administrative expenses, Other Income (Charges) and Provision For (Benefit From) Income Tax: General and administrative expenses (G&A) decreased by 9.64% from US$3.217 million as of December 31, 2016 to US$2.907 million as of December 31, 2017. This is due to lower professional fees and other expenses incurred within the period.

Other income (charges) amounted to US$(7.145) million and US$(5.637) million as of December 31, 2017 and 2016, respectively. Below presents the itemized discussion of the changes in other income (charges) – net account. 

32.48% increase in share in net income of a joint venture amounted to US$1.497 million and US$1.130 million as of December 31, 2017 and December 31, 2016, respectively. The increase pertains to higher net income of PetroWind for the period.



30.86% net increase in interest income from US$0.284 million as of December 31, 2016 to US$0.372 million as of December 31, 2017 is mainly due to the interest income accrued from the outstanding receivable from TransCo for the electricity sales;



Turnaround in forex changes from a gain of US$0.040 million in 2016 to a loss of US$0.047 million in 2017 is due to the strengthening of the Philippine Peso against US Dollar in 2017;



11.82% net increase in net unrealized gain on fair value changes on financial assets at FVPL pertains to the favourable movements of its investments in stocks traded at the PSE;



Interest expense amounted to US$7.160 million as of December 31, 2017 and US$9.077 million as of December 31, 2016. Interest during the period is 21.12% lower than last year mainly due to revised financing terms of MGI’s loan which includes lower interest rate from 7.72% to 5.59% and partial payment of the principal loans.



77.97% decline in impairment amount of the Gabon Assets from $8.832 million in 2016 to $1.945 million in 2017 (Please refer to Note 5 of the Consolidated AFS).



57.61% decline in accretion expense from US$0.157 million in 2016 to US$0.067 million in 2017 is mainly due to change in estimates;



Miscellaneous income mainly pertains to the monthly time-writing charges and rental income. The 5.26% decrease is mainly due to the changes in weighted average forex rate used.

Provision for (benefit from) income tax: Provision for income tax current - pertains to PetroSolar’s outstanding tax payable - 5.00% provision for income tax under the PEZA rules.

Provision for income tax deferred – pertains to the reversed amount of the deferred tax liability account relative to PetroGreen’s unrealized gain on re-measurement of investment. In 2017, this amount was reversed because the Group, as a joint venturer, assessed that it can control the timing of the distribution of its share in profits in 40

the joint arrangement and its share in profits will not be distributed in the foreseeable future. Therefore, deferred tax liability is not recognized.

Non-controlling interest (NCI) as of December 31, 2017 and 2016 pertains to the following: 10% share of EEI-PC in PetroGreen; 25% share of Trans-Asia, the 10% share of PNOC-RC, and 10% of the 65% share of EEI-PC (indirect) in Maibarara; 44% share of EEI-PC (direct) and 10% of 56% share (indirect) in to PetroSolar; c. Consolidated Financial Position (As of December 31, 2016 and 2015) Total assets amounted to $214.300 million and $237.131 million as of December 31, 2016 and December 31, 2015, respectively.

Cash and cash equivalents consist of cash on hand, cash in banks and money market placements with original maturities of not more than three months. The 60.31% net decrease from US$32.537 million as of December 31, 2015 to US$12.915 million as of December 31, 2016 is mainly due to payment of progress billings for the construction of Solar Power Project and the MGPP Phase 2 and payment of current portion of loans.

Financial assets at fair value through profit and loss (FVPL) amounted to US$0.162 million and US$0.156 million as of December 31, 2016 and 2015, respectively. The 3.98% net increase in this account is due to the positive changes in the market prices of the Company’s investments in stocks traded in the Philippine Stock Exchange (PSE).

The Receivables account mainly consists of receivables from lifting/sales of crude oil revenue and electricity sales. This account increased by 118.84% from US$3.592 as of December 31, 2015 to US$7.860 million as of December 31, 2016 due to higher outstanding receivable from electricity sales, mainly from Solar Power Project, which started its commercial operations in February 10, 2016.

Prepaid expenses and other current assets consist of advances to contractor, deferred financing costs, prepaid insurance, supplies inventory, refundable deposits, restricted cash, crude oil inventory and other prepayments. This account amounted to US$6.766 million and US$6.414 million as of December 31, 2016 and December 31, 2015, respectively. The 5.5% net increase is mainly due to advances made to contractors for the purchase of equipment for the MGPP Phase 2.

Property, plant and equipment (PPE) increased by 3.09% from US$140.724 million as of December 31, 2015 to US$145.075 million mainly due to additions from the construction of the MGPP2 and TSPP and transfer of deferred oil exploration costs. This is offset by the continuous depletion and depreciation of PPE and the impairment of the Gabon Assets (Note 5 of Consolidated AFS).

Deferred oil exploration cost amounted to US$3.929 million and US$15.920 million as of December 31, 2016 and 2015, respectively. The 75.32%% net decrease is due to transfer of deferred costs to PPE and impairment of the Gabon Assets (Note 5 of Consolidated AFS).

Investment in a joint venture refers to the remaining 40% shareholdings in PetroWind. This amounted to US$27.843 million and US$27.167 million as of December 31, 2016 and December 31, 2015, respectively. The 1.19% net decline mainly pertains to the translation adjustment from previous year’s closing of P47.06:1US$ to P49.72:US$1 as offset by the income generated by PetroWind amounting to US$1.130 million.

Investment properties remained unchanged as of December 31, 2016.

Deferred tax assets (liability) (DTA/L) occurs due to timing differences in recognizing temporary deductible expenses and temporary taxable revenues such as accrued profit share, accretion expenses, accrued retirement liability, provision for probable losses, unrealized gains or losses and change in crude oil inventory.

The Group has a DTA of US$0.308 million and US$0.307million as of December 31, 2016 and 2015, respectively.

The group also recorded a US$1.538 million and US$1.624 DTL as of December 31, 2016 and 2015, respectively, relative to PetroGreen’s unrealized gain on re-measurement of investment. The bulk of the 5.35% net decline pertains to cumulative translation adjustment of this account from previous year’s closing of P47.06:1US$ to P49.72:US$1.

Other non-current assets amounted to US$10.408 million and US$10.283 million as of December 31, 2016 41

and December 31, 2015, respectively. This account consists of the non-current portion of advance rent, input vat carry overs, and restricted cash. The 1.22% net increase is mainly due to the additional input taxes within the period and development costs for the MGPP2.

Accounts payable and accrued expenses amounted to US$4.619 million and US$18.796 million as of December 31, 2016 and December 31, 2015, respectively. The 75.42% net decrease mainly pertains to payment of outstanding payables to contractors during the period.

Current portion of loan payable as of December 31, 2016 amounted toUS$15.982 million and $16.539 million as of December 31, 2015. The 3.37% net decrease accounts for payment of principal loans due during the period.

Income tax payable as of December 31, 2016 pertains to PetroSolar’s 5% provision for income tax under the PEZA rules.

The deposit for future stock subscription as of December 31, 2016 amounted to $1.782 million and $6.557 million as of December 31, 2015. This pertains to total consideration received from non-controlling interests (for PetroGreen, MGI and PetroSolar) in excess of the authorized capital of entities within the Group, with the purpose of applying the same payment for future issuance of shares. The 72.83% decrease pertains to the approval of application of the increase in capitalization of PetroSolar.

The 0.34% net increase in loans payable - noncurrent is mainly due to the loan availed by MGI for the development of its MGPP2 offset by the cumulative translation adjustment from previous year’s closing of P47.06:1US$ to P49.72:US$1.

Asset Retirement Obligation amounted to US$1.367 million and US$1.095 million as of December 31, 2016 and as of December 31, 2015, respectively. The 24.83% increase in this account resulted from the amortization of the net present value of abandonment costs estimate and additional abandonment cost estimate for the Solar Power Project.

The Group’s derivative liability pertains to the payoff structure and put and call options over PetroWind shares.

As of December 31, 2015 this amounted to US$10.856 million. As of December 31, 2016, the derivative liability was fully reversed (Please see Note 19 of the Consolidated AFS).

Other non-current liability consists of the accrued retirement liability and accrued rent. The 60.06% increase pertains to additional set-up of accrued rent for PSOC. Equity attributable to equity holders of the Parent Company amounted to US$65.277 million or US$0.159 book value per share as of December 31, 2016 and US$66.335 million or book value per share of US$0.162 as of December 31, 2015. Despite of the additional income during the period amounting to US$1.772 million, this account declined because of the cumulative adjustments of the Peso value assets and liabilities from previous year’s closing of P47.06:1US$ to P49.72:US$1.

Non-controlling interest (NCI) as of December 31, 2016 and 2015 pertains to the following:  10% share of EEI-PC in PetroGreen;  25% share of Trans-Asia, the 10% share of PNOC-RC, and 10% of the 65% share of EEI-PC (indirect) in Maibarara;  44% share of EEI-PC (direct) and 10% of 56% share (indirect) in PetroSolar; d. Results of Operations (For the years ended December 31, 2015 and 2014) The Group generated consolidated net income attributable to equity holders of the Parent Company amounting to US$1.773 million or $0.0043 earnings per share and US$2.680 million or $0.008 earnings per share as of December 31, 2016 and 2015, respectively.

Revenues: Electricity sales refer to the electricity power generated by MGPP and PetroSolar. The 66.73% increase is mainly due to start of commercial operations of PetroSolar on February 10, 2016.

Oil revenues decreased by 18.79% due to lower crude oil price from an average of US$48.16/bbl. to an average of $40.08/bbl. and lower production barrels from 6.777 million barrels (gross) to 6.150 million barrels (gross).

42

Costs and Expenses: Costs of electricity sales pertain to the direct costs of generating electricity power including depreciation, and other costs directly attributed to producing electricity. The bulk of the 71.51% increase is mainly due to the operating maintenance cost of the Solar Power Project which started its commercial operations on February 10, 2016.

Oil production expenses (OPEX) decreased by 12.61% from $4.239 million as of December 31, 2015 to $3.705 million as of December 31, 2016 mainly because of lower royalty (Gabon) expenses brought about by the decline in average crude oil price and decline in production barrels.

The 66.23% increase in depletion is due to increased PPE subject to depletion, mainly on the allocation of the costs of two platforms over the number of well drilled during the Etame Expansion.

General and administrative expenses (G&A) decreased by 17.74% from US$3.911 million as of December 31, 2015 to US$3.217 million as of December 31, 2016 because in the 2015 G&A includes expenses for the Stock Rights Offering, and Documentary Stamp Tax for the sale of 10% stake in PGEC to EEI. Other income (charges) amounted to (US$5.637) million and (US$5.421) million as of December 31, 2016 and 2015, respectively. Below is the itemized discussion of the changes in each other income (charges) account.  Gain (loss) on derivatives: o The US$10.761 million unrealized gain in 2016 is due to the full reversal of the derivative liability (Please refer to Note 19 of the Audited Financial Statement); whereas, o the US$0.734 million unrealized loss in 2015 resulted from the additional set-up of derivative liability during the period (Please refer to Note 19 of the Audited Financial Statement);  367.91% increase in share in net income of a joint venture because the NWPP started its commercial operations in June 10, 2015, thus the 2016 income of the NWPP includes a whole year of operations whereas the 2015 includes only half year of operations;  152.47% net increase in interest income from US$0.113 million as of December 31, 2015 to US$0.284 million as of December 31, 2016 mainly due to set-up of interest receivable from Transco, relative to the outstanding receivable on the electricity sale and interest income from the outstanding funds;  122.62% change in net realized gain (loss) on forex changes from US$0.179 million loss as of December 31, 2015 to US$0.040 million unrealized gain in 2016 due to fluctuations of Peso vs. US Dollar;  1078% net increase in net gain in changes in market values of investments in stocks traded at the PSE from US$1,392 as of December 31, 2015 to US$16,404 as of December 31, 2016 is due to positive movements in market values of investments;  83.94% increase in interest expense from US$4.935 million as of December 31, 2015 to $9.077 million as of December 31, 2016 due to the interest expense for the TSPP1 and additional loan availment during the period;  US$8.831 million impairment loss recorded in 2016 relative to the Gabon Assets due to low crude oil prices (please refer to Note 10 of the Consolidated AFS); and  11.60% increase in accretion expense from US$0.141 million as of December 31, 2015 to US$0.157 million as of December 31, 2016 mainly due to the addition in abandonment estimate for the Renewable Energy Projects;  6.88% decrease in miscellaneous income.

The group also recorded a US$0.218 million and US$(3.433) million provision for (benefit from) income tax as of December 31, 2016 and 2015, respectively. The US$0.218 million provision for income tax as of December 31, 2016 mainly pertains to the 5% gross income tax of PSOC; whereas,  the US$3.433 million benefit from income tax pertains to the correction of the tax rate of the initial recognition of the of the unrealized gain on re-measurement in 2014 from 30% tax rate to 10% tax rate because this pertains to future sale of shares not traded in the PSE. 43

Non-controlling interest (NCI) as of December 31, 2016 and 2015 pertains to the following: 10% share of EEIPC in PetroGreen; 25% share of PHEN, the 10% share of PNOC-RC, and 10% of the 65% share of EEIPC (indirect) in Maibarara; 44% share of EEIPC (direct) and 10% of 56% share (indirect) in to PetroSolar; Key Performance Indicators: The following liquidity and profitability ratios indicate acceptable levels of financial condition and performance of the company:

Current ratio Debt-to-equity ratio Asset-to-equity ratio Operating profit margin

2017 1.21:1 1.37:1 2.37:1 49.16%

2016 1.24:1 1.4:1 2.4:1 44.39%

2015 1.02:1 1.88:1 2.88:1 44.64%

Formula Total Current Assets/Total Current Liabilities Liabilities/Total Stockholders’ Equity Total Assets/ Total Stockholders' Equity Operating profit/Operating Revenue

The decrease in the group’s current ratio as of December 31, 2017 compared to 2016 is due to increase in short-term loans payable account.

There is a decrease in the group’s debt-to-equity ratio as of December 31, 2017 as compared to 2016 mainly due to higher equity brought about by additional income and equity infusion during the period.

The asset-to-equity ratio indicates the group’s leverage. This slightly declined due to higher equity.

There is an increase in operating profit margin as of December 31, 2017 compared to 2016, mainly because of higher revenues from electricity sales and crude oil production.

The decrease in asset turn-over is due to the additional capital expenditure for the MGPP-2 of which revenues are expected in second quarter of 2018.

For additional KPIs, please see attached “Schedule of Financial Soundness Indicators”

2. Plan of Operations for the next 12 months A. Oil Exploration Gabon, West Africa The operator will continue to produce oil from the existing wells. The consortium will continue negotiating with the government on the planned extension of the licenses. The operator will likewise prepare for a potential drilling program to arrest the production decline; which will also need the government’s approval.

Philippine Service Contracts SC 6A - Octon Operator Philodrill will continue with the DOE-approved work program of G&G works to define new leads to be further de-risked.

SC 14C2 - West Linapacan Operator Philodrill will conduct a scoping study for a possible re-entry or Extended Production Test program for the original producer WLA-1 well and a P&A program for the other old West Linapacan wells. Accompanying G&G and permitting activities will also be conducted in parallel.

SC 51 - East Visayan Basin The consortium is awaiting DOE’s formal approval of the revised Work Program. Once approved, Trans-Asia will commence with the conduct of the pore pressure study and gravity survey.

SC 75 - Offshore NW Palawan The service contract is currently under Force Majeure. Once lifted, the Consortium will proceed to Subphase 2, with the conduct of a ~1,000 sq.km 3D seismic survey over the identified leads in SC 75.

44

B. Renewable Energy Maibarara Geothermal Power Project The operation of both M1 and M2 power plants will continue.

Nabas Wind Power Project The plant will be in continuous operation from the 18 WTGs comprising the project's Phase 1.

Tarlac Solar Power Project The plant will continue to supply electricity to the grid.

Puerto Princesa Solar Power Project The preparation for the project will be continued this year, which include the negotiation for offtake and preparation for construction once an offtake is secured.

Material Commitments MGI is currently developing the 12 MW Expansion Project (Phase 2) of the Maibarara Geothermal Power Plant.

This will be funded through 70% debt and 30% equity.

Discussion of Indicators of the Company’s Level of Performance Productivity Program For the electricity sales, expansion of the Maibarara Geothermal Power Project will increase the power generation from 20 MW to 32 MW. For oil revenue, the operator of said project, VAALCO Gabon (Etame), Inc., and the members of the Consortium have defined some wells to be drilled to increase production. VAALCO has the necessary skills to manage the resources and complete the work on time and within budget.

Receivable Management The Group’s receivables are mainly due from sale of electricity to PHINMA and Transco and sale of crude oil in Etame, Gabon through the Consortium’s Operator. Revenues are recorded once sale are made. Payments are received every 30-45 days following each sale.

For electricity sales form TSPP-1 and NWPP-1, the payment for the Actual FIT Revenue is sourced from the FITAll Fund, specifically the Actual FIT Differential (FD) and the Actual Cost Recovery Revenue (ACRR). The FD is the difference between the Actual FIT Revenue and the ACRR and is collected from on-grid consumers as a uniform charge and applied to all billed kilowatt-hours. For FIT-Eligible RE Plants connected to the Wholesale Electricity Spot Market (“WESM”), the ACRR refers to the WESM proceeds remitted by the Philippine Electricity Market Cooperation (“PEMC”) to the FIT-All Fund. PetroWind and PetroSolar regularly receive the ACRR component on time. On the other hand, the FD will normally reach PetroWind and PetroSolar after seven months from billing date and on a staggered basis, in two or three installments.

PetroWind and PetroSolar manage this risk through proper and meticulous allocation of funds, proper timing of expenditures, employment of cost-cutting measures, and sourcing short-term funding requirements from local banks and investment houses or from affiliated companies.

For the fifteen (15) years since oil production inception, there was no event that the buyer failed to remit the proceeds of the sale. However, the Group is willing to look for another buyer should there be some problem that may happen in the future.

Liquidity Management Management of liquidity requires a flow and stock perspective. Constraint such as political environment, taxation, foreign exchange, interest rates and other environmental factors can impose significant restrictions on firms in management of their financial liquidity.

The Group considers the above factors and pays special attention to its cash flow management. The Company identifies all its cash requirements for a certain period and invests unrestricted funds to money market placements to maximize interest earnings.

45

The Group does not anticipate any cash flow or liquidity problems within the next twelve (12) months. The Group is not in default of any, note, loan, lease, or other indebtedness or financing arrangement requiring it to make payments.

Inventory Management The only inventory is the crude oil produced in Gabon. The buyer lifts certain volume and pays the same in 30 days. The operator sees to it that crude oil inventory does not reach 800,000 barrels at any one time to avoid overflow and to generate revenues to cover production costs.

Cost Reduction Efforts In order to reduce costs, the Group employs a total of one thirty seven (137) employees with multi-task assignments.

The Company’s general and administrative expense as of December 31, 2017 is equivalent to 7.77% of the total revenue.

Rate of Return of Each Stockholder The Company has no existing dividend policy. However, the Company intends to declare dividends in the future in accordance with the Corporation Code of the Philippines. Please see Part II, Item 5, 3. Dividends for the Dividend declared for two (2) most recent years.

Item 7 - Financial Statements The 2017 Consolidated Audited Financial Statements (AFS) of the Company are incorporated herein by reference. The schedules listed in the accompanying index to Supplementary Schedules are filed as part of this Report.

Item 8 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosures -none-

Corporate Governance The Board of Directors including its officers attended Corporate Governance seminars in compliance with the requirements of the Securities and Exchange Commission. In addition, the total corporate organization received copies of the Manual on Corporate Governance (Manual) duly approved by the Board of Directors.

The Company’s platform of corporate governance is anchored on its Manual. The Manual has been updated to reflect the requirements stated in the Code of Corporate Governance for Publicly-Listed Companies (SEC Memorandum Circular No. 19, Series of 2016). The Manual institutionalizes the principles of good corporate governance in the entire organization. It also lays down the Company’s compliance system and identifies the responsibilities of the Board and Management in relation to good corporate governance.

The Company believes that compliance with the principles of good corporate governance begins with the Board of Directors. It is the Board’s duty and responsibility to foster the long-term success of the Company and secure its sustained competitiveness and profitability in a manner consistent with its corporate objectives and the longterm best interest of its shareholders and other stakeholders.

The Corporation’s Board of Directors is composed of individuals of proven competence, integrity, and probity.

These individuals determine the Company’s purposes, vision and mission, and strategies to carry out its objectives, ensure compliance with all relevant laws, regulations and codes of best business practices, adopt a system of internal checks and balances, and install a process of selection to ensure a mix of competent directors and officers.

Three (3) Independent Directors (namely, Mr. Basil L. Ong, Mr. Cesar A. Buenaventura and Mr. Eliseo B. Santiago) sit on the Board. The Company adopts the definition of Independence in the Securities Regulation Code and the CG Code for PLCs, and considers as an independent director a person who is independent of Management and the controlling shareholder, and is free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director in the Company.

46

Based on the recommendations under the CG Code for PLCs, as adopted in the Manual, the Board organized the following committees: 

Audit Committee – which has the oversight capability over the Company’s financial reporting, internal control system, internal and external audit processes, and compliance with applicable laws and regulations. The Audit Committee shall likewise review all material related party transactions and would thus exercise the functions of a Related Party Transaction Committee.



Corporate Governance Committee – which shall be tasked to assist the Board in the performance of its corporate governance responsibilities, including the functions that were formerly assigned to the Nomination Committee and the Compensation and Remuneration Committee.



Board Risk Oversight Committee – which shall have the oversight function over the Company’s Enterprise Risk Management system, enabling the Board and Management to be in confident position to make well-performed decisions, having taken into consideration risks to significant business activities, plans, and opportunities.

Below are the Committees and their corresponding members: Audit Committee Chairman Members

-

Corporate Governance Committee Chairman Members -

Board Risk Oversight Committee Chairman Members -

Mr. Cesar A. Buenaventura - Independent Director Mr. Basil L. Ong – Independent Director Ms. Helen Y. Dee – Non-Executive Director Mr. Basil L. Ong – Independent Director Mr. Cesar A. Buenaventura - Independent Director Mr. Eliseo B. Santiago – Independent Director Mr. Eliseo B. Santiago – Independent Director Mr. Cesar A. Buenaventura - Independent Director Mr. Raul M. Leopando – Non-Executive Director

As part of corporate measures to ensure compliance with the principles and policies embodied in the Manual, the Board of Directors designated Atty. Arlan P. Profeta, as the Company’s Compliance Officer (concurrent Assistant Corporate Secretary). Atty. Profeta is responsible for, among matters, determining and measuring compliance with the Manual; appearing before the Philippine SEC upon summons on matters relating to the Manual; identifying, monitoring, and controlling compliance with corporate governance matters; and recommending to the Board of Directors the review of the Manual. Atty. Profeta works closely with the Board of Directors, top management, and board committees to evaluate and monitor compliance with the Manual.

Specifically, he determines the level of compliance and accordingly recommends the adoption of measures to improve such compliance. Likewise, the various board committees perform oversight duties and functions to ensure proper compliance with the Manual and other corporate policies. The Company also submits governance reports required by the Philippine SEC and the PSE to determine compliance with their rules and regulations, the Manual, and the Code of Corporate Governance. Pursuant to the CG Code for PLCs, the positions of the Corporate Secretary and Compliance Officer are no longer performed by the same person.

In line with the Company’s aspirations for growth and development, the Company continues to work towards enhancing its adherence to the principles and best practices of good corporate governance.

The Company accomplished and duly submitted the 2017 Integrated Annual Corporate Governance Report (2017 ACGR) to and SEC and the PSE and posted the same at the Company’s website. Any deviation from the recommended corporate governance practices are duly explained in the 2017 IACGR. The Company will continue to exert efforts to ensure compliance with the Manual and the CG Code for PLCs.

47

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STATEMf, NT OF MANAGIMf, N'T'S RESPONSIBILITY FOR FINANCIAL STATf, MENTS

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Th€ manag€menl of PehEnefgy Resources Corporation is responsible for thc plcparation and tiir presentarion ofthe consolidated financial stal€ments including the schedules anached therein, for the yeaK ended December 31. 201? and 2016, in aeordance wilh the prccribed findcial reporting framework indicared thercin. and for such ituemat contml as manaaemenl determin€s is necessary to enable the prcpardtion of financial sbremenrs that are Iiee tiom mareriat misslatemenr. whethe. due ro fraud o. error.

In prcparing the financial sratenr€nrs. managemenr is responsibte fo. assessing rhe Company.s abiliry ro @nnDuc a5 a going concem, disclosing, as applicable mane6 rclaled ro goinsconcem and usingrhe goingconcem b6is ofaccounting unless managemenr eirher intends to liquidare the company or to cease opemrions. or has nol realistic altemative bul ro The Board of Direclo6 is responsible ibr overseeing rhe Company.s financial rcporting prucess.

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The Board of Directors and Stockholders PetroEners/ Resources Corporation 7th Floor, JMT Building, ADB Avenue Ortigas Center, Pasig City

Opinion We have audited the consolidated financial statements of PeroEner$/ Resources Corpomtion and its slbsidiaries (the Croup), which comprise the consolidated statements offiruncial position as at December 31, 2017 and 2016, and the consolidat€d statemenls ofcomprehensive income, consolidated statements olchanges in equity and consolidated statements ofcash flows for each ofthe three years in the period ended December I l, 2017, and notes !o the consolidated financial statements, includinS a summary of signifi cant accounting policies In our opinion, the accompanying consolidated financial statemenb present fairly, in all material respects, the consolidated financial position ofthe Group as .t December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for each ofthe three years in the period ended December 31, 201? in accordanca with Philippine Financial Reporting Standards (PFRSS).

Basis for Opinion We conducted our audits in accordance with Philippine Standalds on Auditing (PSAS). Our responsibilities under those slandards are further described in the,4udr'tor's Responsibililieslor lhe Audil ofthe Consolidated Financial Statements section ofour report. Wearc independent ofthe Grolp in accordance with the Code ofEthics for Professional Accountants in the Philippines (Code ofEthics) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code ofEthics. We believe that the audit evidence we have obtained is sufficient and appropriate lo provide a basis for our opinion.

Key Audit M.tters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit ofthe consolidated financial statements ofthe curent period. These matters were addressed in the contcxt ofour audit ofthe consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a s€parate opinion on these matte6. For each maner below, our description ofhow our audit addressed the maner is provided in that context.

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scv we have fulfifled the responsibilities described inrhe Auditor's Respotlsibilities for the Audit ofthe Coksolidated Financiol Statements section of olr report, including in relation !o thes€ matters.

Aocordingly, our audit included the performano€ ofprocedures desigrled tq respond to oul assessment of the risks ofmaterial misstatement ofth€ consolidated financial statements. Th€ results ofour audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

Voluation of investmeLls in Gabon' West

Afica

The Group has investments in Gabon, West Africa that are presented as part of 'Wells, pladorms and other facilities' account under Property, plant and equipment and Deferred oil exploration costs and are tested for impairment when there are indications, such 6s fluctuations in oil prices in the market, that the carrying values ofthese investrnents may exceed their recoverable amounts.

The assessment ofthe recoverable amount ofthe investments requires significantjudgment and involves estimation and assumptions about future production levels and casts, as well as extemal input such as oil prices and discount rate. Hence, such assessment is a key audit matter in our audit The disclosures in relation to the investments in Gabon, West Africa are included in Notes the consolidated fi nancial statements.

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Audit rcsponse we invoived our intemal specialist in evaluatinS the methodologies and the assumptions used These assumDtions include future production levels and costs as well as extemal input such as oil pric€s and discount rate. We compared the key assumPtions used such as future production levels against oil reserves and costs against historical data. We tested the parameters used in the determination ofthe oil prices and discount rate against market data. We also reviewed the Group's disclosures about those assumptions to which the outcome ofthe impairment test is most sensitive, specifically those that have the most significant effect on the determination ofthe recoverable amounts ofthese inv€stments' Estimation of oil resenes Oil reserves require significant estimation by rnanagement including inputs from intemal geologists we focused on this mafterbecause the resulting estimates are utilized in testing impairment, calculating depletion and estimating decommissioning provisions which have a material impact on the consolidated financial statements, There is an inherent uncertainty involved in gstimating reserv€ quantities because ofthe complex contractual anangements detailing the Group's share ofreserves in Cabon and other looal service conhacts over whioh the Company has participating interests. This uncertainty also depends on the amount of reliable gcologic and engin€ering data available at the time ofth€ €stimat€ and the interpretation ofthese data by the intemal geologists and managementThe disclosures in relation to oil reserves are included in Note I0 to the consolidated financial statements

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Audit rcsponse we evaluated the oompetenc€, capabilities and objeotivify ofthe geologists engag€d by the Group to perform an assessment of its oil reserves by considering thgir qualifications, experience and reporting responsibilities. We reviewed the specialist's report and obtained an understanding ofthe nature, scop€ and objectives oftheir work and basis ofthe estimates including any chanSes in the reserves dudng the year. In addition, we tested the reserves estimates appli€d to th€ consolidated filanoial statements including impairment estimates, depletion and d€commissioning provisions Estimalion oJ assel rethemenl oblgstiorts The Group has provisions for close-down, restoration and environmental obligations on its solar power plant in Tfilac, geothermal power plant in Batangas and interest in ail fields in Gabon totaling $1.6 million ss of December 3 t, 2017. The Group uses an extemal technical speoialist to assess its share in abandonment cost in the Gabon oil fields, snd an intemal technical group to estimate the future restoration costs ofits salar an(lgeothermal power plants sites. The estimation ofthe provisioni requires significant management judgment in estimating future costs given the nature ofeach site, the operating activities done, and the facilities constructed, among other considemtions. These caloulations rcquite the management to assume a reasonable mte to discolnt these future costs to present value at reporting date

The Croup's disclosure about asset retirement obliSation is included in Note lE to lhe consolidated financial statements.

Audit response We evalualed th€ competence, capabilities and objectivity ofmanagement's intemal6nd eKemal lechnical specialists by considering their qualifications, experience and reporting responsibilities. we reviewed the decommissioning report and obtained an understanding from the intemal and extemal technical specialists about th€ bases for identifying and estimating the share in abandonment cost in Gabon oil fiolds and restoration costs of its solar and geothermal power plants sites We also evaluated the discount rate used by comparing this to extemal data

Other Information Management is responsible for the other information The other information comprises the information includ;d in the SEC Form 20JS (Definitive Information Statement), SEC Form l7-A and Annual Report for the year ended December 31, 2017, but does not include the consolidated fnancial statements and our auditor's repor! thereon. The SEc Form 20ls (Definitive Information Statement), SEC Form l7-A and Annual Report for the year ended December 31, 2017 are expected to be made available to us after the date ofthis auditor's report.

our opinion on the consglidated financial statements does not cover the other infomation and we will not express any form ofassurance conclusion thercon.

In connection with our audits ofthe consolidated financial statements, our responsibility is to read the oth€r information identifi€d above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowl€dge obtained in the audits, or otherwise appears to be materially misstated

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Management is responsible for the preparation and fair presentation ofthe consolidated financial statements in accordance with PFRSS, alld for such intemal control as management determines is necessary to enable the preparation ofconsolidated financial statements that are free fiom material misslatement, whelher due to fraud or eror, In preparing the consolidated financial statements, management is responsible for assessing the Group's abilify to continue as a going concem, disclosing, as applicable, matters related to going concem and using the going concem basis ofaccounting unless management either intends to liquidate the Croup or to cease operations, or has no realistic altemative but to do so.

Those charged with govemaace are responsible for overseeing the Group's financial rePorting process.

Auditor's Responsibiliaies for the Audit oftbe Consolideted Finrncial Statemetrts Our obj€ctives are to obtain r€asonable assuranco about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level ofassurance, but is not a guarantee that an audit conducted in accordance with PSAS will always d€tect a material misstatoment when it gxists Misstatements can adse from fraud or error and are considered matelial if, individually or in the aggregate, they could reasonably be expected to influence tbe economic decisions ofusers taken on the basis of tbese consolidated fi nancial statements.

As pad ofan audit in accordance with PSAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

.

Identiry and ass€ss the risks ofmaterial misstatement ofthe consolidated financial statements, whether due to liaud or enor, design and perform audit procedures responsive to those risk, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion Tle risk of not detecting a material misslatement resulting ftom fraud is higher than for one resulting from enor, as fraud may involve cotlusion, forgery, intentional omissions, misreptesentations, or the override of

internalcontrol,

.

Obtain an understanding ofintemal control r€levant to the audit in order to desiSD audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness ofthe Group's intemal confol.

.

Evaluate the appropriateness

of accounting poticies

used 6nd the reasonableness

of

accounting

estimates and related disclosures made by management Conclude on the appropriateness ofmanagement's use ofthe Soing concem basis ofaccounting and, based on the audit evidence obtained, whether a material unce(ainty exists related to events or conditions that may oast significant doubt on the Group's ability to continue as a going concern. we conclude that a material uncertainty exists, we are required to draw attention in our auditor's reoort to the related disclosures in the consolidated financial statements or, ifsuch disclosures are inadequate, to modify our opinion. Our coDclusions are based on the audit evidence obtained up to

If

the date ofour auditor's report. However, futurc events or conditions may cause to continue as a gorng concem,

tle Group lo cease

ir|l|lilililuuffi ilillllllullllll

scv .

Evaluate the overall presentation, structure and content ofthe consolidated fin?rncial statements, including the disclosures, and whether the consolidat€d financial statements represent the und€rlying transactions and events in a manner that achieves fair presentation.

.

Obtain sufiicient appropriate audit evidence regarding the financial information ofthe entities or business activities within the Group to express 6n opinion on the consolidated financial statements. we are responsible for the direction, supervision and performance ofthe audit. we remain solely responsible for our audit opinion.

We communicate with those charged with govemance regarding, among other matters, the planned scope and timinS ofthe audit and significant audit findings, including any significant deficiencies in intemal control that we identiry during our audit.

Wc also provide those charged with govemance wilh a statement that we have complied with relevant cthical requirements regarding independ€nce, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with govemance, we determine those matters that w€re of most significance in the audit ofthe consolidated fidancial statem€nts ofthe current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the mdtter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report b€cause the adve$e consequences of doing so would rcasonably be expected to outweigh the public interest benefits ofsuch communication, Th€ engagement partner on the audit resulting in this independent auditot's repon is Ana Lea

C Bergado

SYCIP GORRES VELAYO & CO.

/1 /./ / I L.- a4^

-ln,

tL2.t *./l/, \. ^ra '

L* c. e",*ao \

-

Partner

CPA Cedificate No. 80470 SEC Accreditation No. 0660-AR-3 (Group A), March 2. 201?. valid until March 1.2020 Tax ldentification No. 102-082-670

BIRAccreditationNo. 08-001998-063-201E, February 14, 201E, valid until February 13,2021 PTR No. 6621232, January 9,2018, Makali City

Aoril I l.

201E

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PETROENERGY RESOURCES CORPORATION AND SU CONSOLIDATED STATEMENTS OF FINANCIAL POS

2011

2016

ASSETS

Curr€nt Assets Cash and cash equivalenG (Nole 6) Financial assets al faf value lhrough profrr or loss (Note 7) Receivables (Note 8) Prepaid e\penses and orbcr cunent assets (Nore

$20,

0,58r

$ 12,9

t4,588

181,215

162,445

7,189,463

33,413.847

7,860,439 6,766.450 21,703,922

Property, plant and equipment (Notes 5 and l0) Deferred oil exploration costs (Notes 5 and I l) lnvestment in ajoint venturc (Noie 12) Dcferr€d tax assets - net (Nore 2 I ) lnvesment properties (Nor. l3) Other noncunenr assels (Nore l4)

t62,t06J94

145,015,547

3,9E2,542 24,196,245 242,646

3,929,256 26,841,396

31,417

31,4 ) 7

Totrl Noncurrenl TOTAL ASSETS

206,07 4,563

10,408.066 186.595,850

$239,488,410

s214.299,772

Accounts payablc and accrued expenses (Note l5) Currenl ponion ofloans payable (Note 16) lncom€ tax payable (Not€ 2l) Deposjts for tuiure slock subscrjptions (Note

$5,698,427 21,867,8s9

$4,619,107 r5,982,090 45,532

-

1,781,640

Total Current Liabilitics

27,623,238

)2,428,369

108,504,253 1,642,504

99,505,183 r,366,5 t I

9)

Total Current Ass€lt

5.332.588

Noncurr€nl Assets

Assets

308,t68

10,E15,279

LIABILTTIES AND EQUITY Current Liabilities

17)

Noncurrent Liabilities Loans payable - net ofcunenl po(ion (Nole l6) Asset retiremenr obligalion (Nole

D€fened lax liabilities (Note

l8)

56,952

2l)

Other noncunenl liabiliries

Torrl Noncurrenr Lirbiliries TotalLiabilfties

r,537,586 512.638

181,148

110.719J95 r38J42,6J3

t02.592.428 t25,O20,797

$9,39r,3r 1 35,620,588

35,620,588

Equity Anributable to equjty holders ofthe Parent Company Capital stock (Note 20) Additional paid-in capiral (Nole 20)

$9,391,31I

Retained eamings

Appropriated (Nore 20) Unappropriated Remeasuremenls of net accrued retiement liability Cumularive Eanslation adjustrnent Equity reservc (Nore 20)

3,149,555

3,149,555

24,466,415

20,672,7l4 (17,r36)

094,480)

(329r,174) 69,000,788

Non-consolling intercns (Note J0)

TotrlEquity TOTAL LIABILITIES AND EQUITY Sec

aLcanp"\,.9

NoEs to

(5,399,308) 1.859, t73

1,859.173

32.144.989 t0t.t45.177 $239.48E.4t0

65,216,897

24.002.078 89.278,915

$2t4,299 .',t72

CobLt,Jakd rnan.tal Stntcdtntt

||]tilfi|tfrililililm|milill

PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Y.rrs f,nded Dec.mb.rSr 2016

2015

528,290,322

st6,967,901

2017

REVENIJES

s28,850,7E1

Elotricity sal$ (Note 14)

6.510.755 5,319,33E 3sJ6r,$6 33,629,660

6,514.6't5 23.542,582

COSTOFSALES tt903,974

Cost of elecrricity sale!(Note 22) Oil produclio' CNote 23) Dcplcrior (Norc

4,087,58r

l0)

1,9E6,5r10

3,704,709 2,795,15!

17,9?8,095 18,699,928 r7J8JJ4l 14,929,132

GROSS INCOME

GENERAL AND ADMINISTITATIYE EXPENSf,S

(NOIC

24)

OTHDR INCOME (CHARGES) - NeI Inler€sl expense (Notc l6) loss (Notc l0) Shar€ in net incomc of a joinl veniurc (Note 12) lnre.esr income (Notes 6 and 8) Aocretion expense (Notc l8) Ncr forcisn exchangc gains (losses) Net gain on fairlaluc changcs on finecialasseb at fair value

lmpaimoi

2,907,252

0,159,803) (r,945,42s)

1,4963tt 371,t15 (66,s30) ({7,340) lEJ4l

i}|rouel profil or lo$ (Nole 7) Gain (loss) on deriv8rives CNote l9) Miscellanols inc4mc (No1e

186,718 (7,r4sJr1)

25)

INCOME BEFORE INCOMETAX

7,J30,E55

PROVISION TOR (BENf,FIT FROM) INCOME TAX cNole

t2,t99.861

2r)

(r,132,218)

3,217,1s3 (9,076,674)

(E,Er,6E9) t,t29.923

OTHER COMPREHENSIVE INCOME (IOSS) lten 1o be.eclxsiJied to plo.lit or |os ih subsequent pelio^ Movcmcnts in cumula$ve translation adjustmdt - .et of tax be re.lalsilied toprofrt ot loss in subseque peno^

1196,275)

l,6El,6lE t3,034,t62 10,508,4?L

l,1l

L!!L

(4,934,680)

24l,4El

40,457

t t2.537 (140,615) (178,876)

16,404 't0,160,104

(?34,060)

284,127

(r56,95J)

l9?,0E7 (5,636,615) 6,075,863

217,631

E.463.0?3 5,858,232

Nf,T INCOME

7,n3,087 4,239,457

(3,440,f8r)

1,392 211,638

(5.421,203)

|,n6,t35 (3,412,935) 4,609,070

(2,284,665)

hen hot to

Rcmeasurement Sains liabilitv -

(losset on net accrued reliremenl

neloftax

ToTALOTHER C0MPREHENSIYE

Loss

TOTAL COMPREI,IENSIVE INCOME

(211337) 19,091 ('137'51?) (3,421,090)

$E,025,{6f t2,411,t42

2.179 (2,2E2'4E6)

s2,12t58!

||uu]ruililuff|ilIfl[fl1

-2Y..ri E.d.d D...mb.r3l

20t7 NET TNCOME ATIRJBUTABLE TOI Equity holdcfs ofth€Pdent Company Non-@ntrollinr interests (Notc l0)

TOTAL COMPREHf,NSIVE INCOME (LOSS) ATTRIBUTABLE TOI Equ iry holdcrs of the Parent Company Non-@nrrouins interesb (Nore 30)

2016

$3,793,701 51,772,841 4,669J72 4,085,391 J8.163.0?3 $5,8J8,232 (S I ,0J 8,J48) 3,495,690 4j0r,s70 s8.025.461 s2,437,142

$3,723,E91

2015

52,680,207 1,92E,E63

14,609,070

$917,875 1,388,799 S2.126,5E4

EARNINGS PER SIIARE FOR NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OFTHf, PARINT COMPANY - BAS See

aeonputing

Not s to Co$oliddte.l Fitutcial Statenents

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PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

Yerrs Ended Dec.mb.t 20

2017

CASH FLOWS FROM OPERATINC ACTIVITIES Income before incomc tax Adjustm€nts for: D€pletion, depreciation aDd amonization (Notes l0 and 14) Inrerest expense (Nole 16) Impairment loss on Gabon asset (Notc l0) Share in net income ofajoint vennrc (Note

$7'330,855

7,566,135 7,159,803

t,94s,425

l2)

Accretion exponse (Note 18) Movement in accrued retlemenl liability Net uffealiz€d foreign exchange loss (gain) N€l gain on fair valu€ changes on financial assets at fair value through profit or loss (Note 7) Cain on sale ofequipment (Nole 25) Dividend income (Note 7) Loss (gain) on derivatives (Note l9) Write-off of defened exploration costs

(1,196,888) (371,8t 5) 66,530

$6,0?5,863

R€ceivables Pr€paid exp€nses and other curenl:6s€ts

Input VAT

$r,176,135

(284,12't) 156,955 (40,4s7)

sr,362 47,340

(r8;43)

(16,404)

(7,40s) (1,629)

('t,3s4t

(1t2,s3t) 140,635

r78,876

Q,392) (1,704) 734,060

(2,r31) (10,760,t04)

3Ly922,211,37O 80,294

20,t01,321

I l,5l1,382

(4,310,186) (352;ts',t)

(486,164)

(r6,1l2)

(3,372,039)

o,839,12s)

Increase (d€crease) in accounts Cash generated liom operations

9J1,328 20,951,703

|

2,891,954 2,746,424 325,147

lncome taxes Daid Nel cash orovided

2015

8,374,260 4,704,110 9.076,614 4,934,680 8,831,689 (1,t29,923) (24 r,481)

(Noteslland24)

Operaling income before worl ing capital changes Decrease (increase) in:

3l

t6

70,1l0 2,902,061

activities

CASH FLOWS FROM INVESTING ACTIVITIES Payments for: Acquisitions ofproperty, plant and equipm€nt (Nore I0) Defened development costs Contribution to escrow filnd Defened oilexploration costs (Note I l) Investin€nt in ajoint venture (Note l2) Increas€ in other noncu.ienl assets Proceeds from: Sale ofproperty and equipment Dividends received Decrease in short-term investrnents Net cash used in investins activities

13.302.349

21.425,580 108,384 40.415 21.49

)

(14,064,208)

(59,899,?25)

(253,948)

Q12,542\ (1,239,64t)

(23t,226) (5,6r6,6?6)

(69,019)

(548,320)

(680,833) (4,038,506)

(20,42\903) (2,081,73s)

(r72,E3t)

7,475 1,629

120,553

2,131

t.?04 l86,s l3 70,278,14

(Forward)

ilil[Hllfiru[Iffi

-2 Yeirs Etrded 20t7

Dqerbcr3l 20t6

2015

CASH FLOWS FROM FINANCINC ACTIVITIES Proceeds

ilon:

Availments of long-term debt (Note l6) Deposiri for futw€ stock subsfiiptions to non-conrollDg interests (Note 30) Issuance of stocks to non"controllinS inter€sts (Note 30) Sale ofinterest in a subsidiary to non-controlling interests (Note 20) Payments of: Loans (Notes 16 and 3l) Interest (Note 3l) Dividends to non-controlling interests (Notes 30 and 3l) Dividends lncrease in orher ooncurrent liabilities

Additionaf caDital fiom non-controllins int€rest CNote l0) tlet castr provided bv (used in) financina activities

NET EFfECT OF FOREIGN EXCHANGE RATI CHANGES ON CASH AND CASH EQUIVALENTS NET INCREASE @ECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASII EQUIVALENTS AT BEGINNINC OF

YEAR CASH AND CASH EQUIVALf,NTS AT END OF YEAR (Note See

6)

s33,?36,094 $55.?11.987 2,742,139 26,037

$76.?1J.68: 6,557,22E

-

t3,445,629

4,669,6t3

08,8ss,r78) (sS;113,732) (20,000,529) (7.8f5.f44) {9.8?7.644) (5.063.372) (700,981)

(rr3)

(535)

(176)

4E,406

83,091

9,132,854 (9,856,474)

3'163342 79,553,464 1.049,793

3.2'14.42.3

7,195,993 (19,622,0t7)

29,7t8,4s1

12,914,588 32,536,60s

2,818,154

s20,110,581 $12,914,588

S32'536,605

accontponrins Notes to Coksohdoted Fiasncial Statenent,.

||utffiililffi[nill

PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

l.

Corpontelnformrtioo

a.

Organization PetroEnorgy Resources Corporation ("PERC" or "PetroEnergy" or the Parent Company) is a publiclyJisted domestic corporation. Its reSistered office and principal place of business is 7th Floor, JMT Building, ADB Avenue, Ortigas Center, PasiS City PERC was organized on September 29, 1994 as Petrotech Consultants, lnc. to provide specialized technical services to its then parent company, Petrofields Corporation' and to companies exploring for oil in the Philippines.

In 1997, PERC simultaneously adopted its presedt name and changed its primary purpose to oil exploration and development and mining activities Subsequently in 1999, PERC assumed Peirofields'oil exploration contracts in the Philippines and the Production Sharing Contract covering the Etame discovery block in Cabon, West Aiiica (PSE) On August I l, 2004, PERC's shares of stock were listed at lhe PhilipPine Stock Exchange by way of introduction.

ln 2009, fotlowing the enactment ofRepublic Act No 9513, otherwise known as the "Renewable Enerry Act of 2008", PERC amended its articles of incorporation to include among its purposes the b-usiness of Senerating power from renewable sources such as, but not limited to, biomass, hydro, solar, wind, geothermal, ocean and such other renewable sources ofpower' On March 31, 2010, PERC incorporated Petrocreen Energy Corporation (Petrocreen or PGEC), 90%-owned subsidiary, to acl as its renewable energy arm and holding company PGEC ventur€d

intolenewab|eenerrydevelopmeltandpowergenerationthroughitssubsidialiesandaffi|iate:(a) Maibarara Geotherrnil, Inc. (MGI, 65%-owned) - owner and Renewable Eners,' (RE) develoPerof the 20 MW Maiba$ra Geothermal Power Project (MGPP-j) in Santo Tomas, Batangas and its expansion, the l2 MW MGPP-2; (b) Petrosolar Corporation (PetrosolarJ6o/Fowned) - owner and RE developer of the 50Mw Tarlac Solar Power Project (TSPP-l) in Tallac city and ; and (c) PetrowindEnergy, Inc. ("Petrowind", 4070-owned) - owner and dev€loper of the 36 MW Nabas Wind Power Project (NWPP-l) in Nabas and Malay, Aklan.

As ofDecember 31, 2017, MGI and Petrosolar are effectively indirect subsidiaries of PotroEnergy

through Petrocreen. Petrocreen owns majority of the voting power ofMGI and Petrosolar' PetroEnergr, PetroGreen, MCI and Petrosolar are collectively referred to as the "GrouP" and were incorporated in the Philippines.

b.

Nature ofOperations

four (a).ain energy businesses are pefoleum, geothermal' solar and wind, through the group's affiliat€, Petrowind

ftre

C-up{

Petroleum Petroleum production is on_8oing in the Etame (Gabon) concession, while the other petroleum concessioni in the Philippinei (Northw€st Palawan, offshore Mindoro, Eastem Visayas) are still in the advanced €xploration stages or predevelopment stages.

iltilililillillllffi llllllll$llllilllllll

-2Geothermal Energ/ The geothermal projects are the 20-MW Maibarara Geothermal Power Project (MCPP) in Sto. Tomas, Batangas and ils l2MW expansion that is expected to stsrt commercial opemtions by the second quaner of20l8.

Solar Energt The Solar power projcct is $e 50MW Tarlac Solar Power Plant (TSPP) in Tarlac City, Tarlac. ll/irul Energt The wind energy project is the 36-megawaft (MW) NWPP in Nabas, Aklan, where P€trowind has a

c.

wind farm.

ApprovalofconsolidatedFinancialStatem€nts The accompanying consolidated financial statements were approved and authorized for issue by the Board of DirectoE (BOD) on April I1,2018.

2.

Basis

ofPreparrtion

The accompanying consolidated financial statements have been prepared under the historical cost convention method, except for financial assets carried at fair value through profit or loss (FVPL) and crude oil inventory that have been measured at fair value. Figures are presented in United States (US) Dollar($), the Parent Company's firnctionaland presentation curency. Allamounts are rounded to the nearest dollar irr ess otherwise indicated.

Statem€nt of Compliance Theaccompanying consolidated financial statem€nts have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

3.

Cbrtrges iD Accoutrting Policier The accounting po licies adopted are consistent with those ofthe previous financialy€ar, except that the Group has adopted the new accounting pronouncements startirg January I , 2017. Adoption of these pronouncements did not have any significanl impact on the Group's financial position or performance unless otherwis€ indicated.

.

Amendments to PFRS 12, Discloswe oJ Intercsts in Other Entities, Clarifcation the Standard (Paft of Annual Impto|ements to PFR$ 20 I 4 - 20 I 6 Cycle)

o.f the Scope

of

The amendments cla fy that the disclosule requirements ir PFRS 12, other than those relating to summarized financial information, apply to an entity's interest in a subsidiary, ajointventuie or an associate (or a portion of its interest in ajoint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale.

Adoption of these amendmenb did not have any impact on th€ Group's consolidated financial slatemenrc.

ffinilffifiiltililfiilt|

-3-

.

Amendments to PAS'7, Statement ofcash Flo\t)s, Disclosure Initialive

The amendments r€quirc €ntities to provide disclosure of changes in their liabilities arising from financing activities, includingboth changes arising ftom cash flows and non-cash chang€s (such as foreign exchange gains or losses)The Group has provided the required information in Note 31 tothe financial statements. As allowed under the transition provisions ofthe standaxd, the Group did not present comparative information for the years €nd€d December 3l,20l6 and 2015.

.

Amendments to PAS 12,Income Tses, Recognition of Defened Tax Asselsfor Unrealized Ltsses

The amendments clari$/ that an entity needs to consider whether tax law rest cts the sources of taxabl€ profits against which it may make deductions upon the reversal ofihe deduotible temporary differenoe related to unrealized losses. Furthermore, the amendments provide guidance on how an entity should detemine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

The application ofthe amendments has no effect ontheCroup's financial positlon and Performance as the Group has no deductible temporary differ€nces or assets that are in the scope of the amendments.

Pronouncements issued but not yet effective are listed below. The CrouP intends to adopt the following pronouncements when they becom€ effective. Adoption ofthese pronouncements is not expected to have a significant impact on the Group's financial statements unless otherwise indicated

Eflective begihnihg on or afier January

.

l,

2018

Amendments to PFF:S 2, Share-based Payment, Classtfcation and Meas rement of Share-bdsed Paymenl Transactions

The amendments lo PFRS 2 address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based Payment uansaction; the classification of a share_based payment transaction with net settlement fearures for withholding tax obligations; and the accounling where a modification to the terms and conditions ofa share_based payment transaction changes its classification fiom cash settled to equity settled.

On adoption, entities are required to apply the &mendments without restating prior periods, but retosp€ctive application is permitted if elected fot all three amendments and if other criteria are met. Early application ofthe amendments is permitted.

The Group has assessed that the adoption ofthese amendments 2018 consolidated financial statements.

.

will not

have any impact on the

PFRS 9, -F,rotcra,/ Instrxments

of the financial inshuments project and rePlaces PAS 39, Financial Instrumenls: Recognition md Measuremenl, and all previous versions of PFRS 9 The standard intoduces new requirements for classification and measurement, impairment, and hedge accounting. Refospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospeotively, with PFRS 9 reflects

all

phases

some limited exceptions.

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The adoption of PFRS 9 will have an effect on the classification, measurement and impairment methodology of the Group's financial assets, but will have no impact on the classification and measurement of the Croup's fi nancial liabilities.

The Croup plans to adopt the new standard on th€ mandatory effective date and comDarative information.

will not

restate

Amendments to PFRS 4, Ihsurunce Contacts, Applying PFRS 9, Financial Instrumenls, )ith PFRS 4

The amendmenb address concems arising from implementing PFRS 9, the new fmancial instrutnents standard b€fore implementing the new insuranoe contracts standard. The amendments

introduce two options for entities issuing insuranoe contracts: a temporary €xemption liom applying PFRS 9 and an overlay approach. The temporary exemption is first applied for reporting periods beginn ing on o. after January I , 201 8. An entity may €lect the overlay approach when it first applies PFRS 9 and apply that approach retrospectively to financial assets designated on transition to PFRS 9. The entity restates compamtive information reflecting the overlay approach if, and only if, the €ntity restates compillative information when applying PFRS 9.

The amendments are not applicable to the Group since none ofthe entities within the Group have activities that arg predominantly connected with insurance or issue insurance contracts.

PFRS 15, Revenue ftom Contracls wilhCustomers

PFRS l5 establishes a new five-step model that will apply to revenue arising fiom contracts with customers. Under PFRS 15, revenue is recognizcd at an amount that reflects the consideration to which an entity expects to be entitled in exchange for lransferring goods or services to a customer' The principles in PFRS 15 provide a more structured approach to measuring and recognizing

The new revenue standard is applicable to all entities and will supersede all cutrent revenue recognition requirements under PFRSs. Either a full retrospective application or a modified rcfospective application is required for annual periods beginning on or after January l, 2018.

The Group is curently assessingthe impact ofPFRS l5 and plans to adopt the new standard on the required effective date.

Amendmenls to PAS 28, Measuring an Associate or Joint Ventxre at Impturemehts to PFRSS 2014 - 2016 Cycle)

Fair

Value (Part of Annual

The amendments clariry that an entity that is a venture capital organization, or other qualirying entity, may elect, at initial recognition on an invesfnent-by-investment basis, to measure its inv€stments in associates and joint ventures at fair value through profit or loss. They also clarifu tha! ifan entity that is not itself an investment entity has an interest in an associate orjoint venture that is an investrnent entity, the entity may, wheD applying the equity method, elect to retain the fair value measurement appligd by that investment entity associate or joint venture to the investment entity associate's or joint venture's interests in subsidiqries. This election is made separately for each investment entity associate orjoint venture, at the later ofthe date on which (a) the investrnent entity associate or joint venture is initially recognized; (b) the associate or joint venture becomes an investrnent entity; and (c) the investment entity associate orjoint venture first becomes a parent,

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The amendments should be applied refospectively, with eadier application permitted.

.

Amendments to PAS 40, Iwestment Property, Trdnsfers oJ Im)estment Property

Th€ amendments clarify when an entity should lransfer property, including property under construction or development into, or out of investment prop€rty. Th€ amendments state that a chanSe in use occurs when the property me€ts, or ceases to meet, the definition of inv€stment property and there is evidence ofthe change in use. A mere change in management's inlentions for the use of a property does not provide evidence of a change in use. The amendments should be applied prospectiv€ly to changes in use that occur on or after the beginning ofthe annual reporting period in which the entity firstapplies the amendments. Retrospective application is only permifted ifthis is possible without the use ofhindsight.

The Croup does not expect any effect on its consolidated financial statements upon adoption

of

thcse amendments.

.

Philippine InterpretationIFRIC-2?, Forcign Currency Transactions .ud Advance Consideralion The interpretation clarifies that, in determininS tho spot exchange rate to use on initial recognition ofthe related asset, expense or inoome (or part ofit) on the derecognition ofa non-mon€tary asset or non-monetary liability relating to advance consideration, the date ofthe transaction is tbe date on which an entity initially recognizes the nonmonetary asset ornon-monetary Iiability a sing from the advance consideration. If there are mukiple payments or rereipts in advance, then the entity must detemine a date of the tansactions for each payment or receipt of advance considemtion.

Entities may apply the amendments on a fully retrospective basis. Altematively, an entity may applythe interpretation prospectively !o all assets, expenses and income in ils scope that are initially recognized on or after the beginning of the reporting period in which the entity first applies the interpretation or the beginninS of a prior reporting period presented as comparative information in the financial statements ofthe reponing period in which the entity first applies the interpretation.

Sincethe Group's curentpractice is in line with the clarifications issued,theGroup does notexp€ct any effect on its consolidated financial statements upon adoption ofthis interpretatton.

Eflective begihning on or aler January 1, 2019 Amendments to PFRS9, Plepayment Features h)ith Negative Compensation

.

The amendments to PFRS 9 allow dgbt instruments with negative compensation prepayment features to be measured at anortized cost or fair value through other comprehensive income. An enlity shall apply these amendments for annual reporting pedods b€ginning on or after January l, 2019. Earlier application is permit0ed.

.

PFRS 16. reases

PFRS 16 sets out the principles for the reco8nition, measurement, presentation and disclosure of leases and requires lessees to account fot all leases under a single on-balance sheet model similar to the accounting for finance leases under PAS lT, reares. The standald inoludes two recognition exemptions for lessees - leases of'low-value' assets (e.9., personal compr.tters) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date ofa lease, a lessee will recognize a Iiability to make lease payments (i.e., the lease liability) and an asset representing the right to use th€ underlying asset duriog the lease term (i.e., the riglrt-of-use asset).

Lessees will be required to separately recognize the interest expense on the lgase liability and the deprec,ation expense on the right-of-use ass€t.

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Lessees will be also required to remeasure the lease liability upon the occurrence ofcertain events (e.9., a change in the Iease term, a change in futurc lease payments resulting fiom a change in ar iodex or rate used to determine those payments). The lessee will genemlly recognize the amount of the remeasurement ofthe lease liability as an adjustment to the right-of-use asset.

Lessor accoulting under PFRS 16 is substantially unchanged from today's accounting under PAS 17. Lessors will continue to classiry all leases using the same classification principle as in PAS I 7 and distinguish between two types of leases: operating and finance leas€s.

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under PAS 17.

Early application is permitted, but not before an entity applies PFRS 15. A lessee can choose to apply the standard using eith€r a firll retrospective or a modified retospective approach. The standard's transition provisions p€rmit cerLin reliefs.

The Group is cunently assessing the impact ofadopting PFRS 16.

Amendments to PAS 28, Longlerm Interests in Associales and Joint Ventures

The arnendmenls to PAS 28 clariry lhat entities should account for lonS-term interests in an associate orjoint venture to which the equify method is not applied using PFRS 9 An entity shall apply these arnendments for annual reporting periods beginning on or afler January l, 2019. Earlier application is permitted.

Philippine lnterpretationlFRIc-z3, Unce ainty orer Income T.\t Treatments

The interpretation addresses the accounting for income taxes when tax treatrnents ,nvolve uncertainty that affects the application of PAS I 2 and does not apply to taxes or levies outside the scope of PAS 12, nor does it specifically include requirements relating to itterest and p€nalties associated with uncertain tax treatments.

The interpretation specifically addresses the following: Whether an entity considers uncertain tax treatments separately The assumptiods an entity makes about the examination of tax treatments by taxation authorities How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates How an ontity considers changes in facts and circumstances

'. . .

An entity must determine whether to consider each uncertain tax tr€atment separat€ly or together with one or more otier uncertain tax featmenls. The approach that befter Predicts the resolution of the uncertainfy should be followed.

The Croup is currently assessing the impact ofadopting this interpretation.

DeIeffed efecrivily . Amendments to PFRS I 0 and PAS 28, Safe or Contribulion of Assets between an Investor ahd ils Associale or Joint Venture The amendments address lhe conflict between PFRS l0 and PAS 28 in dealing with the loss of control ofa subsidiary that is sold or contribut€d to an associat€ orjoint venture The amendments

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.'t an associate orjoint ventlre involves a business as defined in PFRS 3, Business Combinations. Aiy g;ain or loss resulting from the sale

cladry that

a

full gain or loss is recognized when a tansfer to

or contribution of assets that does oot constitute a business, howevet, is recognized only to the extent ofunrelated investors' interests in the associate orjoint venture.

On January 13,2016, the Finarcial Reporting st4ndards Council defered the original effective date ofJanuary I,2016 ofthe said amendments until the lntemational Accounting Standards Board (IASB) completes its broader review ofthe research project on equity accounting that may result in the simplification of accountinS for such transactions and of other aspects of accounting for associates and ioint ventures.

4.

Summrry ofSignilicant Accounting Policies Basis ofConsolidation

The consolidated financial statements comprise the financial statements of the Croup as at December 31, 2017 and 2016 and for each ofthe three years in the period ended December 31, 2017.

The financial statements ofth€ subsidiaries are prepared in the same teportingyearas the Group, using consist€nt accounting policies.

Below ar€ the Group's subsidiaries, which are all incorporated in the Philippines, with its respective percentaSe ownership as ofDecember 31, 2017, 2016 and 2015: PetroGreen

90o/o

Percentage share ofPetrocreen in its subsidiaries:

65% 56%

MGI PetroSolar Navy Road Development Corporation (NRDC)

100o/o

Subsidiaries are entities controlled by PERC. PERC conrols an inv€stee ifand only

a) b)

c)

ifthe PERC

has:

Power over the investee (i,e. existing rights that give it the cunent abiliry to direct the relevant activities of the investee)i Exposur€, or rights, to vadable retums from its involvement with the investee; and The abilify to use its power over the investee the amoun! ofthe investor's retums

When PERC has less than a majority ofthe voting or similar riShts ofan investoe, PERC considers all relevant facts and circumstances in assessing whether it has po*er over an investee, including:

a) The contractual arrangement with the other vote holders ofthe investee; b) Rights arising from other contractual anangements; and c) The Group's voting rights and potential voting rights. d) PERC re-assesses whether or not it controls an investee if facls and circumstanc€s indicate that there arc chang€s to one or more of the three elements of confol. Consolidations of a subsidiary begins when PERC obtains control over the subsidiary and ceases when the PERC loses control of the subsidiary. Assets, Iiabi lities, income and €xpenses of a subsidiary acquircd or disposed of during the year arc included in the consolidated statement ofcomprehensive income from the date PERC gains control until the date PERC ceases to contool the subsidiary.

The consolidated financial statements are preparcd using uniform accounting policies for like transactions and other events in s im i lar circumstances. Adjustments whercnecessary are made to ensue

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consistency with the policies adopted by the Group. All inra-group balances and transactions, intmgroup profits and expenses and gains and losses are eliminated during consolidation. All intra-group balances, tansactions, income and expenses and profit and losses arc eliminated in fuL.

A chalge in the ownership interest ofa subsidiary, without loss ofcontrol, is accounted for as an equity transaction, as transactions with the owners in their capacity as owners. For purchas€s from noncontrolling interests, the dillerence between any oonsideration paid and the relevant share acquired of the carrying value ofnet assets ofthe subsidiary is recorded in equity. Cains or losses on disposals to non-controlling inter€sts are also recorded in equity.

Iflhe Group

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loses control over a subsidiary,

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Derecognizes the assets (includinS goodwill) and liabilities ofth€ subsidiary, the carryinS amount ofary non-controlling interest and the cumulative translation differences recorded in equity.

Recognizes the fair value ofthe consideration received, the faiI value of any investment retained and any surplus or deficit in the consolidated statement ofcomprehensive income.

Reclassifies the parent's shar€ of components previously recognized in other comprehensive income (OCI) to the consolidaied statement of comprehensive income or rotained effnings, as appropriate.

Non-controlling interests are prcsenled separately from the Parent Company's equity. The portion of profit or loss and net asseti in subsidiaries not wholly owned are presented separately in the consolidated statement ofcomprehensive income and consolidated statement ofcha[8es in equity, and within equity in the consolidated statement offinancial position.

Cash and Cash Eouivalents Cash includes cash on hand and in banks. Cash equivalents ate short-term, highly liquid investments

that are r€adily convertible to known amounts of cash with oriSinal maturities of three (3) months or less from the dates of acquisition and that are subject to an insignificant risk chanSe in value.

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Fair Value Measurement Fair value is th€ price that would be received to sell an asset or paid to hansfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

. .

In the principal market for the asset or liability, or In the absenc€ ofa principal ma*et, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured usingthe assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest The Croup uses valuation techniques that are appropriate in the circumstances and for which sulficient

data are available to measute fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

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All

liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest l€vel input that is sisnificant to the fail vahe measurement as a whole: assets and

Lev€l I - Quoted (unadjusted) market prioes in active markets for identjcal assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable l,€vel 3 - Valuation techniqles for which the lowest level input that is siSnificant to the fair value measurement is unobservable For assets and liabilities that are recognized in the finarcial statements on a recurring basis, the Group

determines whether tlansfe$ have occurred betw@D Levels in the hierarchy by re-assessing categorizstion (based on the lowest level input that is significant to tho fair vaiue measurement as a whole) at the end ofeach reporting period.

Financial Instrument5 Date of rccognilion The Group recognizes a financial asset or a financial liability in the consolidated statement offinancial position when it becomes a party to the contractual provisions ofthe instrument. Putchases or sales of

financial assets that r€quire deliv€ry of assets within the time frame established by regulation or convention in the marketplace are recognized on the settlement date.

Inilial rccognition and measurement All financial assets and financial liabilities are recognized initially at fair value. Transaction costs are included in the initial measurement ofall financial assets and financial liabilities, exc€pt for financial assets and financial liabilities measured at fair value through profit or loss (FVPL).

Financial assets are classified into the followinS categories: financial assets at FVPL, loans and receivables, held-to-maturity (HTM) Iinancial assets, or available-for-sale (AFS) financial assels.

Financialliabilities are classified as either financial liabilities at FVPL or other financial Iiabilities The classification depends on the purpose for which the financial assets were acquired or financial liabilities were inoured and whether they are quoted in an active market. Management determines the classification of its financial assets and financial liabilities at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

Financial assets and financial liabilities are classified as liabilities or equiry in acoordance with the substanc€ ofth€ contractual arrangement. Financial assets and financialliabiliti€s are offset when there is a legally enforceable right to ofrset and intention to settle either on a net basis or to realize the asset and settle the liability simultaneously.

As of December 31, 2017 nnd 2016, the Group's fmancial assets and financial liabilities include financial assets at FVPL, loans and receivables and other financial liabilities.

Loans and receivables Loans and receivables are non-derivativ€ financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention offading the receivables. t oans and receivabl€s are reeognized initially at fair value, which normally pertains to the billable amount. After initial m€asurement, loans and receivables are carried at amortized cost inthe statement of financial position Amortization is determined using the effective interest rate (EIR) method, less allowance for probable losses, ifany.

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-10Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. The arnortization, ifany, is included in the interest income in the profit or loss.

Gains and loss€s are recognized in profit or loss when loans and receivables are derecognized or impaired, as well as through the amortization prccess.

As of December 31, 2017 and 2016, the loans and receivables of the Group consist of cash and cash equivalen6, receivables and restricled cash.

Financial assets at FVPL Financial assets at FVPL include financial assets held for trading purposes, derivative instsuments, or those designated by management upon initial recognition as at FVPL, subject to any ofthe following

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the designation eliminates or sigtifioantly reduces the inconsistent heatment that would othenvise arise from measuring the assets or liabilities or recognizing gains or losses on them on a different

basisior

ofa group of financial sssets, financial liabilities or both which are managed and their performance arc evaluated on a fair value basis, in accordanc€ with a documented risk management or investm€nt strategy; or the asses and liabilities are part

the financial instrument contains an embedded derivative, unless theembedded derivative does not significantly modiry the cash flows or it is clear, with little or no analysis' that it would not be separalelY recorded.

Financial assets at FVPL are recorded in the consolidated statemen! offinancial position at fai value.

Changes in fair value are reflected in the consolidated statement of comprehensive income lnterest earned or incurred is recorded in interest income or expense, respectively

As of December 31, 2017 and 2016, the Group's financial ass€ts at FVPL include marketable €quity securities held foi trading purposes and investrnent in Solfclub shares i\)e f nanc ial instruments Derivative financial instruments (including bifurcated emb€dded derivatives), if any, are initially recognized at fair value on the date at which the derivative contact is entercd into alld is subs€quently rem;sured at fair value. Any gains or losses aris ing from changes in fair value ofthe derivative (except those account€d for as accounting hedges) is taken directly to the consolidated statement of comprehensive income under "Other income" The derivative is caried as asset when th€ faf value is positive and as liability when the fair value is negative.

D er bat

ial Lio b i I ities are initially recognized at the fait value of the considemlion received less directly attributable transaction costs Aft€r initial recognition, other financial liabilities are subsequently measured at arnortized cost using the EIR method Gains and losses are recognized in the consolidatea statement ofcomprehensive income when the liabilities are derecognized or imPaired' as well as through the amonization process.

Ot he r Financ

All financial liabilities

As of December 3t,2017 and 2016, the Croup's oth€r financial liabilities include accounts payable and accrued exPenses (excluding withholding taxes payable) and loats payable

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Imoairment of Financial Assets fie Group assesses at each reporting date whether a financial or group of financial assets is impaired.

A financialasset ora group of financial assets is deemedto be impaired if, and only if, there is objective €vidence of impairment as a result ofone or more events that has occurred after th€ initial recognition of the asset (an incured 'loss event') and that loss event (or events) has an impact on the estimated firture cash flows ofthe financial asset or the goup offinancial assets that can be reliably estimated.

Evidence of impairment may include indications that the bodower or a group of borroweE is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measu.able decrease in the estimated future cash flows, such as changes in arr€ars or economic conditions tbal conelate with defaults.

Financial assets caried at amotized cost The Group first assesses whether objective evidence of impairment gxists individually for financial assets that are individually significant or collectively for financial assets thal are not individually significant. Ifthere is an objective evidence that an impairment loss on loans and receivables caried at amortized cost has been incurred, the amount ofthe loss is meas!rcd as the difference between the asset's carrying amount and the present value ofestimated firture cash flows (excludingfuture expected credit losses that have not been incurrod) discounted at the financial asset's original EIR (i.e., the EIR computed at initial recognition).

Ifit

is determined that no objective evidence ofimpairment exists for an individually assessed financial asset loan or receivable, whether significant or not, the ass€t is included in a group offinancial assets

with similar credit risk characteristics and that gloup of financial asses is collectively assessed for impairment. Assets that are individualty assessed for impairment alld for which an imPairment loss is or oontinues to be recognized are not included in a coll€ctive assessment ofimpairment The carrying amount of the assel is reduced through th€ use of an allowarce for impairment loss account. The amount ofthe loss shall be recognized in the consolidated statement ofcomprehensive mcome.

If, in a subsequent period, the amount ofthe impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was reco8nized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement ofcomprehensive income, to the extent that the carrying value ofthe asset does not exce€d what would have been the amortized cost at the reversal date had there been no impairment recognlzed.

Derecognition of Financial Ass€ts and Liabilities A linancial asset (or where applicable, a part ofa grcup of financial assets) is derecognized when:

. .

the rights to receive cash flows from the assets have expired; or the Group has transferred substantially all the risks and rewards

ofthe asset, or has a3sumed all obligation to pay them in full without material delay to a third-patty under a "pass-through" arangement and neitber transferred nor retained substantially all thc risks and rewards ofthe asset but has ffansfened control ofthe asset.

Where the Group has transfened the rights to receive cash flows from an asset or has entered into a pass-through arrangement and has neithertransferr€d nor retained substantially all the dsks and rewards ofthe asset nor transferred control ol the asset, th€ asset is recognized to the extent of the Croup's continuing involvement in the 6sset. Continuing involvement that takes the form of a guamnt€e over

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the transferred ssset is measured at the lower of the original carrying amount of the asset and the maximum amount ofconsidoration that the Group could be required to r€pay.

Financial liabilities are derecognized when the obligation under the liability is discharged, cancelled or has expired. Where an existing financial liabiliry is replaced by another from the sarne lender on substantially different terms, or the terms ol an existing liability are substantially modified, such an exchange or modification is treated as a derccognition ofthe original liability and the recogtition ofa new liability, and the difference in the respective carrying amounts is recognized in the consolidate-d statement of comprehensive income,

Offsettins Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position ii and only if, there is a currently €nforceable legal right to offset the recognized amounts and there is an inlention to settle on a net basis, or to realize the asset and settle th€ liability simultaneously.

Prepaid Exp€nses and Olher Current Assets Prepayments are expensos paid in advance and recorded as asset before these are utilized. This account comprises prepaid expenses and advanoes to contractors. The prepaid expenses are apportioned over the period covered by the payment and charged to the appropriate accounts in profit or loss when incrmed and the advances to cootractors are reclassified to the proper asset or expense account ancl d€ducted fiom the contractor's billings as specified in the provisioDs ofthe contract Prepa'T nents that are expected to be realized for a period ofno more than l2 months after the financial rePorting period are classified as curr€nt assets, otherwise, these are classified as noncufient assets.

Restricted Cash

Restricted oash is recognized when the Company reserves a porhon of its cash to pay loan interest charges and loan principal amortization expected to be settled within one year' Crude Oil Inventory Crude oil inventory is stated at fair market value.

Properw. Plant and Eouipment Property, plant and equipment, except for land, are stated at cost less accumulated depletion, depreciation and amortization and any accumulated impairment losses. Land is stated at cost less any aciumulated impairment losses. The initial cost ofthe property, plant and equipment consists of its purchase pr'ce, including any import duties, taxes and any directly attributable costs of bringing the assets to its working condition and location for its intended use and abandonment costs Expenditures incufied after the fixed assets have been put into operation, suoh as rcpairs and mainrenance, are normally charged to the consolidated statement of comprehensive income in the oeriod in which the costs are incurred. In situations where it can be clearly demonstraled that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from thi use of an item of property, plant and equiPment beyond its originally ass€ss9d standard of performance, the expenditures are capitalized as an additional cost of property, plant and equipment.

Depreciation of an item of property, plant and equipment begins when it becomes available for use, i.e.. when it is in the location and coddition neressary for it to be capable of operating in the manner intended by managem€nt. Depreciation ceases at the earlier of tle dato that the item is classified as held for sale (or included in a disposal group that is classified as held for sale) in the date accordance with PFRS 5 , Noh-aorent Assets Heldfor Sale and Discontinued Operalions ' ^ld th€ asset is derecomized.

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Wells, platforms and other facilities related to oiloperations are depleted usingthe units-of-production method comput€d based on estimates ofproved reserves. The depletion base includcs the exploration and development cost of the producing oilfields.

Power plant, fuel collection and reinjection system (FCRS) and production wells are depreciated using

the straight-line method over twenty five (25) years or the remaining whichever is shoner,

life of the service contract'

Land improvements consist ofbettermenls, site preparation and site improvemenB that ready land for its intended use. These include excavation, non-infrastructure utility installation, driveways, sidewalks, parking lots, and fenoes.

Other property, plant and equipment are depreciated and amortized using the straight-line method over the estimated useful lives ofthe assets as follows:

Number of Years Power plant, FCRS and production wells Offi ce condominium units Land improvements Tmnsportation equipment Office improv€ments Office furniture and other equipment

l5 5

4 3

2ro3

The useful lives and d€pletion, depreciation and amoftization methods are review€d periodically to ensure that the period and method ofdepletion, depreciation and amortization are consistent with the expected pattem ofeconomic benefits from items ofproperty, plant and equipment. construction in progress represents property, plant and equipment under construction and is stated at cost. This includes the cosi of oonstruction to include materials, labor, professional fees, borrowing costs and other directly attributable costs. construction in progress is not depreciated until such time the construction is completed. when the assets are retired or otherwise disposed of, tie cost and the related accumulated depletion, dspreciation anal amortization and any accumulated impairment losses arc lemoved from the accounts and any resulting gain or loss is recognized in profit or loss Borrowinq Costs

directly attributable to the acquisition, consmrction or production of an asset that "orts n€cessa t hkes a substantial period of time to get ready for its intended use or sale are capitalised as part ofth; cost ofthe asset. Ali other bonowing costs are €xpensed in the period in which they occur' borrowingcosts cons ist of interest and other costs that an entity incurs inco lection with the bonowing offunds.

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Deferred Oil Exploration Costs

method ofaccounting for exploration costs determined on the basis ofeach "ost method, all exploration costs r€lating to €ach SC are t€ntatively deferred pending SC area. Under this determination ofwhelherthe area contains oil reserves in commercial quantities' PERC

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Def€red oil and gas exploration costs are assessed at each reporting period for possible indications of imoairment. Thi;is to confirm the continued intent to develop or otherwise extmct value from the disiovery. When this is no longer the case or is considered as areas Permanently abandoned, the costs are written off through the consolidated statement of comprehensive income. Explofation areas are

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considered permanently abandoned ifthe related permits ofthe exploration hav€ expired ancyor there are no definite plans for further exploration and/or developmeDt.

The exploration costs relating to the SC where oil in commercial quantities are discovered are subsequently reclassified to "Wells, platforms and other facilities" shown under "Property and equipment" account in the consolidated statements offinancial Position upon substantial completion of the development stage. On the other hand, all costs relating to an abandoned SC are written off in the year the area is permanently abandoned. SCs are consider€d permanently abandoned ifthe SCs have expired and/or there arc no definite plans for further exploration and/or development Deferred Development Costs - Ceothermal included in OtherNoncurent Assets Allcosts incurred in th€ geological and g€ophysical activities such as costs oftopographical, geological and geophysical studies, rights of access to proPerties to conduct those studies, salaries and other expenses ofgeologists, geophysical crews, or others conducting those studies are charged to profit or loss in the year such costs are itcurred.

Ifthe results ofinitial geological and geophysical aotivities revealthe presence ofgeoth€rmal resoulce that will require further exploration and drilling, subsequent exploration and drilling costs are accumulated and defened under the "Other noncurrent assets" account in the consolidated statement

of financial oosition.

These costs include the following:

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Costs associated with the cons&uction oftemporary facilities;

costs ofdrilling exploratory and exploratory type stratigraphic lest wells' pending determination ofwhether the wells can produce proved reserves; and Costs of local administration, finance, general and security s€rvices, surface facilities and other tocal costs in preparinS for and supporting the drill activities, etc. incurred during the drilling of exploratory wells.

tests conducted on the drilled exploratory wells reveal that these wells cannot produce proved reserves, the capitalized costs are charged to expense except when management decid€s to use the unproductive wells for recycling or waste disposal.

If

Once the project's Echnical feasibility and commercial viability to produce proved reserves are established, the exploration and evaluation assets shall be reclassified to property, plant and equipment and depreciated accordingly.

Deferred Development Costs - Solar These are costs incurred in the development ofthe solar plant expansion project Costs are capitalized if th€ technological and economic feasibility is confirmed, usually when a project development has reached a defined milestone according to an established project manag€ment model These costs include the following

. .

Costs incurred for the expansion ofthe solar plant project Costg of administration, finance, general and security services and other costs atfibuted to the expansion of the Project.

Deferred developm€nt costs ofthe Solar Power Project is recognized under "Other noncurrent assets" in the statement;f financial position. Once the project's technical f€asibility and commercial viability has been established, development costs shall be reclrssified to Propcrty, plant ald equipment.

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-l)lnves$nent in a Joint Venture fW) A JV is a type ofjoint arrangement whereby the parties that have joint conhol ofthe anangement have rights to the net assets ofthejoint venture. Joint control is the contractually agreed sharing ofcontrol of an anangement, which exists only when decisions about the relevant activities requirc unanlmous consenl ofthe parties sharing control. Investment in a JV is accounted for under the equity method of accounting.

Under the equity method, the inveslrnent in a JV is initially recognized at cost. The carryiDg amount of the investment is adjusted to r€cognize changes in the CrouP's share of net assets ofthe JV since ihe acquisition date.

Th€ consolidated statement of comprehensive income reflects tle Group's share of the financial performance of th€ joint venture. Any change in OCI of those investees is pres€nted as part ofthe tiroup's oCI. In addition, when there has been a chatge recognized directly in the equity ofthe JV' the droup recognizes its share of any chang€s, when applicable, in the consolidated statement of changes in e4uity. Unrealized gains and losses from ttansactions betwe€n the Croup and the Jv are eliminated to the extent offte interest ofthe JV. The aSgregate ofthe Group's share in profit or loss ofa JV is shown under "Other incom€ (charges)" in the consolidated statemert ofcomprehensive income and represents profit or loss after tax and non_ conftolling interests in the subsidiaries ofthe JV

ate prepared in the same reponing period of the Group When necessary, adjustments are made to bring the accountinS policies in line with those ofth€ Group

The financial staternents of the

fV

After application ofthe equity method for the investneni in a W, the Group determines whether it is n€cess;i to recognize an impainnent loss on its investn€nt in a JV. At each reporting date, lhe Group determines wheth_er there is ;bjective evidence that the investment in w is impaired. Ifthere is such the recoverable evidence, th€ Group calculatei the amount of impairment as the difference between amount of the JV and its carrying value, then recognizes the loss in the consolidated stat€ment of comprehensive income, Upon loss ofjoint control over the JV, the Group measuros and recognizes any retained investment at its fairvalue. eny difference between tie carrying arnount ofthc j oint venture uPon loss ofjoint control and the fair value of the retained investment and proceeds from disposal is recognized in the consolidated statement of comprehensive income Intansible Assets

rl"t.

u"qui."d sepamtely are measured on initial recognition at oost The cost ofintangible assetiacquired is their fair value as at the date ofacquisition. Following initial recognition, intangible losses, ifany assets ar;caried at cost less accumulated amortization and accumulated impaiment

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Intangible assets with finite lives are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization peiiod and the amortizatioo metbod for an intangible asset with a finite us€ful lif€ are revi€wed at least panem of at the end of each reporting Period Changes in the expected useful life or the expected the by changing consumption of future eco;omio benefits embodied in the asset is accounled for amortization period or method, as apprcpriate, and are treated as changes in accounting estimates' The amortization expense on intangible assets with finite lives is recognized in the statement of comprchensiveincomeintheexp€nsecategoryconsistentwilhthefunctionoftheintangibleassets.

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Softwarc related to windows application is amortized using the straiSht-line method over one (2)yea$. Land rights is amortized using the straightline method over 25 years.

(l)

to two

Gains or losses arising{iom derecognition ofan intangibl€ asset arc measured as the diffarenc€ between the net disposal proceeds and the carrying amount ofthe asset and are recognized in the consolidate-d statement ofcomprehensive income when the asset is derecognized

lnvestment Properties Investrnent properties consist of land held for capital appreciation Land is stated at cost less any impairment in value.

The initial cost ofthe investment propefties comprises of Purchase price and any directly attributable costs of bringing the asset to its working condition Expenditures incurred after the investment properties ha;e been put into operation, such as repain and maintenance, are normally charged to ixpinse in the year whin cosls are incurred. In situatioDs where it caII be clearly demonstrated that the oxpenditures have resulted in an increase in the futur€ economic benefits expected to be oblained ftom thi use of an item ofinvestrnent properties beyond its originally assessed standard ofperformance' the expenditures are capitalized as an additional cost of investrnent propenies Investment property is derecogniz€d when either it has been disposed of or when the investrnent property is iermanently withdrawn from use and no future economic b€nefit is expected from its ai.iosi. any gains o.losses on the retirement or disposal of investment properties are recognized in the consolidatea stalement ofcomprehensive income in the year of retirement or disposal' Tmnsfers are made to investment properti€s when, and only when, there is a change in use, evidenced by the end ofowner-occuPation, c;mmencement of an operating lease to another party or by the end of construction or development. Transfers are made from investment properties when, and only when, there is a change in use, evidenced by commencement of owner_occupation or commencement ol development with a view to sell.

Interest in Joint Operations

is a joint afiangemeflt whereby the pafties that have joint control ofthe arrangement have rights to the assets, and obligations for the liabilities, relating to the arangement

e joint op".ution

Th€ Group recognized in relation to its interest in ajoint operation its: assets, including its share ofany assets heldjointly liabilities, including its share ofany liabilities incunedjointly revenue ftom the sale of its share ofthe output arising from the joint operation share ofthe revenue from the sale oflhe output by thejoint operation

. . . . .

exp€nses, including its sharc

ofany expenses incunedjointly

The Group accounts for the assets it controls and the liabilities it incurs, lhe exPenses it incurs and the share of income that it eams from the sale of crude oil by rhe joint operations.

As of December 31, 2017 and 2016, the Group's participating interest in the Etame block in Gabon, W€st Aftica and participating interests in Philippine se ice contracts are classifie-d asjoint oPerations lmpairment of Nonfi nancial Assets reporting date whether there is an indication that an asset (e g ' property, Group att"rr"s at "ach plant and Lquipment, investment properti€s, deforred costs, and intangible assets) may be impaired any such indication exists, or wh€n annual impairment t€sting for an asset is requirod, the Croup

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lf

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ll

estimates the asset's recoverable amount. An asset's recoverable amount is the higher ofan asset's or cash-generating unit's fairvalue less costs to selland its value in use and is determined for an individual asset, unless the asset does not generate cash inflows lhat are largely independent ofthose fiom other assets or group ofassets, Where the carrying amount ofan asset exceeds its recoverable amoun! the asset is considered impaied and is wrinen down to its recoverable amount. In assessing value in use, th€ estimated futue cash flows dre disoounted to their presentvalue using a d iscount rate that reflects cunent market assessmetts of the time value ofmoney and the risks specific to the asset. In determining fair value less costs to

sell, an appropriatg valuation model is used. These calculations ar€ corroborated by valuation multiples, quoted share prices for publicly traded compani€s or other available fair value indicators.

An assessmenl is made at cach r€porting date

as to whether there is any indicalion

tlat

previously

recognized impairment losses may no longer exist or may have decreased. Ifsuch indication exists, th€ Croup makes an estimate of recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimales used to determine the asset's r@overable amount since the lasl impairment loss was recognized lfthat is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount

that would have been determined, net ofdepletion, depreciation and amortization had no impairment loss been recognized for the asset in prior years such reversal is r€cognized in the consolidated statement ofcomprehensive income unless the asset is canied at revalued amount, in which case the reversal is treated as a revaluation increase.

Capital Stock ard Additional Paid-in Capital Thi Group records common stock at par value and additional paid_in capital in excess of the total contributions received ov€r the aggrcgate par values ofthe equity shares. When the Croup issues mor€ than one class of stock. a separate account is maintained for each class of stock and the number of shares issued. lncremental cosls incurred directly attributable to the issuance ofnew shares are shown in equity as a deduction fiom proceeds, net oftax. When any member of the Group purohases tho Groip'i capital stock (treasury shares), the consideration paid, including any attributable incremental cosE; is de;ucted ftom equity atfibutable to the Croup's equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net oi any directly attributable incremental transaction costs and the relatod tax €ffects, is included in equity.

Deposits for Future Stock subscriptions O"-posifs n tur" rtock subscriptions is recorded based on the redeemable amounts received and is presented under liabilities unless the following items were met for classification as part ofequity:

t*

a. b.

c.

d.

The unissued authorized capital stook of the entity is insufficient to cover th€ arnount of shares indicated in the contract; There is BOD approval on the proposed increase in authorized capital slock (for which a deposit was received by the Group); There is stockholders' approval ofsaid proposed increase; and The application for the approval of the proposed increase has been filed with the Securities and Excharge Commission (SEC).

Deposits r€present subscription Pa)'ments received fiom prosPective investors for the- Group's common shares which are yet to be issued upon approval by the SEC of the application for increase in the authorized capital stock. This will be reclassified to'Capital stock' uPon issuance of the subscribed shares.

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- lE -

Retained Eamings Retained earnings represent tbe cumulative balance ofconsolidated net income, effects ofchanSes in eccounting policy and other capital adjustments, net ofdividend declaration.

Unappropriated retained eamings represent the portion which can be declared as dividends to stockholders after considering the undistributed accumulated equity in a subsidiary, funds aPproPriated for corporate expansion projects or programs, restrictions under loan agrcements and funds r€tained under special circumstances for probable contingencies.

Appropriated retained eamings represent the portion which has been restricted and therefore is not available for any dividend declaration.

Cumulative Translation Adiustment Cumulative translation adjustm€nt represents the.esulting oxchanSe differences in the remeasurem€nt of accounts due to change in functional cunency.

Eouilv Reserve Equity reserve is made up of equity transactions other than equity contributions such as gain or loss resulting from increase or decrease ofownership without loss ofcontrol.

Dividend Distribution Cash dividends on capital stock are recoSnized as a liability and deducted frcm equity when approved by the BOD. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenu€ oan be reliably measured regardless ofwhen the payment is being made, Revenu€ is measured at the fairvalu€ of the consid€rations rec€ived orreceivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has cincluded that it is acting as princiPal in all of its tevenue arrangements since it is the primary obligor in ali the revenue arrangements, has pricing latitude and is also exposed to inventory and credit risks'

Electlicity sales Sale of eiectricity using renewable ener$/ is consummated whenever the electricity generated by the Group is transmitt€d through the transmission line designated by the buyer, for a consideration' Oil re,renues Revenue from oil wells is recognized as income at tbe time ofproduction. R€venue is measured at th€ fai value ofthe consideration received

lnterest income is recognized

as the interes! accrues

taking into account the effective yield on the asset'

Share in iel income of dioint venture Share in net income of a joint venture represents the Gtoup's share in profit or loss

of its afTiliate,

PWEI, Dhridend incohe

Dividend income is recognized according to the terms ofthe contract, or ri/hen the right of the payment has been established.

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- 19-

Miscellaneou.t income Miscellaneous income is recognized when the Group's right !o receive the payment is established Costs and Expq$g!

Cosl oJ electricity sales

ofelectricity sales pertain to directcosts in generating electdcity power which includes operating and maintenance costs (O&M) fo. power plant and fluid collection and reinjection system (FCRS), Costs

depreciation and other costs directly attribut€d to producing electricity.

Oilproduction production are costs incurred to produc€ and deliver crude oil inventory, including transportation' storago and loading, among others.

oil

General and administraliw expenses General and administrative expenses constitute costs ofadministering the business Costs and expenses are recognized as incurred.

other Comprehensive Income (Loss) Other comprehensive income (loss) comprises items of income and expense (including items previously presented under the consolidated statement of changes in equity) that are not recognized in the consolidated statement ofincome for the year in accordance with PFRSS Idcome Taxes

Currenl Tat Cuffent lax assets and liabilities for the cunent and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities- The tax rates and ta.x laws used to compute th€ amounts are those that are enacted or substantively enacted at the reportinS date

Deferred Tax

Defened tax is provid€d using th€ balance sheet liability method on all temporary differences at the reportinS date b;tween tie tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Defened tax liabilities are recognized for all taxable temporary diff€rences except to the extent that the deferred t&x liabilities arise from the: a) initial recogtrition ofgoodwill; or b) the initial recognition of an asset or liability in a transaction which is not: i) a business combination; and ii) at the time ofthe transaotion, affects neither accounting profit nor taxable profit or loss.

Defeffed tax assets are r€cognized for all deductible ternporary differences with certain exceptions, and carryforward benefits ofunused tax credits from excess minimum corporate income tax (MCIT) over RCIT and unused net operating loss carryover (NOLCO), to th€ extent that it is probable that sufficient taxable incom€ will be available against which the deductible tempotary differences and carryforward benefits of unused tax credits fiom excess MCIT and unused NOLCO can be utilized. Defered t&\ assets, however, are not recogtized when it arisgs from thet a) initial recognition ofan asset or liability in a transaction that is not a business combination; and b) at the time offansaction, affects neither the accounting income nortaxable profit or loss.

The carrying amounts of deferred tax ass€ts are reviewed at each reporthg date and reduced to the extent that ia is no longer probable that sufficient taxable income will be availabl€ to allow all or part of the defered tax assets to be utilized. Unrecognized defened tax assets are reassessed at each reporting date, and are recognized to the exlent that it has become probeble that future taxable income

||tilitilililmililililllll

-20 -

will allow the defened tax assets to be recovered. The Group does trot recognize defefted tax assets add defened tax liabilities that will reverse durinS the income tax holiday (Note 2l).

Def€red tax assets and liabilities are measured at the tax rates that are applicable to the period when the asset is realized or the liability is settled, based on tax rates (and tax la{s) that have b€en enacted or substantively enact€d as ofthe reporting date.

Defened tax rclating to items .€cognized outside profit or loss is recognized outside profit or loss.

Deferred tax items are recognized in conelation to the underlying transaction either in profit or loss or other comprehensive income.

Deferred tax assets and deferred tax liabitities ar€ offset if a legally enforceable right exists to set off current tax assets against cunent tax liabilities and the deferred taxes relate to th€ same taxable entity and the same taxation authority.

Value-Added T&( (VAT)

i.euenu"r,

"xpenses "nd

assets are recognized n€t

ofthe amount ofVAT, ifapplicable'

When VAT from sales ofgoods or services (output VAT) exceeds VAT ptssed on from purchases of goods or services (input V.AT), the excess is recogniz€d as payable in the consolidated statement of inancial position. When vAT passed on from purchases of goods or servic€s (input VAT) exc€€ds VAT from sales of Soods ard/or services (output VAT), the excess is recognized ss an asset in the consolidated statemirt of finanoial position as part of "Other noncurrent assets" to the extent of the recoverable amount,

Accrued Retirernent Liabiliw The net d"frned b"n"fit liability or asset is the aggregate ofthe present value ofthe d€fined benefit obligation at the end ofthe rep;ding period reduced by the fair value ofplan assets (if any), adjusted for a-ny effect of limiting a net definedbenefit asset to the asset ceilinS. The asset ceilinS is the present value;f any economic-benefits available in th€ form of refunds from the plan or reductions in futur€

cont butions to the plan. the The cost of providing benefits under the defined benefit plans is actuarially determined using projected unit credit method.

Defined benefit costs comprise the following:

. . .

Service cost Net interest on the net defined benefit liability or asset Remeasurements ofnet defined b€nefit liability or asset

Servic€ costs which include cunent servioe costs, past service costs and gains or losses on non-routine income Past settlements are recognized as expense in the consolidated statement of comprehensive

service costs are rJcognized when Plan am€ndment or curtailment calculated periodically by independent qualified actuaries

occurs These adounts are

Net inlerest on the ner defined benefit liability or asset is the change durinS the period in the net defined benefit liability or asset that arises from lhe passage of time which is determinod by applying the discount rate based on govemment bonds to the n€t defin€d benefit liability or asset. Net interest on statement the net defined benefit libility or asset is recognized as expense or income in theconsolidat€d of comDrehensive income,

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Remeasurcments comprising actuarial gains and losses, retum on plan assets and any change in the effect ofthe asset cei ling (excluding net irlercst on defmed beneirt liability) are recognized immediately in OCI in the period in which they arise. R€m€asurements are notreclassified to consolidated slatement of comprehensive inoome in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund. Plan assets 6re not available to the creditors of the Group nor can they be paid direotly to the Croup Fair value of plal| assets is based on market price information. When no market price is available, the fair value ofplan assets is estimated by discounting expected future cash flows using a discount mte that reflecls both the risk associated with the plan assets and the maturity or expected disposal date ofthose assets (or, if they have no maturity, the expected period until the settlement oftbe related obligations) lfthe fail value of the plan assets is higher th.n the present value of the defined benefit obliSation, the measurement of the reslllting defined benefit asset is limited to the present value ofeconomic benefits available in the form of refunds from the plan or reductions in future contributions to the Plan.

The Group's right to be reimbursed ofsome or all ofthe exPenditure requircd to settle a defined benefit obligation is recognized as a sepamte asset at fair value when and onlywhen reimbursement is virtually

cerurn, Asset Retirement ObliglLtion (ARO) The Croup records present value ofestimated costs of legal and consfiuctive obligations required to restore th; oilfields lnd plant sites upon termination of itJ operations. The nature ofthese resloration

activiti€s includes dismantling and removing structures, rehabilitating settling ponds, dismsntling operating facilities, closure of;lant and waste sites, and restoration, reclamation and re_vegetation of aiTected-areas. The obligation generally arises when the asset is cons[ucted or the ground or environment at the sites are disturbed. When the liability is initially r€cognized, the pres€nt value of the estimated cost is capitalized as part of the carrying amount of the ARO assets (included under "Prop€rty, plant and equipment") and ARo liability

Liability and capitalized costs included in oil properties is €qual to the prcsent value of th€ Group's proportionate share in the total decommissioning costs of the consortium on initial recoSnition' idditional costs or changes in decommissioning costs are recognized as additions or charges to the corresponding assets and ARO when they occw.

For closed sites or areas, changes to estimated costs are recognized immediately in the consolidated stat€dent of comprehensive in;ome lf the decrease in liability exceeds the carrying amount ofthe asset, the excess shall be recognized immediately in profit or Ioss For the oil operation, lhe Group dePreciates ARO assets based on unit ofproduction m€thod For the renewable energy, the Group depreciates ARo assets on a straighlline basis ov€rthe estimated

useful life of the related asset or the service contract term, whichever is shorter, or wrinen off as a results of impaiment of the related asset.

The Group amortizes ARO liability using the EIR method and recognizes accretion expense in Profit

or loss over the service contract term.

The Group regularly assesses the provision for ARO and adjus6 the related liability and asset

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Operatinq Lease

Group as a lessee Leases where th€ lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the Profit and loss on a straight-line basis overthe leaseterm, Minimum lease payments are recognized on a straiSht_ line basis.

Foreim Curencv-denominated Transactions a'ld Translation The consolidated financial statements are presented in US Dollars, which is the Parent Company's functional and presentation currency. Transactions in foreign currencies ar€ initially recorded in the functional cunency using th€ exchange rate at date of transaction- Monelary assets and liabilities denominated in foreign curencies are reinstated to the functional currency using the closing exchange raie at reporting date.

of comprehensive income with the exception of dilferences on foreign currency bonowings that provide, if any, a hedge against a net inveatment in a foreign entity. These are taken directly to equity until disposal ofthe net investmenl at which lime they are recognized in the consolidated statement of comprchensive income Non_ monetary items that are measured in terms ofhistorical cos! in foreign currency are translated using the exchangi rates as at the dates of initial transactions Non_monetary items measured at fair value in a foreigniunency are translated usingthe exchange rates at the date when the fair value wss determined'

AII

exchanSe differences are taken to the consolidated stat€ment

The functional currency ofthe Group's immediate subsidiary, Petlocreen and its subsidiades, namely MGI and Petrosolar, is the Philippine Peso. As at reporting date, the assets and liabiliti€s ofthese subsidiaries are ranslated into the presentation currency ofthe Group (the US Dollars) al the exchange

rate at the aeponing dale and the consolidated statement of comprehensive income accounts are translated at weight;d avemge exchange rates for the year. The exchange differences arising on the translation are ta-ken dit"ctly to "Cumulative tmnslation adjustrnent" account in the equity section of theconsolidated statement of finaicial position. Upon disposalofa subsidiary, the deferred cumulative translation adjustment amount recognized in equity relating to that particular subsidiary is recognized in the consolidated statement ofcomprehensive income Eamings Per Share

Oasii-".nings pei.6u." is computed on the basis oftheweighted average numberofshares outstanding during the y;ar after giving retroactive effect to any stock split or stock dividends declared and stock rights exercised during the curent year, if any.

Diluted eamings per share is computed on the basis of the weighted average number of shar€s outstanding during the year plus the weighted average number ofordinary shares that would be issued olr the conversion ofallthe dilutive potential ordinary shares into ordinary shares' PERC do€s not have potentially dilutive common stock.

Seement Reporting

are organized and managed separately according to the nature of the products and serviceJprovided, with each segment representing a strategic .business unit that off€N differ€nt Droducls and s€rvices and serves different markets. Financial information on business

iillC-upt- opuiing tusinesses

segments is presented in Note 28 to the consolidated financial statements.

Provisions and Contineencies

P.*t.l""r

."".g"t""d *hen

the Group has a present obligation (legal or construltive) as a result

of

" it is p;bable that an outflow ofresources embodying cconomic benefits will be required a past event,

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to settle the obligation and areliable estimate can be made ofthe amount ofthe obligation. Ifthe effect ofthe time value ofmoney is material, provisions are d€termined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to tie passage of time is recognized as an interest expens€. Provisions are reviewed at each reporting date and adjusted to reflect the curre0t best estimate,

Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility ofan oudlow ofresources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but ar€ disclosed when an inflow of economic benefits is probable. Contingent asse6 are assessed continually to ensure that developments ar€ apPropdately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the relaled income are recognized in the consolidated financial slalements, Events After the Reportinq Period Post year-end events that provide additional information about the Group's situation at the reporting date (adjusling events) are reflected in the financial statements, if any. Post year-end events that are not adiustins events are disclosed in the notes to consolidaled financial statements when material

5.

Significant Accoutrtitrg Judgment3, Estimstes rod Assumptions The preparation ofthe consolidated financial slatements in compliance with PFRS requires the Group to make judgments, estimates and assumptions that affect the repolled amounb of assets, liabilities, income and expenses and disclosure ofcontingent assets and contingent liabilities. Future events may occur which will cause the assumptions used in arriving at the estimat€s to change. The effects ofany change injudgments, estimates and assumptions are reflected in the consolidated financial statemenls, as they become reasonably determinable.

Judgm€nts, estimates and assumptions are continually evaluated and are based on hislorical experience and other factors, including expectations of future events that ar€ b€lieved to be reasonable under the circumstances.

Judements In the process of applying lhe Group's accounting policies, management has made the following judgments, apan from those involving estimations, which has the most s ignificant effect on the amounts recognized in the consolidated financial statements:

Determination of Functional Currency The entities within the Group determine the functional currency based on economic substance of underlying circumstances relevant to each €ntity within the Group. The Parent Company's funotional currency is the US Dollar ($). The functional currency of Petrocr€en, MGI and Petrosolar is the Philippine P€so (F).

As ofDecember 31, 2017 and 2016, the Group's cumulative tanslation adjustment amounted to $5.30 million and $5.40 million. respectively.

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-24 -

Capilqlization of Defefted Oil Exploration Costs and Delerrcd Dewlopment Costs Initial capitalization of costs is based on management's judgment that technological and economic feasibility is confirmed, usually when a product development project has r€ached a defined milestone according to an established pmject management model. Ifthe accounting policy on capitalization of development costs are not met, such costs are expensed.

As of December 3 t, 2017 ard 2016, the carrying value ofdefened oil explorations costs amounted to $3.98 million and $3.93 million, r€spectively (see Note I l), and the Group's defened development costs arnounted to $0.22 rnillion and $l.55 million as of December 31, 2017 and 2016, respectively (see Note l4).

Classifcation oJ Joint Aftangements Judgment is required to determine when the Croup has joint control over an arrangement, which reouires an assessment ofthe relevant activities and when the decisions in relation to those activities require unanimous consent. The Group assesses lheir riShts and obliSations aising from the arrangement and specifi cally considers: . The structure ofthejoint arrang€ment - whether it is structured through a separate vehicle . When the arrangement is structured through a separate vehicle, the Group also considers the rights and obligations arising from: . The legal form ofthe sepa$te vehicle . The terms ofthe contractual arrangement

.

Other facts and circumstances, considered on a case by case basis

This assessment often requires sign ificant j udgm€nt. A dilferent conclusion about both joint control and whether the arrangemenl is a joint operation or a joint venture, may materially imPact the accounting of the investment.

The Croup's investment in Petrowind Enerry lnc (Petrowind or PWEI) is structured ln a separate incorporGd entity. The Group and the parties to the agreement only have the right to the net assets of thejoint venture throuSh the terms ofthe contractual anangement Accordingly, thejoint arangement is classified as ajoint ventur€. AsofDecember3l,20l7and20l6,th€Group'sinvestnentinajoint venture amounted to $28.20 million and $26.E4 million, respectively (see Note l2).

The Croup and the parties to the agreement in investment in Gabon, West Afiica havg joiDt control over its rights to the assets and obligations for the liabiliti€s, relating to th€ arrangement. Accordingly, thejoint arrangement is classified as ajoint operation (see Note l0). of Del iv orive L iab i Ii ty The Group reviews its liabilities to assess ifthe Possibility of outflow ofeconomic resources to settle th€ obligation is remote. lD panicular, judgment by management is required in determining if its obligations are extinguished.

Dere cogn

it i on

ln late 2016, CapAsia ASEAN Wind Holdings CooperatiefU A 's (CapAsia) mother company, CAIF PTE Ltd. (CAIF lll), entered into negotiations for the sale of its 99 99% membership interest in CapAsia to a third party that willconstitute an indirect acquisition ofCapAsia's entire equity ownership in PeFoWind.

III

Moreover, in a l-etter Agrcement entered into by the parties dated January 27, 20 I 7, they acknowledged and confirmed that CapAsia's Put Option and Petrocreen's Call Option shall cease to have any effect on the date ofthe closing ofthe sale effective May 16,2017

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As the parties acknowledged and confirmed that the call and put option shall cease upon signing ofth€ new Shareholders Agreement (SA), the Company assiSned a probabilityto the event equal to 99o%, and consequently derecogniz€d the derivative liabilify as ofDecember 31, 2016. Cain on derivative writeoffamounting to $10.76 million was recognized in 2016 (see Note l9).

Estimates and Assumptions

The key assumptions conceming the futuro and othff key souroes of estimation uncertainty 6t the reporting date that have a siSnificant risk ofcausing a material adjustrnent to the carrying amounts of asseB and liabilities within the next financial year are discussed in the next page.

Estimation of Geothermal Field Reserves MGI performed volumetric reserve estimation and numerical modelingto determine the reserves ofth€ Maibarara Seothermal field. As a requircment for project finanoing, MGI engaged at its own cost the New Zealand firm Sinclair Knight Merz (SKM) in 20ll to undertake a comptehensive third-party technical review of the Maibarara geothermal field. This review included analysis of the resourc€ assessment performed in-house by MGI as well as a separate SKM reserve estimation and numerical modeling ofthe Maibarara reserves.

As the economic assumptions used may change and as additional geological information is obtained duringthe opemtion ofafield, estimates ofrecoverable reserves maychange. Such changes may impact the Group's reported financial position and results, which include: . The carrying value ofexploration and evaluation asset; and property, plant and equipment; . Provisions for decommissioning may change - where changes to the rcserve estimates affect expectations about when such activities will occur and the associated cost ofthese activities; and . The rccognition and carrying value of deferred tax assets may change due to changes in tbe judgments regarding the exislence of such assets and in estimates of the likely recovery of such asse6.

As ofDecember 31, 201? and 2015, there has been no significant change in the estimated reserves that would affect the useful lives and carrying value of MGI'S property, Plant and equipment (see Note I0).

Estimation

oJ

Prcved Oil Reserves

The Group assesses its estimate ofproved oil reserves on an annual basis The estimate is based on the technical assumptions and is calculated in accordance with accept€d volumetric methods, specifically the probabilistic method ofestimation. hobabilistic method uses known geological, engineering and economic data to genemte a range ofestimates and their associaled probabilities

As ofDecember 31, 2017 and 2016, there has been no significant change in the estimated r€coverable reserv€s for the Gabon assets. The same estimated remaining recoverable reserve was used to compute the depletion rate used.

As ofDe€ember 31, 201? and 2016, the carrying value of "Wells, Platforms and olher Facilities" under "Property, Plant and Equipment" amounted to $15.83 million and $19.38 million, resPectively (see

Note lo).

Estimation of UseJul Lives of Property, Plant and Equipmenl The Group reviews on an annual basis the estimated useful lives ofproperty, plant and equipment based on expected asset utiliztion as anchored on business plans and shategies that also consider expected future technological developments and market behavior.

ilu]tfruilililn[ffiilfiill|[il|[l

It is possible that future results ofoperations could be materially affected by ohanges inthese estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of prop€rty, plant and equipment would increase the recorded depletion, depreciation and amortization expense and decrease noncurrent assets.

There is no change in th€ estimated useful lives of property, plaot and equipment as of December3l,20l7 and 2016. As ofDecember 31,2017 and 2016, theCroup's depreciable property, ptant and equipment amounted to $129.63 million and $129.76 million, respeotively (see Note l0).

Impaiment of NonJinancial Astets The Groupassesses at €ach reporting date, whetherthere is an indication that an ass€t may be impaired.

Ifany indication exists, orwhen annual impairment testing for a.n asset is required, the Group estirnates the asset's reooverable amount, An asset's recoverable amount is the hiSher of an assel's or cash_ generating unit's (CCU) fair value less cost ofdisposal and its value in use

Tte recoverable arnount is the higher ofan asse!'s or cash-generatinS unit's (CGU) fair value less cost ofdisposal and its value in use. The fair value less cost ofdisposal is the amount obtainable from the sale oi an asset in an arm's length hansaction v/hile value in use is the present value ofestimated future cash flows expected to aris€ from the continuing use ofan asset or CGU and from its disposal at the end of its useful life.

In determining the ptesent value ofestimated future cash flows expected to be generated from the continued use ofan asset or CGU, the Group is requircd to make estimates and assumptions that can materially affect the consolidated financial statements

Facts and circumstances that would require an impairment assessment as sot forth in PFRS 6, Etcplorationfor and Evoluation oJMinelal Reso?rces, are as followsl

o . . .

The period for which the Group has the right to €xPlore in the specific area has expired or will expire in the n€ar future, and is not expected to be renewed; Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned; ExDloration for and evaluation ofmineral resources in the specific area have not led tothe discovery oftommercially viable quantities of minenl resources and the entity has decidcd to discontinue such activities in the specific area; and Sufficient data existto indicate that, although a development in the specific arca is likely to proceed' the carrying amount ofthe exploration and evaluation asset is unlikely to be recovered in full ftom successful development or by sale.

Th€re are no indicators ofimpairment that would trigger impairment review in 2017 and 2016 other than those mentioned below.

The r€lated balances of the Group's nonfinancial assets as of December

3

| follow: 2016

2011 Property, plant and equipment (Note l0) Defered oil exploration costs (Note I I ) lntangibfe assets (Note Deferred dev€lopment costs (Note lnvestmenr properties (Note

14) 14) 13)

$162,806,394

$145,0'15,54',7

t,929,256

3,982,542

2'878'262 3,017 '049 224,026 1,553,351 31117 . .. .11'117

s169.922.64r

$153,606,620

||1llilill[[ul|lilil]]fl luffi illll

Gabon. west Africa In assessing whether impairment is required, the carrying value of the asset is oompared with its recov€rable amount. The recoverable amount is the higher ofthe asset's fair value less costs to sell and value in use. Given the nature ofthe Group's activities, information on the fair value of an asset is usually di{ficult to obtain unless negotiations with potential purchas€rs or similartransactions are taking place. Consequently, unless indicated otherwise, the tecoverable amount used in assessing the impairment loss is value in use. The Group generally estimates value in use using a discounted cash flow model. The Croup believes tiat the low orude oil prices in the market, political risks in Cabon, discount mtes and changes in other assumptions such as change in production profile which is based

on continued production until the term of the existing PSC are indicators that the assets might be impaired and thus prompted the Group to perform impairment t€sting ofthe assets The value in use as of December 31, 2017 and 2016 amounted to $9 17 million at a discounl rate of 10.10% and $12.?2 million at a discount rate of I1.01%, respectively ln 2017 and 2016, the GrouP recorded an impairment loss amounting to $1.95 million and $8.83 million, tespectively, pertaining to the assets in Cabon, Africa used for oil production (see Notes 10 and I l).

The Group recognized an impairment loss for the Cabon Assets for the years Decembe.I I follow (nil in 2015):

ended

2016

2017

s2,626,711 6,204,97E $8.831,689

Wells. Dlatforms and ot-her facilities tion costs Defened oil

As ofDecember 3l, 2017 and 2016, the netcarrying value ofwells, platforms and other facilities related to Gabon amounted to $9.17 nillion and $12.72 million, respectively (see Note 10), and the net carrying

value of defened Note I l).

oil exploration costs amount€d to nil

as

of December 31, 2017 and 2016 (se€

SC l4-C2 - Wsst Linaoacar Northwest Palawan Fodu"tion uctiuiti"r in the West Linapaoan Oilfield (WLO) remained on suspension mode for the lasl twenty (20) years. The investment in WLO included in "wells, platfoms and other facilities" account undei "Proierty and equipment" amounted to $6 66 million as of December 31, 2011 and 2016 Management assessed thatthe said investment is fully recoverable as SC l4-C is nor yet expircd, with

December 18' 2010 to December 18, 2025 and the existing red€velopment activities led by Pitkin Petoleum Ltd (Pitkin) of the United States ofArnerica. Based on oil prices existing at December 31,2017, the Prices have not gone below the breakeven level for the Group in so far as its WLO investrnent-is-concemed. Thus, no i'mpairment was recognizedfot 21l'l a\d2016. As ofDecember 31,2017 and 2016, the carrying value of wells, platforms and other facilities amounted to $6 66 million (see Note l0).

the l5-year

extension

of the SC as approved by th€ DOE, from

SC 47 (Offshore Mindoro and Panay)

itt" DOE approved the withdrawal of the SC 47 (Offshore Mindoro and Panay) after the consortium agreed to retinquish the SC 47 block. This decision was based on th€ existing high geological risi ofthe curaent prospect and lead inventory, lack of interest from faminees, and given ihe D-OE re4uirement of drilling one well for SlbPhase 3. consequenlly, the Group wrote-off the (see deferred exploration costs pertaining to this service contract amounting to $32,980 in 2016 Note I l).

fo

ZO16

ilr!ililililililtilillilrillilllllulllllil

-2EEslimalion of Asset Retiremenl Obligations The Croup has various legal obligation to decommission or dismantle its assets related to the oil producdo;, geothermal en€rgy proj€ct and solar power Project at the end of each respeclive service contract, In determining the amount ofprovisions for restoration costs, sssumptions and estimates are required in relation to the expected costs to restore sites and inflastructure when such obligation exists.

The Group recognizes the present vahe ofthe obligation to dismantle and capitalizes the present value of this cost as ;art of the balanoe of the related properry, plant and equipment, which are being depreciated and amortized on a straight-line basis over the useful lile of the r€lated assets (for the (for renewable energr) and based on unit-of-production dethod based on estimates of proved reserves the oiloperations).

Cost estimat€s expressed at curerlt price levels at the date of the estimate are discouDted usmg a rate ranSing from 4.6l% to 5.7Oo/" in2017 and 4.63yo to 5.94oh i\ 2016 to take into account the timing of paymenf. Each year, the provision is increased to reflect the accretion of discount and to accrue ar (se€ Note I E)' esiimate for the eiTecrs of iflation, with charSes being recognized as accretion .xpense

charges in the asset retirement obligation that result from a change in the current best estimate of cash flow iequired to settle the obligation or a ohange in the discount rate are added ro (or deducted from) the amo;nt recognized as the related asset and the periodic unwinding ofthe discount on the liability is recognized in profil or loss as it occurs.

while the croup has made its best estimat€ in establishing the asset retirement obligatiod, becaus€ of potential changis in technology as well as safety and environmental requiremenls' plus the actual time lcale to complite decommissioning activities, the ultimate provision requirements co' ld either i'crease or decrease significantly from the-Group's curr€nt estimates. The amouDts and timing of recorded expenses for any period would be affected by changes in these facto$ and circumstances Asset retirement obligation as ofDecember

3l follows

(see

Note l8):

PetroEnergy - Oil production MGI - Geothermal energY Project Petrosolar - Solar

2017

20t6

$r ?10,697

$981,283

30?,83t

244,035

t4t.t93 $1,366,511

Recognition o:fdeJened i come lax assets iil"Group ."i'i"*t ttt" carrying amounts ofdeferred tax assets at each reporting date and reduces them to allow the exdnt that it is no longei probable that sufficient future taxable profit will b€ available all or part ofthe deferred tax assets to be utilized.

;

certain NoLCO As ofDecember 31, 2017 and 2016, th€ Group did not recognize deferred tax assets on income will be and MCIT as the Group believes that it mat not be probable that sufficient taxable prior to their available in the near foieseeable future against which the tax benefits ca't be realized amounted to recognized tax assets 2016, defened expiration. As of Decemb€r 31, 2Ol7

afi

S0.48

million and $0.37 million, respectively

(see Note 2l ).

t[[t[ilIlluilu]llul|Iillllllllilll

6.

Cash

rrd Crsh Eauivalents 2011

$4324

Cash on hand Cash in banks Cash

equivalents

7,tr133s

l2,9aa'922

2016 s4,145 4,s23,451 8,386,392

a*

-,",

periods ofup to three months depending on the irnmediate cash requirements ofthe Group, and eam interest at the prevailing short-term deposit rates.

The Group has no short-term investments with periods ofmore than three months but less than one yeat as of December 31, 2011 and 2016.

Interest income eamed on cash in banks and short-term investments amounted $0,15 million and $0.1I million in 2017, 2016 and 2015, respectively

7.

to $0 18 million'

Financial Arsets at tr'air Value Through Prolit or Loss

Marketable equity securities Investment in golfclub shares

20r7

2016

$165,793

$146,958

st8tJt5

$162.445

I

15.487

Net gaul on fair value changes on financial assets at FVPL included in the consolidated statements comDrehensive income amounted to $18,343, $16,404 and $1,392 in 2017' 2016 and 2015' respectively. Dividend income received from equity securities amounted to $1,629, $2,131 and $l,704 in 2017, 2016 and 2015, respectively (se€ Note 25).

8.

of

Receivables 2017

2016

$5,830,139

$5,343,s06

Accounts receivable from: Feed-in-Tariff (FiT) revenue from National

Transmission Corporation (TransCo)

Electricity sales to PHINMA Energy Corporation (PHINMA) Consortium operator Electricity sales to Wholesale Electricity SPot Market (WESM) Affiliate (Note 26)

1,667,Orl 320,914

|,5 7 5,113

1396

'7,42E

4,EE1

3,697 2,037 7,914,3E9 53,950

1,854

Others Interest receivable

r2,446

for

1,443,141 s3.124

Less allowance

980,694

$7,789

$7,860,439

fiil||lmilililffimil|

-30The Group's receivables are mainly due from FiT sales to Transco, sale ofelectricity to PHINMA and

consortium operator. These are generally on l0 days credit terms except for r€ceivables from consortium operalor which is due within one ( l) year. Interest income earned from the delayed payment of FiT differential amounted to $0.19 million and $0.l3 million in 2017 and 2016, respectively

The table below shows the disclosure of reconciliation of allowance for impairment losses on receivables from a consortium operator:

Balance at beginning ofyear Effect of foreisn currency translation bilance at end of

vear

9.

2017

2016

$53,950

$57,000

533'724

$53,950

5

Prepeid Erpeoses and Other Current Assets

Restrict€d cash Supplies inventory Prepaid expenses Crude oil inventory Prepaid taxes Advances to contractorc Others

2017

20t6

$2,613J33

s2,472,521

790,95E

504,'702

728,628

862,314 194,544

632,794

213,544 233,13E

2l0,El r 2,35t,819 169,679 $6,?66,450

Restricted cash pertains to lhe amount offund that the Group is r€quited to maidain in the Debt service Payrnent Accor:nt and Debt Service Reserve Account Pursuant to the Omnibus Loan and Security

Agreement (OLSA) ofMGI and Petrosolar, respectiv€ly (see Note ]6).

Supplies inventory refers to purchases of supplies lhat are ifiended to be used for operations and maintenance,

Prepaid expenses include vatiotrs prepaid insurances, services and prepaid rent The prePaid rents (LLA) pertain to the cunent portion ofthe advance rental payment Paid for the Land.Leas€ Agre€ment with the National Power corporation (NPC) and the Power Sectof Assets and Liabilities ManaSement Corporation (PSALM) over MCPP'S steamfield lot in Sto. Tomas, Batangas (see Note 14) and unamonized prepaymeot ofland lease with Luisita lndustdal Park Corporation Prepaid taxes pertains to creditable withholding taxes and prioryear's income tax credit' Advances to contractors pertain to downpayments to various coltfactors for the purchase of materials and equipment.

Others penain to advances, supplies and deferred financing costs on undrawn credit line

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6

-33Power plants represent MGI's geothermal power plant and Pefosolar's photovoltaic plant.

The Group's conshuction in progress account includes steam assets and other on_going construction projecrs related to Maibarara 2 Expansion Geothermal Project (M2) and civil work in the solar plant Steam assets are mainly composed ofin-progress production wells and FcRs, while other construction projects include on-going rehabilitation activities in the plants, work-over activiti€s and other consfuctions. M2 is exp€cted to start commercial oPeralions by the second quarter of2olS Civil work in the solar planl were compleled in 2017.

Change in ARO estimate and transfers fiom advances to contractors, d€ferred oil exploration costs and development costs are considered as noncash investing activities

Depletion ofwells, platforms and other facilities is prcsented under cost ofsales in the consolidated statements of comDrehensive income.

Depletion and depreciation expense charged to profit or loss follow:

Cost ofelectricify sales CNote 22)

Depletion General and administrative exoenses rNote

24)

20r7 $5,255J95 r,986,540

2016

2015

$5,231,844 2,',t95,358

s2,735,992 1,681,618

223,173 182i64 s7,424?ee $8,25q91I

276949

$4,69!

As of Derember 31, 2ol'7 and 2016, the panicipating interest of PERC in vadous service contracts areas are as followsl Gabonese Oil Concessions West Linapacan - SC l4C2

2.525%

4.t31%

Foreisn Operetions Gabon, West Africa

Backsround The Group holds approxinat ly 2.525yo p$licipating interest in the Exploration Production Sharing Conrract ("EPSC") covering the Etame block in Cabon, West Aftic4 or the "Etame Permit"). The EPSC is a contract with the Gabon Govemment that Sives the holder ofthe said EPSC exclusive rights and obligations to perform exploration, exploitation and production activities within the Etame Permit area. Thl other parties and their respective participating interests in the EPSC are as follows: Addax Petroleum Etame, tnc. (33.90%); Sasol Petoleum West Africa Limited (30.00%); VAALCO Gabon (Etam€), Inc. (33.58%) (the "Gabon Consortium"), all are leaders in their respective areas ofoperation' VAALCO is th€ Consonium's operator, and as such, has the exclusive charge of conducting the exploration and production activities in the Gabon contracl area.

The Etam€ Permit consists ofan offshore exploration area of307,360 h€ctares that extends from depths of2o0 mete6 in $e Atlantic shelfto near-shore Gabon. The Gabon Consortium was able to develop four (4) oil fields, namely, Etame, Avouma-Tchibala, and Ebouri oil fields. Aside from the EPSC,

other licenses were required for the Gabon Consottium to conduct exploration, production and exploitation in these areas within the EPSC. Three Production Licenses are curr€ntly issued - the Etame Exclusive Exploilation Althorization (C5-88), the Avouma Exclusive Exploilation Authorization (G5-95), and the Ebouri Exclusive Exploitation Authorization (C5-98). Meanwhile'

ilil||ilililil]tililillililillllllllillll

-34 -

exploration activities outside ofthese three production license areas are authorized through the Etame Exploration License (G4-160).

Production is routed to the spread-moored Floating Production Storage and Omoading (FPSO) vessel ftom the Avouma-Tchibalaand Ebouri platforms, and from the wells tied to the subsea Etame manifold.

The produced oils are processed and exported from the FPSO Petroleo Nautipa, which has a storage capacity ofone million barrels.

The amount of oil that can be produc€d from the wells have been limited by the capacity of tle processing facilities and the storage space ofthe FPSO, although, oil production averaged ? million banels during each ofthe past ? yeals.

updalg-qlBred.ullis4 The Etame Consortium (Consortium) managed twelve (12) lifiings in 2017 and 2016, resulting in a net crude export of 5.62 million banels of oil (MMBO) in 201? and 6.15 MMBO in 2016, with daily oil production ranging from 11,740 - 22,910 baftels ofoil per day (BOPD) from four oil fields (Etade, Avouma, Ebouri and North Tchibala). Two (2) Avouma wells were worked-over in 2017 utd 2016, stabifizing overall production. Crude oil market pric€s for th€ years 2011 and 2016 ranged from $45.12 - $64.1 1 perbarrel and $2?.80 - $56.80 perbafrel, respectiv€ly.

Uodate on Development

r P roglam The Avouma field, with remaining recoverable reserves of -10 MMBO, oun€ntly has thtee (3) producing wells, with electric subme$ible pumps (ESPS) which are now over two (2) years old.

A v ouma Wor ko\re

Workover operations were conducted in end 2016 in order to replace the defective submercible pumps in fwo (2) of the wells (ETBSM-2H and EAVOM-210. This resulted in the respective recovery of I.500 and ^1.J00 BOPD fiorn both well..

-

However, in October 2017, workover operations were again conducted in order to replace d€fective submersible pumps and to bring back -4,200 BOPD to the over.ll production ofthe field.

Field LiJe Extention ahd thtegrated Field Development Plan In light ofthe policy changes imposed by the new Gabonese Government and the passing ofGabon's new Hydrocarbon Law, the Etame Consortium has been conducting a comprehensiv€ economic modeling and valuation ofthe Etame Marin reserves, which willbe subject to theprovisions ofthe n€w Cabonese Production SharingContract (PSC) system. The new Hydrocarbon Law introdlces new fiscal terms for ali upstream operators, which include increased govemment shares and royalties, decreased cost recovery, and the imposition of 35% income tax on oil profit, all ofwhich will significantly work in favor of the Gabon€se Govemment. This new fiscal regime will take effect once the first of the exploitation licenses (Etame) expires in July 2021 (followed by Avouma in 2025 and Ebouri in 2026).

The Consortium har applied for an extens'on ofth€ existing EPSC, merging the three (3) fields to run until 2026. The Consortium is currently examining the most optimal drilling program to ensure maximum recoverable oil while ensuring positive retums for the Consortium m€mbers Since the Gabon oilfield has been put online in 2002, it has mainlaine-d a total of 13,000 BOPD from its current I I producing wells. A total of t03 MMBO has b€en extracted to date over the last l5 years.

Reclassification

2016, the Group recognized impairment loss on assets related to Gabon amounting to $8.83 million charged to "Wells, platforms, and other facilities." In 2017, the Croup reallocated the said imp4irment loss to the following: $2.63 million to "Wells, platforms and other facilities" and $6.20 million to "Deferred oil exploration costs" since the impairment testing performed in 2016

In

tilillilillil]ill]ilililtuil

-35included the defened oil exploration costs in Gabon. Accordingly, the 2016 presontation was also reallocated to conform with the 201? presentation. The balance ofproperty, plant and equipment as of December 31, 2016 increas€d by $6.20 million and the balance of defene-d oil exploration costs dedeased by the same amount (see Note I

l).

Pbilippire Op€ratiops - Iyest Linapacan, Northwesl Palawan west Linapacan was discovered in the early 1990s. It produced oil from 1992 to 1996, peaking at

SC I4-C2

18,000 BOPD, before it was shut-in due to early wat€r incursion. A 1,083 km 3D seismic survey was conducted and processed in 199? to 1998, however, the farminees opted not to drill a well. The block was in suspension mode until 2006. In 2007 to 2015, two new farminees joined the Consortium and committed to conduct Ceological and Geophysical (G&G) studies and to drillone well. However, the farminees defaulted and eventually left the Consortium.

Philodrill took over as Operator and has be€n conducting its C&C studies to turther strenghen the West Linapacan block to be revived for production. The Consortium is looking to further assess the viability ofthe redevelopment via I ) scoping study for possible re-entry and Extended Production Test (EPT) of the original WLA-I well, 2) oil spill trajectory modeling, and 3) securing a Strategic Environmental Plan (SEP) clearance.

The investment in WLO included in "Wells, platforms and other facilities" aclount undet "Property and equipment" amounted to $6.66 million as of December 31, 20:7 and 2016.

Geothermal Energ, Geothermal Renewable Energ/ Senice Contruct (GRESC) No. 2010-02-012

FollowiDg the Department of Energy's (DoE) Philippine Enerry contracting Round for Ceothermal in 2009, PetroEnergy signed the S€Ivic€ Contmct for the Maibarara Geothermal Power Proj€ct(MGPP) on February l, 2010. PERC then conducted pre-development activities in 2010 to 201l. In order to carry out the development and operations of the MCPP, PERC (through its subsidiary, PGEC) then created MCI along with Trans-Asia (now PHINMA) and PNOC, with 65%,25%, and l0% equity own€rships, respectively.

20 MW Maibarara Geothermal Power Proiect (MGPP-l) The DOE confirmed the commerciality ofthe 20-MW MGPP-

I in 201 l, allowing MGI to proceed with the MGPP'S development stage, involving l) the drilling of rwo (2) wells to complete the stearn produclion and reinjection well capacities, and 2) the construction ofthe steamfield and power plant faciliti€s. The MGPP'S I l5kV Transmission Line system was successfully conn€ct€d to the existing MERALCO line in September 2013. Upon completion ofthe reliability and performance testing, the MGPP-I went on commercial operations on February 8, 2014. All electricity generated are sold to offtaker, PHINMA. In March 2016, the MGPP completed its first scheduled Preventive Maintenance Shutdown (PMS).

Opening, inspection, cleaning and necessary repairs and modifications were carried out on both ihe steamfield and power plant facilities. h was the first comprehensive maintenance since the facility started ils commercial operations, The total energy exported to the grid was 161,677.01 MWh and 153,067.70

Mwh in 2017

and 2016,

respecllvely.

ililnilm|mililtilllllilffi

I2 MW Maibarara Geothermal Power Proiect (MGPP-2) With the stable performance ofthe reservoir, MGI decided to pursue an expansion ofthe MCPP. There is at least 5 MW excess steam supply ftom the MGPP-I wells, and with the -6 MW capacity of the new well, an expansion to l2 MW was decided and approved in 2015 (MGPP-2).

Major power plant componenfs from Fuji Electric Co. Ltd. (.'Fujl', the same supplier as the MGPP-I) were deliv€red and installed on site in March to April2017. The individual commissioning test (motor solo run test) of all the po*er plant auxiliary equipment have been successfully completed and th€ remaining activities are focused on the commissioning of the Main and Auxiliary Cooling Water System, Lube Oil and Control Oil Systed, Condenser, Cooling Tower, Gas Exuaction System and Turbine-Oenemtor. Teahnical Advisors from Fuji are onsite doing various tests on mechanical, electrical, instrumgntation & control, and on the lurbine'generator until lhe final power plant commissioning. The target commercial operations date of the MCPP-2 facility is within the second quader of 20 I 6.

Both the MGPP-l and the MGPP-2 are registered with the Board oflnvestnents (BOI) and are enjoying the incentives underthe Renewable Enerry (RE) Act of2008.

Solor Energy Solar Enelg Senice Contract (SESC) No. 2015-03-115 Tarlac Solar Power Proiect (TSPPI The Solar Service Contract for tho TSPP was awarded by the DOE on March 19, 2015. On June 1?, 2015, PGEC and affiliate EEI Power Corpomtion ("EEIPC", 100% subsidiary of EEI Corporation), incorporated Perosolar Corporation (PSC) to undertake the development oflhe TSPP.

On June 22, 2015, PCEC and solar farm lot owner, Luisita Industrial Park Corporation (LIPco) executed a Lease Agreement for the 55-hectare solar fann development. This was assigned to PSC on September 15, 2015. As the LIPCO property is within the Central Technopark, whicb is under the

jusrisdiction of the Philippine Economic Zone Authority (PEZA), PSC was able to register as an Ecozone Utilities Enterprise on July 28,2015, enlillirg it to the incentives availableto PEZA locators.

The I'SPP was declared commorcial by the DOE in September 2015, enabling tho start of the construction ofthe 50 MWDC TSPP-I. The rnajor solar equipment supply contract was awarded to Cerman fmn Conerry Asia & ME he. Ltd. (Conerry). Coner$/'s local Philippine contmctor was Phesco Inc. The civil and structural works were awarded to Media Construction and Development Corporation, while Philcantech Enterprises (an electrical firm based in Tarlac Ciry) undertook the supply, delivery and installation ofthe 5.9-kilometer 69-kV transmission line linking the TSPP to the grid.

After only four (4) months ofground works, the TSPP-I was completed by mid-January 2016 and was able to export power to the g d on January 2'7,2016. ^fhe DOE eventually gave its Certificate of Endorsement (COE) - Feed-in-Tariff(FiT) for TSPP-1, with the ofTicial Commercial Operations Date on February 10, 2016. Subsequ€ntly, on April 6, 2016, PSC executed its Renewable En€rsr' Payment Ageement (REPA) with the National Trarsmissior Corporation (Transco), assuring the TSPP-I's revenues fiom the FiT payment of F8.69/kwh from 2016 to 2036.

From January 0l to December 31, 2017, the TSPP-l exported a total of 71,599 MWh to the grid. From February l0 to December 3l, 2016, the total energy exported to the grid is 64,272 MWh.

1ilflililil]uflflilt[|tu]IilNl

49 MW Tarlac-2 (TSPP-2) Exoansion

PSC'S Service Contract allows for the expansion by another 49 MW in the area adjacent to TSPP-I. Plans for the proposed 49 MW TSPP-2 are being reviewed to assess the economic feasibility of developing this project.

Borrowing Cost In 20I7 and 2016, the Group capitalizrd specific bonowing costs relating to fimnce charges incurred in the construction of the power plants. The rates used to determine the amount of borrowing costs 6.89% in 2016, which is the EIR of eligible for capitalization ranges from 5.51% to 8.11% in 2017 loans. Capitalized borrowing costs for December 31 follows: ^nd

MGPP

2017

20t6

sl,220,426

$395,076 318,?40 $713,816

-

TSPP

$1220,426

Collaleral to Secure Borrowings MGI has mortgaged as collateral in favor ofthe lender its property consisting ofreal assets and chattel with the total carrying val]ue of P4,667.4'7 million (or $93.48 million) as of December 31,2011, in relation to iti two (2) loan facilities (see Note 16). The breakdown ofthe above valu€ is as follows:

Real Assets (consisting of land, buildings, land improvements, machinery and equipment) P4,599.36 million (or $92.12 million); and Chattel (consisting mainly of other machinery and equjpment, inventory, fumiture and fixtures) P68.1 1 million (or $1.36 million).

Petrosolar mortgaged

all of its

P2,801.07 million (or $53.96 (see

I

nillion)

prop€rty, plant and equipment with carryinS value of as

ofDecember 31, 2017 as collateral to securc its borrowings

Note 16).

L Deferred Oil Explorstion

Costs

Th€ movements in deferred oil exploration costs follow:

2016

2017

$10,134,234

Balances at beginning ofy€ar

253,948

Additions Transferred to wells and platforms fNote Write-off/relinquishment of deforred oil exploration costs (Note

l0r

23)

Balances at end ofyear

Accumulated impairment losses (Note

l0)

(200,662)

$15,919,839 1,239,641

(6,992,266)

-

(32,980)

s3,982,542

s3,929,256

10,187,520 10,134,234 (6204,97E, (6,204,978)

ffiiltililffiililil|il|ilil|nililil

-38Details ofdefered oil explomtion costs as ofDecember

Cabonese Oil Concessions Octon Malajon Block - SC NW Palawan -SC 75 East Visayas - SC 5l

West Linapacan - SC

Totaf

20t6

2017 $6,204,978 3,01E,042 546,680 379,991

64

14C2

Accumulat€d impaim€nt losses (Note

3l follow:

$6,204,978 2,995,654 546,6E0

379,991 6,931 10,134,234

31,829

l0)

10,187,520 (6,204,97a\ 6,204,978\ $3.982,s42 $3,929,256

Philippine OperltioBs Underthe SCs entered into with the DOE coverinS certain pet.oleum confact areas in various locations in the Philippines, the participating oil cornpanies (collectively known as Contractors) are obliged to provide, at their sole risk, tbe services, t€chnology and financing neoessary in the performance oftheir obligations und€r these contracts. The Contractors are also obliged to spend specified amounts indicated in the contract in direct proportion to their work obligations.

How€ver, ifthe Contractors fail to complywith theirwork obligations, they shall payto the government the amount they should have spent but did not in direct proportion to their work obliSations. The participating companies have Operating Ag€ements among themselves which govem their rights and obligations under these contracts.

The fullrecovery ofrhese defergd costs is dependentupon the discoveryofoii in commercial quantities from any ofthe petroleum concessions and the succ€ss offutlre development thereof.

As ofDecember areas are as

3

|, 2017

and 2016, the parlicipating interest ofthe Group in various Petrol€um SC

followsl

Octon Malajon Block - SC 6A

t6.667%

sc 5l

20.0s00/"

NW Palawan -SC 75

15.000%

East Visayas -

SC 6-A - Octon-Malajon Block

This is one of the first exploration areas in oflshore Palawan. It includes about I 65,000 heclarcs of relatively shallow water areas wherc a string ofwells has found non-commercial oil accumulations in varied reservoir ho zons. DOE ganted in June 2009 the final Is-year extension ofthe SC-6A service contract.

In 2016, The Philodrill Corporation (Operalor ofthe SC-6A Block), conducted G&G evaluadon ofthe nonhem portion ofthe contract area through broadband reprocessing ofthe 3D seismic dataset acquired in 2013, seismic inteqrctation works on the newly processed data, and quantitative interpretation (QI) works on the Octon datasets. These were carried over to 2017. Contractot Downunder Geosolutions (DUG) has finished the preliminary processjng works ofthe 2013 3D seismic dataset and is currently integrating the new data for the QI works. For 2018, the Consortium is looking to conlinue with said G&G activilies to includ€ i) reintegation of the 2017 QI results and (ii) preliminary well design and scoping economics, and settling of the remaining DOE training fund balance.

ffiilnIffimilililr

-39SC 51 - East Yisayas

The block covels the East Visayan basin in two p.rcels aggregating 444,000 hectares. ln 2007, 3D seismic surveys were conducted in th€ Argao (Cebu) and Cabilao (Bohol) prospects and were subsequently processed and were used to produce the prospect maps for these two potential fiapping shuctures. In 2010, then Operator, NorAsian Energy Ltd., proposed the drilling program for an onshore well in San Isidro, Northem Le),te, in lieu ofan exploration well in offshor€ C€bu. The DoE approved the program and Duhat-l was spudded in April 201L After it was sidetrack€d, the well (DuhaFlA) reached a total depth of 32 I meters (rn) but had to be abandoned sfter pers istent mechanical probl€ms.

A 102 line-km 2D seismic survey over the Duhat prospect was conducted in 2012. The drilling of Duhat-2 commenced in July 2013. Upon reaching the depth of 201 m, voluminous salt water flow occuned, prompting the decision to plug and abandon Duhat-2 due to safety and environment issues.

The other Consortium members are PHINMA Petroleum and Geothermal Inc. (PPCI) and Alcom

Petroleum and Minerals Corporation (APMC) with 33.35% and 46.60% participating interests respecuvely.

SC 75 - Ofshorc Northwst Palawan The block is the latest addition to the Group's local oil projects. It is located in the deep-water portion ofNorthwest Palawan and covers an area of6l6,000 hectares. Activities completed so far include the

acquisition of 2,200 line-km seismic data and the processing of the supplementary gravity and magnetics data, including the broadband processing ofthe entire 2D seismic data to enhance its quality.

On September 9, 2015, the DOE placed SC 75, along with adjacent blocks SC 58 (West Calanian) and SC 72 (Recto Bank), under force majeure due to the geopolitical tensions in th€ West Philippine Sea. To dat€, the block is stillunder force majeure, putting exploration activities on hold. OtherConso(ium members are operator PXP Energy Corporation, with 50% participating interesl and PNoC Exploration Corporation, with 35% participating interest.

SC 17 - Ofshore Mindoro and Panay

After lack ofsubstantial development in SC 47 since 2012, a Letter of Withdlawal ofthe Joint Venture was sent to DOE on July 26, 2015. DOE sent a letter dated January 16, 2016, stating that the DOE no longer recognize SC 47 among the service contracts in which PERC is a member. The DOE formally approved the JV's relinquishment ofSC 47 on March 10,2016, with the official termination date of January 10,2012, reckoned as the end ofthe 1-year exploration period. As a result, the Group has written offth€ deferred oil exploration cost related to this amountinS to $32,980 in 2016.

12, Inv8tment in

r Joint Venture

The inv€stment in a joint venture represents Petrocreen's 40oZ interest in Petrowind, a company incorporated in the Philippines. The primary purpose of PWEI is to carry on the general business of gen€rating, transmitting and/or distributing power derived from renewable energy sources.

The movements in the carrying value as of December

3

| fbllow: 2017

Balance at beginning ofyear Share in net income ofajoiDt venture 'I ranslation Balance at end ofyear

adiustment

2016

$26,843i96

$27,t66,952 |,129,923 (t,4sJ,419) s26,843,396

1,496,888 (144,039)

$28,196145

illilililililfl iltiltililililililtilililtil[|

-40The carryinS value of the investment in Petrowind is equivalent to the Croup's 40% share in Petrowind's equity, plus the fair value adjustment of P764.49 million (or $15.31 million) was recognized when the Group lost control over Petrowind in 2014.

Selected financial information ofPetrowind as of December

3l follows: 2016

2017 Current assets (includes cash and cash equivalents amounting to $5.57 million and $7.39 million as ofDecember 31, 2017 and 2016, respectively)

$15,604,146

$r8,955,377

7t,t14,075

Noncurenl assets Cunent liabilities Noncurrent liabilities

8r,399,6E3

(12,710316)

(50,092,098) $30,915,807

Equi8

(16,079,809) (ss,022,419) $21,252,772

Summary of statements of comprehensive income of Pehowind for the years ended December

3l

followsl 2017

2016

2015

Revenue (electricity sales and other

expenses

Cost and Income before tax

Tax benefit Net income Grouo's share ofthe net

inoome

$14,7?4,581 $16,447,112 $6,899,560 (11,033,640) (13,631,166) (6,295,8?7) 3,740,941

2,815,946

l180

8,862

603,703

s3,14222r $2,E24,808

$603,703

$1,496,888 $l,129,923

$241,4E1

13. Inv€stmentProperties

As of December 3l, 20t 7 and 2016, this account consists of laJld and parking lot space (locat€d in Tektite) with total carrying value of$31,41?.

Group amounted to $40,278 as of Decemb€r 31, 2017 and 2016. The Group determined the fair values of the Group's inv€stment

The fair value

of the investment properties of the

properties on the basis ofrecent sales ofsimi lar properti€s irl the same areas as the investrnent properties and taking into account the economic conditions prevailing at the time th€ valuations were made.

As ofDeoember 31. 2017 and 2016, the fair value of the investment properties is classified under the Level 2 category.

Except for insignificant amounts of real property taxes on the investment properties, no other expenses were incurred, and no income was eamed in relation to the investment properties in 2017,2016 and

20t5.

tifi tililfl

tililtlililtil|tilililililil!

14. Oib€r Notrcurrent Assets 2016

2011 s4,876,950

lnput VAT lntangible assets Prepaid rent - noncurrent portion

$3,011,676 3,017,049 1,958,412 703,086 I,551,351 164.492

2,474J62 1,560,t67 875,924

Restricted cash Def€rred development costs Others

224,026

$r0,8r5;79

$10,408,066

Input I/AT ln'put VAT represents VAT due or paid on purchases of goods and services that can be claimed against any future litbility to the Bureau of lntemal Revenue (BtR) for output VAT from sale of Soods and servrces.

Input VAT also includes outstanding input VAT claims ofMGI that were applied for retund with the BiR and Court ofTax Appeals (CTA). As ofDecember 31,2017 and 2016, the outstanding input VAT claims which are still pending with the BIR and cTA amounted to F126.96 million (or $2.54 million) and Pl12.03 million (or $2.24 million), resp€ctively.

Intangible assets

Intan;ible assets pertain to land rights, which refers to grant of easement ofright of way entered by Petrosolar to construct, operate, maintain, repair, replace and remove poles' wire' cables, apparatus, and equipment and such other apparatus and structures needed for the transmission line (see Note 34)' This also includes software licenses ofthe Group.

2011

Cost Balanoes at beginning

$264,834 11,001

ofyear

Additions Balances at end

of

Accumulated Amortization Balances at beginning ofyear Amortization Balances at end

adiustment

17,001

2El,84l

6,128

195,985

313,561

2l,0rr

141

of

Cumulalive translation

$3,499,721

455

(l8l'l9r)

N€t Book Vtlues

0'!?q ----l!!t

S!2)

20t6 Cost Balances at beginning ofyear

Additions Balances at end

of

s240,E89 23.945

$3,473,562

2t4 3,234,887

264.834

3.499,721

$3,232,6',73

26.t59

(Forward)

milniilillfililn|n

Lard Rights Accumulated Amortiation Balances at beginning ofyear Amorrizatiorl Bafances ar end

7,576

ofyear

111,576

Cumulative translation

(167,640)

adiustrnent

Net Book Values

$2,949,671

2016 Software

Total

t90,216

t90,2'/6

95,985

313,56!

5,109

r

(1,471)

$61,318

l2l?85

u

(r69,r l $3,017,049

Amonization expense charged to profit or loss follows:

Cost

ofelectricity sales (Note 22)

General and administrative expenses (Note 24)

20t6

2011 $131,209

sl17,576

10,621

5,709

2015

6,124

$123,285 $9,5s1 sl4l,816 portion Prepaid rent - noncurrehl On April 23, 2012, MGI entered into a LLA with the NPC and PSALM over MGI'S stearnfield lot in Sto. Tomas, Batangas.

Under the LLA, MGI will lease the steamfield lot for a period of 25 years, extendable for another 25 years upon mutual agreement ofthe parties. Prepaid rent pertains to the advanc€ rental paid for the lease agr€ement. As of December 3 I , 2017 arld 2016, current portion of prepaid rent amounted to $0.09 million at the end of each year, while the noncurrent portion ainounted to $1 56 million and $l.96 million, respectively (see Note 9).

Restticted cash Restrict€d cash pertains to the Parent Company's share in the escrow fund for the abandonm€nt ofthe Gabon assets. This also includes escrow to s€cure payment and discharge ofthe Group's obligations and lisbilities under the Floating Production Storage and Omoading (FPSO) contract. The amount for the share in escrow ofthe Parent Company's obligation for the FPSO was deducted from the share on lifting proceeds during the first lifting made by Etame in Novembet 2002 and will be paid back to the GrouD at the end ofthe contract which is in 2020.

In 201? and 2016, the Parent Company contributed its share in the abandonment ofthe Etame Marine Permit to the escrow fund amounting to $0.17 rnillion and $0.21 million respectively. deve lopment c os t s These pe(ains to costs incurred in the exploralion, development, production and expansion of r€newable energy projects.

Delerred

2016 $l,234,685

2017 Balances at beginninS

Additions

ofyear

Transfers to property, plant and equipment (Note Cumulative rranslation

adjustment Balances at end ofyear

$1,553J5r

10)

2'081,532

Q'410,i24\

(6'533)

5224'026

878,540 (435,710)

(124,164) $1,553,351

Otherc Other noncurrent assets pertain to noncurent portion of prepaid insurance and security deposits

tNlIililtIlillllillllll

15. Accounts Poyrble snd Accrued ErpeDses

Accounts payable Accrued expenses: Interest (Note

l6)

2017

2016

$3Jr2r9s

s2,422,1'75

ll05J06 25,860

t,036,6E7 228,117 | 55,420

31,r24

134,423

12,942

38,t40

Sicldvacation leaves Professional fees

Urilities Govemment share Olhers withholding taxes and VAT payable Dividends payable Due to related party (Note 26)

112,664

46,909

315p55

283,895 209,152

208,159 5,625 161,621

Others

8,166

s5,69t,427 $4,619,107 Accounts payable consists of payable to suppliers and contractors that are curtently involv€d in the development, construction and operations of eners/ projects. The Croup's accounls payable and accrued expenses are due within one year.

Dividends payablg pertain to unclaimed checks as ofDecember 31,2017 and20l6.

Other payables mainly pertain to accrued security services, utilities and condominium dues.

16. Lorns Payrble The Group's loans payable as ofDecember

3l follow:

Principal, balance at beginninS ofyear Add availments during the year Less principal payments during the year Foreign currency translation adjushents Cumulative translation adiusinent Principal, balance at end ofyear Less unamortized deferred

financingcost

Less currenl Dortion - net ofunamonized defered

cost ponion

financing Noncunent

20t7 slt7 2s2,692 34,55t,3t2 (r8,855,r78)

2016 s'77 ,549,351

55,111,9E7

(463,02r)

(s0,402,780) (17s,073) )4,569,207

t32,478,4a7

111,252,692

(21,867,859)

(15,9E2,090)

(l4J8r)

(2,106175) (1,765,419) t30312,112 115,487,213 $f08,504r53

PettuEnergr''s sho -term ahd long4erm loans payable PeuoEner&,, entered into unsecured loan agrcemenls specifically Projsct and investments in Renewable Energy Projects.

$99,505,183

to finance ils Etame

Expansion

On April27,20l5, PetroEnergy entered into an Omnibus Credit Linc Agreement (OCLA) with the Development Bank of the Philippines (DBP) which provides a credit facility in the principal amount not exceeding F420.00 million (or $9.30 million). On June 29, 2016 the credit facility was inoeased to F500.00 million (or $10.0) million)

mImlilfflllll

Loans payable as of December 31, 2017 p€rtains to: loans from various lenders amounting to $5.40 million with an inlerest rate of 3.7%" SVo and maturity on November 20l9 ($1.57 million), Februar"/ 2018 ($3.43 million) and January 2018 ($0.4

o .

'

million)l snd foans from DBP amounting to $10.01 million with interest rate of 5.03yo - 5.43yowith maturity on January 2018 ($2.6 million) October 201? ($7.41 million).

Loans payable as ofDecember 31, 2016 pertains to: foans from various fenders amounting to $5.6 million with an intercst rate of 4.52o/r ' 5 25yo altd maturity on July 2017 ($2.5 million) and October 201? ($3.I million); and loans from DBP amounling to $3.42 million with interest rate of4.5olo with maturity on October

.

r

2011.

Interest exDense related to these loans amounted to $0.65 million, $0.44 million and $0 4E million in 2017, 2016 and 2015, respectivety.

Petrocreen's short-term and long-lerm loans palable In Novernber 2015, Petrocreen entered into a s-year credit line facility with Chinabank amounting to F500.00 million (or $10.62 million) with an annual intorest rate of 5.24% subjeot to repricidg payable every May and November. F400.00 million (or $8.01 million) out ofthe total loan facility were granted to Petrocreen.

In November 2016. Petrocreen availed additional F30.00 million (or $0.60 million) Ioar fiom chinabank with

a

term of4 yea$ and annual interest of5.33%.

PGEC'S sho(-tcrm loans payable aJnounting to F46.00 million (or $0.92 million) as of December 31, 2017 (nil as ofDecember 31, 2016) pertains to loans fiom various lenders with interest rat€ of3.5% and maturity in JanMry 201E. lnterest exDense related to these loans amounted to $0.52 million, $0.47 million and $0.18 million in 201'7, 201 6 and 201 5, respectively.

MGI's long-term loans poyable

Omnibus Loan and Securitv Aereement \,,/ith RCBC and Bank ofthe PhiliDDine Islands (BPI) On September 26, 201 I, MCl, together with PNOC RC and Trans-Asia (presently PHINMA), entered into a F2,400.00 rnillion (or $54.00 million) Omnibus Loan and Security Agreement (OLSA) with RCBC and BPI specifically to finance the design, development procurement, constructlon, opemton and maintenance ofits 20 MW geothermal power plant project.

December 31, 2016, the outstandiDg balance of tie loan amounted to Po.l million (or $0.002 million) (nil as of Decernber 31, 2017). Thereafter, on September 5, 2016, MGI consolidated the outstandinS principal of the above loan, incidental costs, general corpomte expenditures and working capital requirement by executing a now Project Loan Facility Agreement now with RCBC

As of

onry.

nillion (or $2.43 million) while financing charges that a result of the loan consolidation amounted to P58.40 million (or were expensed outright as In 2016. interest expense amounted to Fl15.76 $1.21 million) (nil in 2017).

iltililil ilt|ililililililt]lNrilililil|ril

ll

-45Bridge Financing Loan with RCBC Caoital Coooration On January 15,2016, MGI entered into a Bridge Financing Loan with RCBC Capital Corpoi.tion specifically to finance the operation and maintenance of its 20 MW geothermal power plant project.

Total principal amount and interest amounting to Pl50.00 million (or $3.02 million)

and

F7.05 million (or $0.15 million), respectively, were fully paid as ofNovembet 25,2016.

working Capital Loan with RCBC On April I l, 2016, the Company, entered into a Working Capital Loan with RCBC. Total principal arlount and interest amounting to F325.00 million (or $6.54 million) and F1.67 rnillion (or $0.04 million), respeclively, were fully paid as ofOctober I l, 2016.

Project Loan Facilitv Agreements with RCBC 19, 2016, MGI, together with PHINMA and PNOC RC executed the Project Loan Facility Agreement with RCBC for a P1,400.00 million (or $2E.40 million) project loan to finance the design, development and construction ofMGPP-2. The fint loan drawdown was made on June 2,2016.

on May

On September 5, 2016, the MGI, together with PHINMA and PNOC RC executed another Project Loan Facility Agreement with RCBC for a P2,100.00 million (or $42.06 million) project loan to consolidate the outstanding principal ofthe term loan under the 201 I OLSA with RCBC and BPL The drawdown ofthe totalloan amount was made on October 10.2016. AsofDecemberll,20lTand20l6,MGIhas

outstanding drawdowns of F1,218.80 million $5 1.47 million), respectively.

(or $64.47 million) and F2,570.10 million (or

MGPP-I or Ml new Loan The new Ml Loan amounting to F2,100.00 million (or $42.06 million) has a term often (10) years from the Drawdown Date of October 10,2016. Interest and principal are payable semi-annually. lnterest payment staned on October 12,2016, while the twenty (20) semi-annual principal payments started on April 12,2017.

Interest rate is fixed for the first five (5)years from Drawdown Date, based on the sum ofthe prevailing 5-Year Fixed Benchmark Rate on the Pricing date and the margin of l.75% (the "Initial Interest Rate").

On the Repricing Date, the interest for the remaining five (s)-year term ofthe Loan will be the hiSher of (i) the sum ofthen prevailing s-Year Fixed Benchmark R6te plus the margin of L?5%, or (ii) the Initial Inlerest Rate. As ofDecember 31, 2017 and 2016, the outstanding balance related to this loan

amounted

to P|,963.08 million (or $39.32 million) and F2,075.41 million (or $41.74 million),

respectively. lnterest expense recoSnized from the new Ml Loan amounted to F127.74 million (ot $2.53 million) and P49.I I million (or $1.03 million) in 2017 and 2016, resp€ctively.

MGPP-2 or M2 Expansion Loan The M2 Expansion Loan amounting to ?1,400.00 million (or $28.40 million) has a term oftwelve (12) yeais including thirty-six (36) months grace period from Initial Drawdown Date of June 2, 2016. lnterest and principal are payable semi-annually. Interest payment staned on October 12, 2016, while the eighteen (18) semi-annual principal payments will stan on October 12, 2019.

Interest rate is fixed for the first seven (7) years from the lnitial Drawdown Date based on the sum of the prevailing 7-Year Fixed Benchmark Rate on the Pricing Date and the applicable margin of (l) 1.250% per annum prior to Commercial Operations Date, or (ii) L75oZ per annum from and after the Commercial Opcralions Date (the "lnitial Interest Rate"). For subsequent Drawdowns, interest rate will be the three (3Hay simple averaSe interpolated rate based on the remainilrg tenor alld computed using the straight-line method. On the Repricing Date, the interest for the remaining five (s)-year term ofthe Loan will be the higher of(i) the sum of the then prevailing 5-Year Fixed Benchmark Rate plus

|||[iltil1milil

-46fte applicable margin, or (ii) lhe weighted

average interest rate during the first seven (7) years

ofthe

Loan.

Deferred financing costs arc incidental costs incuned in obtaining the loa[, which include documentary stamp tax, transfer tax, chattel mortgage, real estate mortgage, plofessional fees, arranger's fees and other out-of-pocket expenses.

December 31, 2017 and 2016, the outstanding balance of these loans amounted to F1,215.06 rnillion (or $24.34 million) and F461.62 million (or $9.28 million), respectively ln 201? and 2016. int€rest ofF59.7l million (or $1.22 million) and F1934 million (or $040 million) was capitalized to M2.

As of

The loan covenants covering tbe outstanding d€bt of MGI include, arnong others the following conditions: maintenance at all times of Debt-to-Equity (DE) Ratio ofnot greater than ?0:30, Delault Debt Service CovemSe Ratio (DSCR) ofat least l.t0x bolh until full payment of the Loans, and Dividend DSCR ofat least L20x. MGI is also required to transfer in the DSPA eqtrivalent to one-sixth ( l/6) of the amount sufficient to pay for the forthcoming d€bt service scheduled in April and October of every year until the loan is fully paid off As of Decembot 31, 2017 and 2016, MGI hss been compliant with the above conditions.

P elrosolar's

longlerm loans payable

On November 12. 2015, the Pettosolar, together with PCEC and EEIPC' as third party mortgagors and pledgors, entered into a F2.6 billion (or $55 25 million) OLSA with PNB and DBP speaifically to ;art;lly financethe desiSn, development, procurement, constuction, operation and maintenance of its TSPP.

(12) years The Petrosolar shall fully pay the loan for the pro'rata account ofeach lender within twelve

from and after the date of the initial dmwdown lnter€st and principal are payable semi-annually payments Interest payment started on May 27, 2016, while the twenty-two (22) semi-annual prinoipal staned on November 27,2016.

The rate ofthe interest applicable to the facility orthe relevant part thereoffor each interestperiod shall be fixed for the first seve; periods (7) from th€ initial drawdown date (the Initial Interest Rate) Prior to the FIT entitlement and collection of FIT revenues ofthe bodower, the rate shall be the higher of: (i)the agg€gate ofthe seven (?) yearPDST-R2 andthe initiat creditspread' or (ii) the minimum interest

nf

entitlement ofat ieast 40MW and clllection ofFIT r€venues by the borrower equivalent petiod not to an aggregate ofat leasl four hundred seventy three million pesos (F4?3,00-0,000) within a (i) average the weighted higher of the exc".aiig iuetu" (12) consecutive months, the rate shall be rate, and (ii) interest minimum interest rate in previous drawdowns less the step down credit spread, or the month which interest;ate shall be applied beSinning the following month immediately succeeding wherein th€ aforesaid FIT e itlement and FIT r€venue collection thresholds were satisfied

iate.

Up-o'n

Interest expense related to the loan amounted to $3 46 million and $0.32 in 2017 and 2015, respectively Deferred financingcosts are incidental costs incurred in obtaininSthe loan, which include documentary and stamp t&\, transfe; tax, chattel mortgage, real estate mortgage, professional fees, aranSer's fee other out-of-pocket expenses. (see P€trosolar mortgaged all of its property and equipment as collateral in conn€ction with th€ loan Nore 10).

il|l|tutillfllllllu[lillu|lfl

The loan covenants ooveringthe outstanding debt ofPetrosolar include, among others, maintenalce debt-to-equity ratio of 75:25 and establishment of DSPA required balance (see Note 9). As December 3l, 201? and 2016, PetroSolar is in compliance with the said loan covenants.

DeJe

of of

ft ed Jihanc ing c os ts

Defe.red financing costs are incidental costs incuned in obtaininS the loan which includes documentary stamp tax, transfer tax, chattel mortgage, real estate mortgage, professional fees, ananger's fee and other costs directly attributable in obtaining the loan. AsofDecember3l,20l?and20l6,theportion pertaining to the drawn amount of the loan amounting to $2.0 million and $1.67 million is Presented as deduction fiom the loans payable account and is amortized over the life ofthe loan using the effective interest mte method. Amortizstion ofd€ferred costs will be capitalized until all activities necessary to prepare the power plant for its intended use are substantially complete.

Details ofthe Groups' unarnortized deferred financing costs follows: 2016

2017 Balance at beginning ofyear Deferred financing costs on loan drawn during the

s2,313,279

$r,765,419

765.404 3,078,683

2,581,707

(s74,489)

(461106)

Amortization during the year Deferred financing costs related to extinguishment

(541,694)

ofloan

197.081

Cumulative translation adi Balance at end

ofYear

$1,765,419

$2,106'3?5

Int€rest expense related to these loans amount€d to $7.16 million, $9.0E million and $4.93 million 20 | 1, 20 | 6 and 20 | 5, respectively.

l?.

ir

Deposits for Future Stock Subscriptions Deposits for future stock subscriptions pertain !o total consideration received from the non-controlling int;rests in excess oftheauthorized capitalofthe entities withinthe GrouP, withthe purpose ofapplying the same as payment for futute issuance of shares,

Following are the details of the Group's Deposits December 31, 2016 (nilas ofDecember 31,2017):

for Future stock

No. PetroGreen EEIPC

MG] PHINMA PNOC-RC

ofshares

Subscriptions as of

SubscriPtion amount

25,583,14',7

$51,454

450,000 180.000

905,069 362.027

26,213,147

$!;]!lll

Petrocreen As of Decembei 31, 2016, Petrocreen is still in the process of getting BOD'S approval to amend its A(icles of lncorporation to increase its authorized capital stock and is still in the process ofpreparing

[Hffifltilfl11ilil

-4Ethe documents to file the application for increase in authorized capital stock with the SEC. Petrocreen classifi€d the deposits for future stock subscriptions as a liability because Petrocreen has insufricient capital stock to cover the subscription as of December 31,2016.

In 2017, PGEC received additional deposits amounting to P195.65 million (or $3 92 million) at par' On August | 8, 2017, the SEC approved the inoease of Petrocreen's authorized capital stock from PI.20 billion divided into 2 billion sharcs with par value of PI.00 each to F2.00 billion divided into 2 billion share with par value ofFl.00 each. The deposit for tuture stock subscriptions was apPlied as payment for subscription to the increase in authorized capital stock at par'

MG] In 2015, MGI received deposits for firture stock subscriPtions amounting to P18000 million (or$3.61 million) for the capital requirement ofM2. The amount was classified as liability because MCI has insufficient capital stock to cover subscriptions as ofDecembet 31,2016.

On April 29, 2016, the BOD ofthe MGI and the stocklolders representing at least two thirds of the outstanding capital stock, approved the amendm€nt ofanicles of incorporation to increase the MC['s authorized oaDital stock from FI.125.00 million divided into I 1,250,000 shares with par valu€ ofPl00 each, to Fl,?00.00 million divided into l?,000,000 shares with par value ofP100 each 19, 2017, MGI filed for an increase in authoriz€d capital stock with fie SEC. The deposit for future stock subscription amounting to P180.00 million(or $3.61 million) was reclassified as equity.

MGI also roceived additional deposits in 2017 amounting to F326 00 million (or $6.53 million) at par.

SEC approved the said increase in authorized capital stock on January 31,2018.

on September

18. Asset R€tirement Obligation The Group has recognized its share in the abandonment costs associated with the Etame, Avouma and Ebouri oiifields located in Cabon, West Afric4 geothermal field located in Sto Tomas Batangas, and photovoltaic (Pv) solar power facility in Tarlac.

Movements in this account follow:

Balance at beginning ofyear Additions or change in estimates (Note Aoorelron expense

2017

2016

$1t66,51r

$1,094,6',t2 12E,829

l0)

2t0,883 66,530

t3.945

Translation adiustm€nt

9"t""*

"t "rd

$t.6a2

"fy"*

Detaits of the Group's asset retirement obligation as of December 2017

Discount Rrte PetroEnergy

MGI Petrosolar

Amounf

4.61"/" to 5.31"/.

5.10"/"

$r,2r0,697

5.70y.

123,969

307,E3E

3

I

fol

low:

2016 Discount Rale 4.63% 5.94% 4.89%

$981,283 244,035 ) 41,193 66,511

liil|tu|]ilililillllll|1fl llulilillll

-49_

19.

De vative Liability On November 21, 2013, Petrocreen and CapAsia ASEAN wind Holdings CooperatiefU.A. (CapAsia) entered into a Share Purchase Agreement (SPA) which sets out the parties' mutual agreement as to the

sale

of 2,375,000 shares in P€fowind held by Petrocreen, which is equivalent to 40% of the tolal

issued and outstanding shares of Petrowind.

Simultaneously on November 21, 2013, Petsocreen, EEIPC ard CapAsia entered into a Shareholders' Agreement (SA). The sA will govem their relationship as the shareholders of Petrowind as well as containing their rcspective rights and obligations in relation to Petrowind. Further, the SA contains provisions regarding voting requirements for relevant activities that require unanimous consent ofall the parlies.

CapAsia was given tull voting and €conomic rights as a 40% shareholder. on February 14,2014,the closing date, Petrocreen lost its control on Petrowind as a result of its sale ofth€ halfof its interest of 80% on Pehowind.

The SA further provid€s for call and put options: CapAsia Inreslor's Put Option ln the absenoe ofaLiquidity Event bythe sixth anniversary ofthe Closing Date, CapAsia Investormay at any point thereafter, by written notice (the "Put Notice"), requires Pehocreen or its designee to purchase all of its shares in PetroWind at a valu€ that shall ensure CapAsia Investor an IRR offifteen percent (15%) for its investment.

ioh In the absence ofa Liquidity Ev€nt by the seventh anniversary ofthe Closing Date, Petrocreen may at any point thereafter, by wriften notice (the "Call Notice"), call upon CapAsia lnvestor to sell all of its common shares in Petrowind to Petrocreen or its desiSnee at a value that shall ensure CapAsialnvestor an IRR of twenty percent (20%) for its investrnent.

P elrocreen's Cal I Opl

Pq,off Structne Upon exit ofCapAsia Investor through a Liquidify Event, CapAsia Investor shall share the profit ofthe Investment with Petrocreen following the schedule below: an IRR oftwenty percent (20%) on its lnvestnent, Petrocr€en shall receive twenty five percent (25%) ofthe profits fiom the Investment over an IRR of twenty percent (20%) and up to an IRR to CapAsia Investor oftwenty five percent (25%)

(a) After CapAsia Investor has received

(b) After CapAsia Investor has received an IRR oftwenty-five percent (25%) on its Investment, PGEC shall receive fifty percent (50%) ofthe profits ftom the Investment over an IRR of twenty_fiv€ percent (25%) and up to an IRR to CapAsia Investor ofthirty percent (30%).

CapAsia lnvestor has received equity IRR ofthirty percent (30%) on its Investrnent, PGEC receive shall seventy-five percent (75%) ofthe profits from lhe Investrnent over an IRR ofthiny

(c) After

percenr (30%).

ilil]||lililuuull|llilllllluilll

-JULiquidir) E\enr shall mean any oflhe following:

(a) A

sale

ofall ofPetrowind's

(b) Transfer ofshares

capital stock to a third party;

by the company to a proposed tsansferee which gives rise to the tag along rights

ofCapAsia investor;

(c) An initial public offering ofthe

shares of

Petrowind on the PSE; and

(d) Any other process or transaction of a simila! nalure

as the above listing that enables CapAsia

investor to divest of its sharc in Petrowind.

In 2016, CapAsia's mother company, CAIFIII PTE Ltd (CAIF III) negotiat€d for a proposed saleto a third party of it! 99.9970 membership interest in CapAsia which owns 40% inGrest in Pelrowind. In relation to this, it was agre€d that the SA €ntered previously by Petrocreen, EEIPC and CapAsia shall cease to have effect. Moreover, in a Letter Agre€ment entered into by the Parties dated lanuary 21' 2017, they acknowledg€d and confimed that CapAsia's Put Option and Petrocreen's CallOption shall cease to have any effect on the date of the closing of the sale effective May 16,2017 As the parties acknowledged and confirmed that the call and put option shall cease upon signing ofthe new SA, PettoGreen derecoSnized the derivative liability as at December 3 t, 2016 Gain on derivative write-offamounting to $10.76 million in 2016.

As of December 31, 2017 and 2016, tho Group has no outstanding derivative liability'

20. Equity Under th€ existing laws ofthe RePublic ofthe Philippines, at least 60% of the Parent company's issued capital stock sho;ld be owned by citizens ofthe Philippines for the Parent Company to own and hold area As ofDecember 3l' 2017, the total issued mining, petroleum o, r"n"*"b|" "ontract "netgy und sub."iGd capital stock of the Parent company is 99 67% Filipino and 0 33% non-FiliPino as compared to 99.54% Filipino and 0.36% non-Filipino as ofDecember 31' 2016.

ai

As ofDecember 31, 2017 and 2016, paid-up capitalconsists

capilal stock _ Pl par value Authorized - 700.000.000 shares Issued and outstanding - 410,?36,330

eaditional paid-in

capital

shares

of

$9,391'311

1::q?9':q!

1ililitIilmffiffiffi

The Group's track record ofcapital stock follows:

Numberof

shares resistered Listing by way of introduction -August | 1,2004 Add (deduct): 25% stock dividend 30% stook dividend

l:l

stock rights

Date

Issue./offer

price

E4,253,606

F3/share

2l,063,402

Fl/share September 6, 2005 Pl/share September8,2006

31,595,102

August 4, 2004

offering 136,912,110 F5/share

December31,20l0 Deduct: Movement December 31, 201I Deduct: Movement December3l,20l2

ofSEC

approval

Number of holders as ofyear-end

M^y 26,2010

273,824,220

2,149

273,824,220

(29L 2,t23

273,824,220

2,t13 (41)

Deduct: Movement December 31, 2013

Deduct: Movement December 31,2014 Add (Deduct):

2:l stock

ghts

273,824,220

2,072

213,824,220

2,043

(2e)

offering

December 31,2015

136,912,110 4l0,736,330

F4.38/share June3,20l5

(l)

Deduct: Movement December 31,2016 Deducl Movement

December

3

l.

2017

(15) 2,028

410,736,330

2,027

410,136,330

(t s) 2,012

Dividends There were no declaration of cash dividends for the years 2017 afld 2016 A pproprioted Re tained Earn ings

On January 15, 2008, the BOD approved the appropriation of$0 49 million for the development ofthe Ebouri oilfield in Gabon, West Africa in addition to the $0.56 million originally appropriated amount

On July 24, 2008, the BOD approved additional appropdation of retained eamings arnounting to $l.0 million for the develoDment ofthe Ebouri oil field in Gabon, west Africa On February 19,2013, lhe BOD approved additional appropriated retained eamings arnounting to $l .10 million to cover for the Group's share in the cost ofthe committed wells in the E(ame oilfield in Cabon, West Africa.

Total appropriations for the development

of the

oilfields

in

Gabon, West Aftica tus of

December 31, 2017 and 2016 amounted to $3.I5 million. Further expansion of the said oilfield is on-

going.

Equity Resene On June 9, 2015, PetroEnergy sold its 10% interest in Petrocreen to EEIPC, bringing its ownership in Petrocreen fiom l0O% to 90%. The transaction was accounted as an equity transactiol sinc€ there was no change in control.

ilnilmtilffiilillll

The effect of change in the ownership interest in Peuocreen on the equity attributable to o$mers

of

PetroEnergy is summarized as follows: Considerarion received from non-controlling inlerest Carrying amount of non-controlling interest sold, net of related Excess ofconsideration received recomized in

equitv

$4,669,613 (2,8 I 0,440)

cost

$1,E59,1?3

Capital Management The primary objective ofthe Croup's capital management is to enswe that it maintains a stroDg cr€dit rating and healthy capital ratios in order to support its business and maximize shareholders' value.

The Group manages its capital stnrcture and makes adjustments to i!, in light of chang€s in economic conditions. To maintain or adjust the capital structure, the Group may incr€ase its debt from creditoN, adjust the dividend payment to shareholders ot issue new shares.

As ofDecember 3l, 2017 and 2016, the Croup monitors capital using a debt-to-equity ratio, which is total liabilities divided by total equity.

The CrouD's sources of caDital as of December

3

I are

as fol lows:

20t6

2017

$130372,112

Loans payable

93913

Capital stock Additional paid-in capital Retained eamings Equity reserve Deposits for future stock subsc ptions

$1r5,481,273 9,391,31I

35,620,58E 27,615,970

35,620,588 23,E22,269

I,E59,173

-

1,859,17l

]J}J

s204,859,154

$187,962,254

The table below demonstrates the debt-to-equity ratio ofthe GrouP as ofDecember 31, 2017 and

2016: 2011

Toul liabilities

Toralequitv

2016

$138J42,633

$125 ,020;797

lol'145,717

89,27E,97s

L40:I

Debt-to-equitv ratio

Based on th€ Group's assessment, the capital management objectives were met in 2017 and 2016.

2l.

Income Tax The provision for (benefit from) income tax consists of:

Cunent Deferred

2017 $256,53?

2016

20t5

$223,102

$r9,958

(lJEE,7ss) (5,411) (3,472,ry11 ($r,r32rrE) szl1,q! (s3-,432,%ll

ffi|ilmiltmilililn

-53The components ofthe Group's net defered tax assets (liabilities) are as follows: 2017

2016

$400,191 10,456

$301,445 6,575 8,t 51

Defeffed income tax assets reoognized in profit or loss:

Asset retirement obligation Accrued rent payable

4,463

Accrued retirement liability Unrealized foreim exchange loss

415,fl0

Deferred income tax liabilities recognized in profit or loss: Oil production revenue

o89,83E) (33,249)

Asset retremenl cost Unrealiz€d foreign exchange gain

Prepaid retirement Unrealized Sain on re-measurement

4e,tL

365.(4q (58,363)

(6,5r2)

(r0,4rs) (e06)

of 1,53?,5

inv€stment

Q34,4081 140,102 Deferred income tax asset recognized in other comprehensive income:

Accrued retirement

obligation

De f'erred income tax assets I liabil

ities) -

61,984

net

$242,686

(t,602,461) (t,236,762\

7'344 ($ I ,229,4 1 8)

The above deferred tax assets and liabilities are presented in the consolidated statements of financial position as follows; 2016 $108,168

2017

s242,646

Deferred income tax assets - nel Defened income ta)( liabilities - net Net defened income tar asseb

1,537,5E6

5242,686

{liabililie!)

($I 229,4!!)

reversed the deferred tax liability on unrealized gain on rc_measurerdent of investment amounting to $l.54 million. The Group, as ajoint venturer, assessed that it can control the timing ofthe distribution ofits share ofthe profits ofthejoint anangement and its share ofprofits will not be distributed in the foreseeable futurc.

In 2017, the Group

As of December 31, 2017 and 2016, the Group did not recognize deferred tax assets on NOLCO and MCIT as the Croup believes that it may not be probablethat sufficient taxable income will be available in the near foreseeablo fufure against which the tax benefits can be r€alized Details of the NOLCO and MCIT follow:

Year Incured 2017

2016 2015

NOLCO In USD

MCIT

In PHP

In

USD

In PIIP

$4,941 F246,',717 4,'7E2 221,010 3,663,817 113,945,963 1,502,561 11,731,256 39,119 1,824,290

92p8s,224

?1 49,05?,255

151,602 ?400,729,474

$48,842

Expiry Year 2020 2019 2018

P2,298,011

m[nmffilm|il|nilil

Movements in

Nolco

follow: 2017

Beginning balances

Additions

Expiration

ara;g

lal*"es

PHP

20t6

In PHP F282,917118 $3,420,803 P162,891,302 2,985224 149,052255 3,663,811 113,945,963

In USD $5,870,068

In

In USD

(703,690) (31139.999) (1,214,552)

(53,920,047)

Se'

Movements in MCIT follow: 2011

In USD Beginning balances

Additions

ExDiration Endins

balances

$44,814 4,941

(9r3)

$48'842

2016 In USD

F2,091,820

$40,032

246,717

4,182

In PHP Fl,864,810 221,0t0

$44,814

P2,091,E20

In PHP (40,520)

?2,298'0'f

For MGI, as indicated on the Implementing Rules and Regulations ofthe Renewoble Energl (RE) Act of 2008, the NOLCO ofthe RE Developer during th€ first three (3) yea$ from the staxt ofcommercial operation shall be carried over as a deduction from gross income for the next seven (7) consocutiv€ taxable years immediately following the year of such loss, subject to the following conditions:

a) b)

The NOLCO had not been previously offs€t as a deduction from Sross income; and The loss should be a resuh from the operations and not from the availment of incentives Provided for in the RE Act.

ForPSC, on July 28,2015, the PSC rcgistered with PEZA as atr E onomic Zone Utilities EnterPise to establish, operate and maintain its 50Mw Solar Facility Project at the Central Technopark and the sale of electricity in accordance with the representations, commitments and proposals set forth in its application.

PSC shall pay the special tax rate of 5% on its 8.oss income earned from sources within the PEZA economic zone in lieu of paying all national and local income taxes. Gross income eamed refers to gross sales derived fiom any business activity, net of retums, discounts and allowances, less cost of sales, cost ofproduction and allowable expens€s as defined by PEZA Income generated from sources outside ofthe PEZA economic zone shall be subject to regular corporate incom€ taxes.

All

other income outside the RE and PEZA regulations are subject to the RCIT rate of30%.

The reconciliation ofthe statutory tax rate to the effective income tax rate shown in the consolidated stdlements of income follows:

2017 Statutory tax rate Add (deduct) reconciling itemsl Income fiom entities subjected to lower rate Nondeductible expenses

30.00%

(27.85) E.09

2016 30.00%

(28.32) 2.99

2015

30.00%

(104.56) 18.88

(Foruard)

ffiilltlilililtilllliliii

-552016

2017

2015

Movement in unrecognized defened tax assets Income subjected to final

ta\

Unrealized gain on FVPL Capital gains subjected to final tax Nondeducrible expenses and Effective income tax rate

others

(r.6s)

11.50

(0.62) (0.02)

(r.e3)

(0.8E)

(0.0e)

(17.48)

(0.

La

(rs.44vr) 3.58%

(0.03) (50.80) { 194.94)

(291.88%)

22, Cost ofElectricity Sales

Depreciation and amortization (Notes l0 and 14) Rental, insurance and taxes Purchased services and utilities Personnel costs Repairs and mainteDance Materials and supplies Business and relatgd expenses Covemment share

Rovaltv

fees

20t7

20t6

2015

$5t86,604

$5,349,420 2,671,709

s2,139,419

1,853,E30

|,34t,440

1,097,030 4E5,912 369,405 234,303

1,000,404

2,441,464 r,701,520 r,160,914 450,504 2E1,754 283,064 145,385

46.165

1,289,795

222,',706

249,639

92,463

45,169

$l1.903,974 $ 12,19q,861

167,620 69,750

32,314 s7,11J,087

Based on Enerry Regulation l-94, all power produc€r shall set aside one-centavo per kilowatt_hour (F0.01/kwh) of the total electricity sales of the energy-generating facility which shall b€ applied to

ceneration Facilities and/or energy resourca development projects located in all barangays, municipalities, citi€s, provinces and regions. The Group recognized royalty fees amounting $46,765, $45,769 and $32,314 in 2017, 2016 and 2015, respectively.

Under the Service Contract, the RE Developer shall pay the government share equivalent to one and a halfpercent (L5%) from the sale ofgeothermal steam and I% from the sal€ ofsolar enerry Produced and such oth€r income incid€ntalto and arising from generation, transmission and saleofelectric power generated fiom geolhermal energy within the Contract Area less costs and expenses incurred thereon.

The croup recognized govemment share amounting to $145,385, $92,463 6nd $69,750 in 201?, 2016 and 2015, respectively.

23. Oil Production

20r7

2016

20t5

Production, transponation and related expenses

Storage and loading expenses

supplies and facilities Others

$3,029,668 $2,640,829

$3,127,198

958,296 933,251 908,893 6,048 6,902 6,113 93,444 t23,727 l97.ll8 1 $3,704,709 54,239,45',7

ililfiilIililtiltfl ilililtfl fiililllillll

24. Geuerd and Admitristrative Exp€oses

Salaries, wages and benefits Professional and other fees

Depreciation and amortization (Notes I0 and 14)

$r,

20t1 4,914

2016

20t5

l2

$1,163,940 298,991

$1,192,1

244,705

401,826

2E3,013 758,666

192991

229,482

Taxes and licenses Research cosls

178,806

Transportation and travel Environmental and social

r05,623

166,708 33,648 148,614

94,573

31,t23 74,293

63,316

13,696

r25,55 r

\21,090

64,725

10,341

393,332

52,012

71,014 49,9E0 30,687

90,43

31,6'17

3t,649

33,69',7

1?

33,449

29,6',73

I10,392

expenses

13',7,289

t25,620

Entertainment, amusement and r9creatlon Rent exp€nse Stock transfer fees

lnsumnce Communication Advertisement

48?r3 44,585 43,50E

Gasoline, oil and lubricants Repairs and maintenance oflice supplies

316

37

7

43,583 8,784

tls

Utilities

342r0

4t,727

Business meetings Condominium dues Security and janitorial services

31391 28F66

33,401

44,646 30,857

3',7,950

39,69s

|

Donation and contribution

26,141 22,190

31,E55 31,951

3r8

27

Tnining and seminar Dues and subscriptions Other services Fringe benefit tax Write-off of deferred exploration costs (Note I l) Others

21,03

7,181 4,139

43,332 31,044 6,497 40,696

r8l

23,120 32,980 229.27l

$2,907

,,others" pertain to miscellaneous expenses such fringe benefit taxes and reproduction exPenses.

as

$3.217.251

40,024

9,164 25,616 16,311

5

t2l

$1.91 I 0s2

development assistance, notalization, bank charg€s,

25. Misc€llaneous Income

Management income (Note 26) Rental income (Note 26) Gain on sale ofequipment Dividcnd income

OtheIs

2017

2016

2015

$159,E09 17,006 7,405 1,629 869

$169,376 18,054

$189,532 17,269

2,131

t,'704

172

ilffiiltffitilfllillilllll

Management income refers to administrative fees billed by PetroEnergy and Pelrocreen to For the terms and condition of related parry transactions, see Note 26.

Pefowind

26. Relsted Perty Transsctions

directlyor indirectly, to controlthe oth€r party orexeroise significant influence ov€rth€ other party in making financialand operating decisions Parties are considered to be related ifone party has the ability, directly or indirectly, to controlthe other party in making financial and operating decisions or the pafties are subject to common control or iommon significant influence (teferred to as 'Affiliates') Related parties may be individuals or Parties are considered to be related ifone party has th€ ability,

corporate entities.

Significant transactions with related parties are as follows: Transrcrions for the End€d Decemb€r

HI lntemalaudit services

Y€lrs 3l

Outsttnding Brlence Rec€ivables (Paytbles)

Terms and Conditions

($13333) ($20,052) ($s'62s) ($8,166)

Note a

Joint Venture

Pctrowind Due Fom Petrowind 17,006 Manag€ment incom€

1s9,809

l08.l9l

Note b Note b Note c Note d

$828,293 49,657 169,376 90.159

$l

a.

PetroEner$/ has engaged HI to perform internal audit senices on PetroEnergy HI charges retainer fe€ of F6t,000 ($i3i33), inciusive ofVAT p€r annum. Also' on March 22, 2016, PetroEnergy engaged HI for IT General Controls and System knplementation Review'

b.

On March 6, 201 5, Petrowind availed of a F20.00 million (or $0.42 nillion) loan from PGEC at 29, 2016 5.6o% annual interest payable in June 2016. This was rolledover and paid on December P20 00 million amounting fiom PERC loan additional On May 4, 2015, Petrowind availed ofan and rolled over This was 104%. rate of6 (or $0.i2 million) payable in May 2016 at annual interest paid on December 28,2016.

c.

Management income refets to timewriting charSes, management fees for accounting' l€gal, manafement and other support services rendered by PetroEnergy and Petrocreen to P€trowind

d.

Advances represents minimal reimbursement ofcosts and expens€s

e.

On November 12,2015, Petrosolar, together with PGEC and EEIPC, as the third parry mortgagors

and pledgors, entered into a F260 billion (or $5207 million) OLSA with.PNB and DBP with the loan Petro-Sola-r mortgaged all of its property and equipment as collateral in connectiot (see Nore I0).

Terms and conditions oJ transactiow lyith rclated palties Outstanding balances at year-end ar€ unsecur€d, interest-fiee and settlem€nt occrm rn cash' payables The There have-been no guaraniees provided or received for any related party receivables or

|||ffi

ilff flilil||lffi

fl fl

lllullillll

-58Group has not reoognizrd any impairment on amounts due fiom affiliated companies for the yeals ended Decemb€r 31. 2017 dnd 2016. This assessment is undertaken each financial year tblough a review of the financial position of the related party and the market in which the related party opemtes.

Compensation of Kev Manaqcment Personnel The Group has a profit-sharing plan for direato$, officers, managers and employees as indicated in its by-laws. The amount, the manner and occasion ofdistribution is at the discretion ofthe BOD, provided that profit share shall not exceed 5olo ofthe audited iflcome before income tax and profit share.

The r€muneration ofthe Group's direclors and other members ofkey management arc as followsl 2017

2016

2015

$374F90

$320,E22

$320,586 90,578

Salaries and wages and other

short-term benefits

5,952

Directors'fees Retirement

29,494

6,561

21.261

29.0'.7

$410,036 $354,644

|

$440,235

27. FiDsncial lnstrumentr The Group's principal financial instruments include cash and cash equivalents, tmding and investment securities'(financiai asseti at FVPL), receivables, resticted cash, loans payable, accounts payable, accrued expenses and dividends payable The main purpose ofthese financial instruments is to fund the Group's working capital requirements.

Categori€s and Fair Values of Financial Instruments es oiOecernber: t, 201? and 2016, the carryi[g amounts ofthe Crcup's financial assets and financial liabilities opproxi,nate their fair values except for loarls payable The fair value ofthe loans payable as zot; and 2016 amounted to $110.87 million and $120 39 rnillion compared to their ofoecembii carrying value of$130.37 million and $l 15.49 million, r€spectively

lt,

ThemethodsandassumptionsusedbytheGroupinestimatingthefairvalueoffinancialinstrumenls are:

cash,

Cash and cash equivalents, Reslricted Receivablesind Accounts payable accrued

erpenles

and

Due to the short_term nature ofthe instrumenls. carrying

amounts approximate

fair values as of the reporting

dale

Equity secwities

Fair values are based on publjshed quot€d prices.

GoActub shares

Fair values are based on quoted market prices as at reporting date.

Loans payable

Estimated fair value of long telm loans is based on the discounted value of future cash flows using the prevailing PDST-R2 at the rePorting period adjusted for credit spread.

flililililil|lil]lilillllllllilllllfr []

-59The tables in the next page show financial instsuments recognized at fair value as ofDecember 31, 201'l and2016. The fair value is based on the source ofvaluation as outlined below:

. . .

quoted prices in active markets for identical assets or liabilities (Level l); those involving inputs other than quoted prices included in Level I that are observable for the asset or liability, either directly or indirectly (Level 2); and

those with inputs for the asset or liabiliry (unobservabl€ inputs) (Level 3).

$at

are

not based on observable market

data

2071

Levcl I Financial ass€ts at FVPL

Markerable€quitysecurities Invesrmenr in qolfclub

3165,793

shares 15,422 $ltlrl5

Level2

LevelS

Frir Vrlu€

$-

s-

-

-

s165,79J 15,422

$l8lJ15 2016

Level I Financial assets at FVPL Markerabl€ equity securities lnvestm€nt in solfclub shares

$146,958 '\5,487

Level2

Level3

Fair Value

S-

$

$146,958

-

-

15,487

In 2017 and 2016, there were no transfers offinancial instruments among all levels.

Financial Risk Manaeement Obiectives and Policies The Group rnanages and maintains its own portfolio offinancial instruments in order to fund its own operationi and capital expenditures. Inher€nt in using these financial instruments are the followinS risks on liquidity, market and credit.

The main financial risks arising from the Group's financial instruments are liquidity rislq market risk and credit risk.

Liqltidity Risk Liquidity risk is the risk that th€ Croup is unableto meet its financial obligations when due. TheGroup monitors its cash flow position and overall liquidity position in assessing its exposure to liquidity risk The Group maintains a level of cash and cash equivalents deemed sumcient to ltnance its operations and to miiigate the effects offluctuation in cash flows To cover its short_term and long-rerm funding requiremenis, the Croup intends to use internally generated funds as well as to obtain loan from fi nancial institutions.

firmfiffiilil[il|I[il[||||[|mill

-60The lables below summarize the maturity profile ofthe Croup's financial assetr and financial liabilities as of Dec€mbet 31,2017 and 2016 based on contractual payments:

On

Flnro.i.l

tu*B.l

CNh rnd

FVPL

oih .quivrl.nrs

Ac.ourt r.ceivrble Int.r.d r.c.lv.bl.

Accoutrt!

ptyrhl. rrd.ccrt.d

L.ssrhrn 6 monlhs

d.n.Dd

20t7 6

io Mor.lhrr nonths 12 nonrhs

donthr 12

l-

5181:ls

1,t2t,659 271,010

12,944,922 ?,505,587

t,?85

ll,06l

s-

s-

tl8l215

t0,

2,6l3JtJ

0,5Er

1,716511

sl23{6 tla9251

E1S9t1 E15924

tjt5.689 20.51)55t0 2,6llJt3 28,6,16.451 1,691,25E 18,?10,80?

4?01586 5ar.96Ej2.t48.03t 1.691:5t r2l,tl0J0?

51tJ68

,t,570516 154,018,516

a11455a l5E.?9j.l)?0

trn.mi.l $..$ E c ludi aE s tatutory palab les ' 'r Includes ltturc interctt palnents

NGr

7016

Cah ed cah cquivalcnls

$62,445

t-

4,524.t96

8,386,192

7,804,452 2,031 2.412,521

t0.858_9tl

$-

-

ud

."p.irrir'

a@tued

z,qrt,zls t.lol.otr t9.525.88r

(S16,493

51,950 703.086 ?03,086 75?,016

D0,684,917

25,988,539 Ac@unls payabl.

t162,,145

5-

.-- --.

--:

(J129,927,9011

12,9t4,58E ?,858,402

2p37 3,r?5

24,1ll t56,613,416

.-l'l:s,ztz

(ll

'E cluding statutorr payables lnc l lde s fu t ure inte re st paynenls

" b.

Ma*et

Risk

Market risk is the risk of loss on future eomings, on fair values or on future ctsh flows that may result from changes in market pric€s. The value ofa financial instrument may change as a result of changes in equiry prices, foreiga currency exchanges rates, interest tates and other market changes.

Foreisn Exchanee Risk Foreigrr currency risk is the risk that the value ofthe Croup's finahcial inshuments denominated

other than the Group's functional currency diminishes due to unfavorable cha[8es in foreign exchange rates. The Group's lransactional currency exposures anse from cash and cash equival€nts, financial assets at FVPL, rec€ivables, restrict€d cash, loans payable and accounts payable and accrued expenses.

ililtiililmffiililll

-

6l

The Group's foreign currency-denominated financial instruments as of December 31,2017 and 2016 follow:

20t6

2017

Philippine

Dollar

Equivsleot

Cash and cash

F863,24?,160

$r7,289,r48

9,048,065

181,215

Philippine Dollar Peso Equival€nl F642,113,315

$12,914,588

Financial assets at

FVPL

7,841,906

39r,546342

Receivables Restricted Cash

174.218.602 3,489,251 r.$8.060.169 28,801,526

Loans payable

P5,266,t0s,148

$105,469,761

162,445

8,0'76,76s

6,879,745 122,933,744 2,472,521 22,429,299 I,l15,r84,745 342,060,921

?s;742,021,214 $115,487,273

Accounts payable ahd

ssts,Irt.zos

110,458,066 5.971.689,214

lll

Net

As of December 31, 2017,2016, the

619.t07

229_662

249.066,0s7

I20.105.380 91.617-081

F4,856

exchange rates used

for conveNion are P49.93

and

F49.72 per $1, respectively.

The followinS table demonstrates the sensitivity to a reasonably possible change in US dollar exchange ratel. with all other vatiables held constant, the effect on the Croup's income before income ta"r is as follows: Increase/(decrease) in

Effeat on income before income tax ($7,349,089)

2011

foreign currency +9yo -9Yo

1349,n89

2016

+50/o

(4,883,854)

-5%

4,8E3,854

There is no other impact on the Croup's equity other than those already affecting income before income tax.

Interest Rate Risk The Group's exposure to market risk for changes in interest rates relates primarily to the Group's Ioans payable. int€rest rale of loans payable is fixed for the first five (5) years or first seven (7) years and will be repriced thereaft€r.

The table below demonstrates the sensitivity to a reasonably possible change in interest rates, with 'fhe Group used the forecast€d one_ all other variables held constant, ofthe Group's net income year Treasury bill rate in performing the analysis next page

ililffiffiil|il|ililnil|

-62Loans payable

2011

IIr|pact on

Incr€rsc./decteas€

in int€rest rat€ (in brsis Doints)

before tax

($r20i0l)

+68oh ro +179r/o -6A"/" to -119o

120,301

2016 lmpact on

Increase/decrease in interest rate (in basis points)

mcome before tax

+t360/o -136%

($1,280,41l) 1.280,411

There is no other impact on the Croup's equity other than tiose already affecting inoome before income tax,

c.

Credit Risk There are significant conc€ntrations ofcredit risk within the Group since most of its financial assels are with consortium operator, although credit risk is minimal The gross maximum exposure ofthe Group's credit risk is equal to the carrying amounts ofthe financial assets.

The Group has a well-defined credit policy and established credit procedures. In addition' receivable balances are being monitored on a regular basis to ensure timely execution ofnecessary intervention efforts.

The Group determines the credit quality by class for loan-related consolidated statements of financial position lines based on the following: Cash in banks ahd shorl-lerm ihrestments reputation of the financial institution.

-

based on the nature of the counterparties and the

Receivables - based on the payment behavior of the counterparty. High glade pertains to receivables from consortiun operator and interest receivable from shon_term investments and standard grade penains to other reoeivables.

The tables below show the credit quality by class ofasset for loan-rclated consolidated statements of financial position lines, based on the Group's credit ratrng system as of December 31, 2017 and 2016:

----am;a'.--ml:I--;aHlqh gradc Stand.rd Cash and cash

€quivalentsr receivable le cash

Accounts Inter€st r€ceivab Reslrict€d

'e'dudns c6h

$20,106,25?

1,116,617 1,785 3.489'251

grsdc

s-

$31.383,6e6 S-

and

imprir€d

Totll

$- $20'106:s7 53,124 7,830'341 12'845

3'489'251

$s3,724 $!11!!l!L

on hand

ltlilillffillltffillHlll

-63 -

20t6

imDaired

Neither Dast due nor Hiqh gade Standard

grade

Past due and impaired

Cash and cash

$-

$-

$t2,909,843

equivalents+

51,950

1,804,452

Accounts receivable Interest receivable Re$ricted cash

-

2,03'l

3,t15,601

$

$23,89t.939

$53,950

Total $12,909,843 7,858,402 2,03',1

3,t15,601 $23,945,889

,ercluding cash on haad

28. Segment Information For management purposes, the Group is organized into business units based on their prodlcts and has

four reportable segments as follows:

.

The oil production segment is engaged in the oil and mineral exploration, development and

. . .

Droductlon.

The geothermal energy segment develops and operates geothermal steamfields and power plants The solar en€rry segment carries out solar energy operations ofthe Group Other activities Dertain to research and investm€nt activities

No op€rating segments have been aggregated to form the above repoftable opemting segments Ma[agement monitors the operating results ofits business units separately for the purpose of making decisi;ns about resource allocation and performance assessment. Segment performance is evalualed bas€d on operating profit or loss and is measured consistently with operating profit or loss in the consolidated fi nsncial statements.

OI Csrh.m.l Prddrclto. E..s

s6510t55 $16,sr13.6?t {3,r{r3,a69) 5,?16,155

orhdconprch;r're S.sm..l ..e.l! .rc.pt d.f.red

S.hr

f,!..tY

Olh.r

Acllvlti6 Elinln.tioD

s-

s12Ja2,l0a

4,227.&2

Cotuolld.l.d

!15,!5r,$6

1,30J,527

trt 5D.615

S.gment ll.bllhiB ercept d.|.rEd

D.L.r.d !r lLbllid6 . n.l c.sh no ttun (u.d t!): op.nlr,8 rcrirtl6

rn;60ricivlrie F

g

s2pl3,7l5 110,,170,??l s8,s08'0s6 s1f,9,201 ($!93's{r9) (4.354,r0O

el'337,l33) (280,197) (3'0d0'603) 6!qrr!!1

tr.023'23?

Q2,ee!)3el

".".6.".'."1 (bd.ft rrom) inonc

Provhlon lor

D.pl.dor, d.pE lrdon.!d

'..odiIi."

tl08r,?j6s2,l?'.'ls,'5r3J65$'|

rililuilffiilillllll

-64

En.'B/ Acuvrl!6 E|mndion CoDsoliddcd (ll4l,2a7) 113,629,660 ,:qt 1t1,74A,715) 2,967,696 l,5ll,9l9 10,001,755 1,111.617 5353212 19,091 19,091 -

OilProdudDn EnceY

Ncrinmnc(lo$) Olher @nDahen5ive $con.

S?snmr E&r. d@pl delerEd

d

t69

Sold

t2l4,299,772

t68.662,?52

t37.607

I

2l

D.a.rcd ru lrobrlnrB

-

s-

r.l

153.t-)9,)?1 t43,991,663

s-

F

$103.1

t1

11,51r,.36

$

11,517.530

(s92?,205) t6J22,t22(t14,379,84?) 12.335,721 t5,r21,423 { ,623,304) (3,467,871) (1,142) 15,122261

(r,5?9,650)

,lt,srtq;st,5tl(

r'"-"'n!crNitls

(t927,131)

0,55s,906)

Pro\u,on ro! (benefir hod)

30

C@thcm.l t6,514,615 221.t67

Oth( comDr.h.n5i!.

(402956)

4,56i,114

2,26EJ10

(2.046.625)

td

scgmcnt

liabilhi.s.xc.pt dcfcft d

D.fco.d

|u li$ihi.s n.l

csh nos

Consolidatcd

5

4,609,0?0

179

incomc

Segnerl 6se$ exepr dclctred

Elifri..rion

$16,96?,907

t216,82t,6.10

04.941

$8

t-

-

fiom (used in)l $1,216,2?5

$5,t89,6?0

6,167,879

(t4,296,558)

$3,281,t09

(9.9t8.0?l)

(2,616.351)

(6r,348,620)

(13.077,3,14)

13,215,553

l7

s22,158,575

(ll,68t,3lt 509.?54

100

5

c

1r.190,775

D.f.n.d oil .xtloration

cosls

I

58

501

$t7.541,841

r5,919

D.pl.tion, d.prcciation Md

844

lntercroup investrnents, revenues and expenses are eliminated dudng consolidation'

29. Basic./Diluted Errnings Per Shqr€ The computation ofthe Group's eamings Per share follows: 2017

2016

20r 5

$3,?93,701

sl,772,841

$2,680,20?

Net income attributable 1o equity holders of the Parent Company

Weighted average number

ihur"r

of

410,736,330 410,736,330

353'589'617

fi il|l||]fl

rI|lrfl llll[|lilllllull

Earnings per share are calculated using the net income attsibutable to equity holders of the Parent Company divided by the weighted average number ofshares. On June 3, 2015, the SEC approved th€ increase in the authorized capital ftom 330,000,000 shares to 700,000,000 shares at Fl pai value per share. Out of the entire incroase in tho authorized capital stock, 1 36,91 2, I I 0 common shares have been subscrib€d through dre Stock fughts Offering on May I I to | 5, 2015 (s€€ Note 20)

30. Non-controlling Interestr As ofDecember 31, 2017 and 2016, non-controlling interests (NCl) pertain to the l0% shareholdings ofEEI-PC in Petrocreen,35% shareholdings of PHINMA and PNOC in MGI and 44% shareholdings of EEI-PC in Petrosolar.

As ofDecember 31. 201? and 2016, the accumulated balances of and net income attributable to non_ conrolling interests are as follows:

20t6

2017

Accumulated bclances of non-controlling iDteaests:

5,270 s10,475,492 10,499,66s 4,813,510 6,530,054 8,713,076

$15,

MGI PetroSolar PetroCreen

$32,144,9Ee

$24,002r91L

Net income attributable to non-controlling

interests: MGI PetroSolar

Petrocreen

$2,000,6s8 r,860,057

$r,038,694

1

1.50r.453 $4.0E5,391

The summarized financial information ofthese subsidiaries is provided below in PhilippinePeso which is the subsidiaries' functional cunency This information is based on amounts before intetcompany

eliminations.

MGl The 201? and 2016 financial information for MGI follow: 2017

StstemeDts of Finrociol Position Current assets Noncurrent assets Current liabilities

Noncunent liabilities Equity Statem€nts of Comprehensiv€ Income Revenu€ Net income Total comprehensive income

20t6

P625,745938

F596,805,41I

496s,068rr5

3,759,030,839

348,820,164 3,094,978F39 2,141,015,450

2,4't 5 ,365,946 1 ,460,67 6,771

4t9,793,s27

832,083,551

?84,608,640

288,110,717 280,338,673

t40,E96,434 140,896,434

(Forward)

ilililmilililililil111

-6620t6

2017

Statemerts of Crsh Flows Net cash from (used in): OperatinS activities Investing activities Financing activities Effect of foreiSn exchange rate Ner increase in cash and cash equivalents

?522,805,601 (r,092,t24,s48) 667,880,s75 (3s,429) 97,826,199

?334,243,815 (577,9r0,655) 474,901,26E

(138,919) 231,095,509

Petrosolar The 2017 and 2016 financial information for Petrosolar follows: 2017

2016

Current assets

P491 ,247 ,646

P452,324,853

Noncurr€nt assets

2,E50,728,834

2,961 ,941

Cument liabilities

254J15,5r0 r,902,1E755s | ,t9t,473,415

2,108,t2s,427 978,400,512

622,016,575

55E,522,494

213,012,9O3

t66,734,332 r66,134,332

Statement of Finsncial Position

Noncunenr liabilities

Equity

,3',7

7

32',7,740,291

Stat€ment of Comprehensive Income Revenue

Net income Total comprehensive income Statement ofCash Flows N€t cash from (used in): Operating activities InvestinS activities Financing activities Effect offoreign exchange rate Net increase (decrease) in cash and cash equlvaren$

2r3,012,903

5',7 8,584,tE2) (172,422,s40)

424,t01,26r (r4,025,176) (39s,r83,852) (29384) 15,568,849

(272,565,5 | t')

(t ,025,873 ,245)

Petrocreen The 201? and 2016 financial information for Petrocreen follows: 2016

2017

Statem€nt of Finrtrcial Position

Inz,242,683

Current assets NoncurTent assets

2,009,388,667

Current liabilities

s6,r44207

Noncurent liabilities Equity Statement of Comprehensive Income Revenue Gain on derivative write-off Net incom€ Total comprchensive income

420,041,921 1,655,485,216

77,461,0n

|

"'7|,7l7,198 ,015 ,792,493 265,63t,092 423,030,E52

1

,17

5

,548,269

l1,453,609 510,882,721

15,45s,412

474,850,326

15,455A72

4'14,850,326

(Forward)

tNlluililluullllllllllluilllilll

20t6

2017

Statement of Crsh Florvs Net cash from (used in): Operating activities Investing activities Financing activities Effect of foreign exchanSe rate Net increase (decrease) in cash and cash equivalents

16,774,E13 Pl64,565,339 (365,062) (110,944,774)

052,E17,939) 225,029,550

48,411

6,674 78,993,15E

(6,696,026)

(nil Dividends paid to non-controlling interests amounted to F35.00 million (or $0 70 million) in 2017 in 2016).

The increase in non-contlolling interests from stock issuanc€s followsl

2017, Petrocreen received additional deposits amountinS to P19565 million (or (or $3.92 miilion) at par. The subscriptions increas€d non-controlling interest by P19 65 million stock for irture it-s deposit convened iO.:l .ittion1. is of December-3l, 2017, Peuocreen subscription into oapital stock which increased the non_controlling interest by

In

F45.15 million (or $0.90 million). increased the In 20l ?, Petrocreen also issued l,300,000 sharcs amounting to Pl3 00 million which (or ,nillion) $0.03 non-controlling interest by F1.30 million in authorized capital stock with the SEC Th€ an incr€ase filed lor MGI 19, 201?, September On million) was deposit for future stock slbscription amounling !o PI8000 million.(or $l equity. Non-controlling interest peftaining lo the deposit tor tuture stock

6l

reilassified as

subscription amounted to F63 00 million (or $1 26 million). (or $6 53 In 201i, MGI also received additional deposits in 201? amounting to F326 00 million non-controlling rittl*)'ut put, of which, Fl I ? 35 millio; (or $2.35 million) was received from interests. into capital As ofDecember 31, 2016, Petrosolar converted its deposit for future stock subscription million stock which increased the non-controlling interest by $4.46

ofthe Parent The increase in non-controlling interest from stock issuances does not resultto th€ dilution Company s effective interest in the subsidiariec.

31. Consolidated Statemert ofcesb Flows 2017 follow: Changes in the Company's liabilities arising from finaicing activities in

Delmrio.

lltd6r

or

-

(7,3t5,t44)

rNlttion

3,144,535

ruruHIilUflllIHlll

68

32. Reoewoble Energ/ Act of200E On January 3 0, 2009, Republic Act No. 9513, An Act Ptohoting the Development Utilization and Commercialization of Rehewable Energr' Resources ond Ior other PurpoJer, otherwise known as the "Renewable Energy Act of 2008" (the "Act"), became effective. The Act aims to (a) accelente the exploration and development ofrenewable energy resources such as, but not limited to, biomass, solar, wi;d, hydro, geothermal and ocean enerF,, sources, including hybrid systems, to achieve energy selfreliance, through the adoption of sustainable onergy development strategi€s to reduce the counffy's dependence on fossil fuels and thereby minimiz€ the country's exposure to price fluctuations in the intemational markets, the effects ofwhich spiral dow! to almost all secto$ ofthe e.onomy; (b) increase the ulilization of renewable energy by instilutionalizing the development of national and local capabilities in the use of renewable energy systems, and promoting its efficient and cosfeffective commercial application by providing liscal and non_fiscal incentives; (c) encourage the development and utilization of renewable energy resources as tools to effectively pr€vent or reduce harmful emissions and thereby balance the goals of economic grou4h and development with the prot€ction of health ald environment; and (d) establish the necessary infiastructure and mechanism to carry out mandates specified in the Act and other laws

As provided for in the Act, Renewable Energy (RE) developers of RE facilities, including hybrid systems, in proportion to and to the extent of the RE comPonent, for both power and non_pow€r applications, as iuly certified by the DOE, in consultation with the Board oflnvestments (BOI), shall be entitled to lhe following incentives, among others:

i.

iii.

Income Tax Holiday (lTH) - For the first sev€n (7) years of its commercial operations, the duly registered RE developer shall b€ exempt from income taxes levied by the National Covemment; D;ty-froe lmportltion ofRE Machinery, Equipment and Materials - Within the first ten (10) years upon issuance ofa cenifioation of an RE develop€r, the impo(ation ofmachinery and equipment, a;d materials and parts thercof, including control and communication equipmenl shall not b€ subject to tariff duties; Sp;cial Realty Tax Rates onEquipmentand Machin€ry-Any law to the contrary notwithstanding,

iv.

NOLCO - the NOLCO of the RE developer dlring the first three (3) years fiotn the starl of

ii.

v. vi. vii.

realty and other taxes on civil works, equipment, machinery, ald other improvements of a registered RE dgveloper actually and exclusively used for RE facilities shall not exceed one and a half percent (l.5%) of their original oost less accumulated normal depreciation or n€t book commercial operation which had not b€en previously offset as deduction from gross inoome shall years be carried over as deduction ftom gross income for the next s€ven (7) cons€cutive taxable immediately following the year ofsuch loss; Corporate Tax Rate - After seven (7) years ofITH, all RE developers shall pay a corporate la'\ of ten percent (10%) on ia net taxable income as defined in the National Intemal Revenue Code of 199?, as anended by Republic Act No. 933?; Acceierated Depreciation - If, and only if, an RE project fails to receive an ITH before full operation, it may apply for accelerat€d depreciation in its tax books and be taxed based on such; Zero Percent VAT Rate - The sale offuel or power generated liorn tenewable souces ofenergy,

oflocal goods, properties and services needed for the development, construotion and instillation ofthe plant faciliti;, as well as the whole process ofexploration and development of RE sources up to its conversion into power shall be subject 10 zero percent (0%) VAT; Cash Incentive ofRE Developers for Missionary Electrification - An RE developer' established after the effectivity ofthe Act, shall be entitled to a cash generation_based incentive per kilowatthour rate genelated, equivalent to fifty percent (50%) ofthe universal charge for power needed to

the purchase

viii.

service missionary areas where it operates the samei

mililililililtrnilllll|mfr|ilill

-69-

ix. x.

Tax Exemption of Carbon credits - All proceeds from the sale of carbon emission credits shall be exempt from any and all tax€s; and Tax Credit on Domeslic Capital Equipment and Services - A lax credit equivalent to on€ hundre-d percent (100%) ofthe value ofth€ VAT and custom duties that would have b€€n paid on the RE machinery, equipment, materials and parts had these items been imported shall be given to an RE operating contract holder who purchases machinery, equipmont, materials, and pa(s from a domestic manufacturer for purposes set fonh in the Act.

RE devolopers and local manufacturerc, fabricators and suppliers of locally_produced RE equiPment shall register with the DOE, through the Renewable Ener$/ Management Bureau (REMB) Upon registration, a certification shall be issued to each RE developer and local manufacturer, fabricator and supptier of locally-produced renewable energy equipment to serve as the basis oftheir entitlement to the incentives provided for in the Act. All certifications required to qualifu RE develop€rs to avail of the incentives provided for under the Act shall be issued by th€ DOE through the REMB

33. Electric Pow€r Industry R€forut Act (EPIRA) 1990s, the PhiliPpine program to ensure the envisioned privatization and restructuring Covemm€nt embarked on an industry scheme is This resfucturing adequate supply of ele4tricity to energize its developing economy. embodied in RA No. 9136, the EPIRA. Approved on June 8,2001, lhe EPIRA seeks to ensure quality, reliable, secure and affordable electric power supply; encourage free and fair competition; enhance the inflow of private capital; and broaden the ownership base of power generation, $ansmission and

After emerging from the crippling power crisis that occuned in the early

distribution.

The Govemment viewed restructuring and reform as a long-term solution to the problems ofthe power sector. The huge inv€stment requirement for new Seneration caPacity and €xpansion of the necessary transmission and distribution network was estimated at an arutual average of$l 0 billion Given its own fiscal constraints, the Govemment recognized the need for geater private sector involvement in the power sector. Even though some private sector participation was successfully introduced earlier between the NPC and private investors, this time, the Covemment is env ision ing addressing the power sector inefficiencies and the monopoly in the gene.ation business EPIRA mandated the overall restructuring ofthe Philippine electric power industry and called for the privatization ofNPC. The restructuring ofthe electricity industry calls for the sepantion ofthe different comPonents ofthe power sector, namely: generation, transmission, disfibution, and supply. On the oth€r hand, the privatization ofthe NPC involves the sale ofthe state-o\,laled power firm's generation and transmission assets (e g

power plants and transmission facilities) to private investors. These two reforms are aimed at encouraging greater competition and attracting more private-sector inv€strnents in the power indusfy A more competitive power industry will in tum resultin lower Power rates anda more efficient delivery of electricity supply to end-users.

Specifically, the EPIRA has the following objectives:

. . .

Achieve transparency with the unbundling ofthe main components ofelectricity services, which be reflected in the consumers' electricity ratesl Opening up ofthe el€ctricity market to competition at the wholesale (generation) level to improve efficiency in the operation ofpower plants and redound to lower electricity prices; Enhance further inflow ofprivate capital and broaden ownership base in generation, transmission distribution, and supply ofelectric powet;

will

ruilnilmlmill

l0Establish a strong and independent regulatory body that will balance the iDterest of both the investo$ by promoting comp€tition throuSh creation of a l€vel playing field and protect the electricity end-users from any market power abuses and anti-comp€titive behaviors; and Accelerate and ensure the total electrification of the counFv.

34. Materlal Contrrcts and Agreem€nts Foreisn Petroleum Operations Exploration and Production Sharing Contract Gabon, West Africa (Note

l0)

- Gabon The Joint Operating Agreement (JOA) establishes the respective rights and obligations ofthe members of the Consortium with regard to the operations undet the EPSC, including the joint exploration, appraisal, development and production ofhydrocarbon reserves from the contract alea VAALCO has been appointed as the Opemtor ofth€ field and shall continue to act as such until such time that all the JV Partne6 decide to appoinl a new Op€rator fiom arnonS them.

Joint Operating Agreenent

Crude Oil Sales and Purchase and Senices Agrcenent (COSPA) with Glencote Energ UK Ltd In 2015, the JV Partners signed a COSPA with Glencore Enerry UK Ltd., a company incorporated in England. The initial agreement is effective from August l,2015toJuly3l,20l6 This was later on extended until January 31,2017 and was further extended untilJanuary 3l,20l8 onF€bruary1,20l8 another oxtension ofthe COSPA took effect, which shall be valid until January 3l' 2019.

Philippine Petroleum Operators The Company is pa( of various consortia for the following petoleum sewice contracts (see Notes and I l);

l0

Service Contract (SC)

sc 6A sc l4c2 sc 5l sc 75

Octon, Nonhwest Palawan West Linapacan East Visayan Basin

Offshore, Northwest Palawan

Under the SCs entered into with the Department of Energy (DOE) covering the peholeum contract areas located in the Philippines described above, the participating oil companies (coll€ctively known as Contractors) are obliged to provide, at their sole risk, the services, technology and ftnancing necessary in the performance of their obligations under these contracts The Contractors are also obtiged to spend sFlecified amounts indicated in the contmct in direct propodion to their work obligations. Should the Contractors fail to comply with their work obligations, lhey shall pay to the govemment the amount they should have spent but did not in direct proPortion to theirwork obligations. ihe participating companies have Operating Agreements among themselves which govern their rights and obligations under these contracts.

At present, all ofthe above are in the explomtion stage, and the CompaDy is carried free up to at least the drilling ofthe first well, Please se€ discussioh on the status ofthe above service contracts undel Note l0 and I l

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Ceothermal Renewable En€rsv Service Contract (CRESC)

On February 1, 2010,

PetroEnergy signed GRESC

No. 2010-02-012 covering the

Maibaram

Geothermal Field in Laguna and Batangas areas, following a Philippine Energy Contracting Round for Geothermal held by the DOE in November 2009, where the Company emerged as the lone qualified bidder.

On August I l, 2010, the SEC approved the incorporation of MCI, whose principal blsiness is to develop and op€rate geothermal steam fields and powerplants. The GRESC was then assiSned to MGI.

MGI developed the Maibarara Geothermal Power Project (MGPP), which was Put on commetcial operation on February 8, 2014. The MGPP is the first commercial geothermalpower facility under the administration ofPresident Benigto S. Aquino, llI, the n€west in the country since 2007, and the first renewable energ/ (RE) project to 80 commercial under the 2006 RE Law.

Electricitv Supply Asreement for MGPP I On September 16,2011, MGI executed an Electricity Supply Ageement (ESA) with PHINMA wherein MCI a$eed to sell to Trans-Asia the entire generat€d output of MGPP I for a period of 20 yea$ commencing on the commercial operations. The commercial opemtions of MGPP I commenced on February E,2014.

Electricity Suoply Asr€ement for MGPP 2 On April 26, 2016, MGI entered into an ESA with PHINMA, wherein MGI ageed to sell to PHINMA the entire g€nerated output ofth€ MGPP 2 for a period of20 years from start ofcommercial operations.

It is estimat€d that MGPP 2 will start commercial operations by 2nd quarter of20l7 Solar Enerqv Service Contract rSESC) for Tarlac onMarch25,20l5, Petrocreen signed with the DoE a service contracr for a I0-50 MW Solar Power Project near Hacienda Luisit4 Tarlac: Solar Energy Service Contract No 20l5-03-ll5 Renewable Enerqv Paymept Aaeement (REPA) Consequent to the issuance of FIT COC in its favol, PSC entered into a REPA with the Transco on ADril 6, 2016. Under the REPA, Transoo shall pay the FIT Rate of Php8 69,4(Wh for all metered generation ofPSC for a period of twenty (20) years from slart ofcommercial Operations

Solar Enersv Service Conlract for Pueno Princesa On February 2'7, 2Ol7, Petxocrcen signed with the DOE a service oontract for the proposed Puerto Princesa Solar Power Project in Pue(o Princesa City, Palawan: Solar Enerry Service Contract No 2011-01-360. Pehocreen intends to immediately commence its two_year Pre_development DOE_ approved work program with technical and financialdue ditiSence studies forthis solar project Renewable Energy Proiects (thrcug:h the Croup's affiliate. PWEII

lfind Energ,, Senice Co truct (VESC) The sewic; contract for the NWPP covers 2,000 hectares ofpublic and private lands in rolling terrain located near lhe northwestem tip of Panay Island. lt lies about 6 km southeast of Caticlan, and electricity-deficient Panay and Boracay islands are natural markets of future power from Nabas or the Nabas WESC. In 2012, activities were locused on securing critical govemment permits, oompleting technical f€asibility studies and initiatinS requests for engineering, procurement and construction bids PGEC incorporated Petrowind Ener$/, Inc. (PWEI) on March 6, 2013 to undertake the NWPP.

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It was decided that the NWPP will be constructed in two phases. Phase I for the existing 36MW NwPP-l coDsisting of 18 Wind Turbine Generators ("wTC"); while Phase 2 will be a l4MW development that will have seven (7) WTGS (NWPP-2).

Confmation ofcommerciality ofthe 36 MW NWPP-l, making the third WESC to be declared commercial. This converted the Nabas WESC from the PreDevelopment Stage to the Development Stago, enabling PWEI to proceed with the construction and dev€lopment ofthe NWPP-I. EEI Corporation ("EEI") was engaged to conduct the civil works consisting of the consfuction of the access roads, temporary landing pad and the WTG foundation.

Cendaur Engineering was conhacted to undertsle tie construction of the transmission line and substation. Camesa Eolica SL Unipersonal, a Spanish company, and its Philippine branch were engaged to supply, transport and install the WTCS. Construction ofNWPP-1 started in Decemb€r 2013 and was completed in the first halfof20l5 On May 26,2013, the DOE issu€d the

it

On March 24, 2015, PWEI successfully energized and dispatched power fiom 8 WTGS (WTG'S 1-8) to the Visayas grid. On April 17, 2015, the DOE issued its Nomination for FIT Eligibility of NWPP 1.

Th€ DOE also released on April 30, 2015, its Certificate ofEndorsem€nt ofNwPP l, which is orc of the requirements for the ERc to process PwEI's Certificate of compliance ("COc") for the power facility and for FIT eligibility. ByJl)ne20l5,all l8 WTG'S became operational. OnJunel6,20l5, the DOE released the Cortificate of Endorsement ("COE") for FIT Eligibility cndorsing the official start ofcommercial operation to be June 10, 2015. The ERC also completed the site visit for DOE'S COE-FIT validation on lune 24-25,2015. On August 17, 2015, the ERC apprcved PWEI'S COC for NWPP 1. This confirms the commercial op€ration date ofthe wind farm to be June 10, 2015.

In 2017, recently-merged WTG supplier Siemens-Gamesa completedthe following maintenance

work

on site: l) 24-month wind turbine-Senerator (WTG) maintenance in June, 2) 30-month WTG maintenance in November, 3) semi-annual electrioal maintenance in October, and 4) sev€ral and specific corrective works on the WTG blades and electrical modules.

Major and Ionglead equipment spares, such as WTG transformer, Senerator, and Searbox, were acquired to avoid long and unplanned shutdowns due to sudden equipment failure similar to those that recently plagued other Philippine wind d€velopers.

Total energy exported to the grid is 97,853.5 8 MWh and 103,495.76 MWh for the Project's Phase 1, io 2017 and 2016, respectively.

S hare ho lden A gre ement (SHA)

A

The On May 16, 20 l 7, Petrocreen entered into a S[1A with EEIPC and BCPG Wind Cooperatief U to define their of PWEI and SHA govems the relations of these three companies as shareholders respective rights and obligations as such.

Omnibus Loan and Securitf Ageenent (OL*l) with DBP On November 4, 2013, PWEI executed an OLSA with the Development Bank

ofthe Philippines for a The proje.t porlion the cost of Nabas firnd the 70% debt of loan facility of up to P2.8 billion to pledgor guarantor, and third as a Company signed the OLSA as a Guarantor while PetroGreen signed Party Mortgagor.

I.

Rene\|able Energ/ Payment Agreement (REPA) Consequent to the issuance of FIT COc in its favor, PWEI entered into a REPA with the Transco on July 30, 2015. Under the REPA, Transco shall pay the FIT Rate of Php7 40/kwh for all metered gen€ration of PWEI for a period oftwenty (20) y€als from slart ofcommercial Op€rations.

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-7335. Ev€nts After the End ofthe Reporting P€ od On July 26, 2017, at the BOD meeting, the Parent Company was authorized to raise approximately one billion pesos (F1,000,000,000) in capital, by offering and issuing to alleligible stockholders as ofrecord date, th€ rights to subscribe up to all ofthe €xisting unissued common shares ofthe Parent Company (" Stock Rights Offer").

On September 29, 2017, the Par€nt Company filed its application for the listing and trading of rights tle PSE approved the application to list the fughts Shar€s.

shares with the PSE. On Decemb€r 13, 201?,

The rights olfer entitled eligible stockholders as ofrecord date ofJanuary 12, 2018 to subscribe to one rights share for every 2.6 shares held at an offer price ofP4.80 per share.

The rights offer was underlaken in January 22 to 26, 2018. Following the close of the offer period, the Parent Company successfully completed the stook rights offer for t57,975,512 common shares with gross proceeds ofF?58.28 million and was subsequently listed on the PSE on February 2, 2018.

The proceeds from the stook rights offer will be used for lhe development and expansion plans ofthe Group's renewable energy projects and Seneral corporate requirements.

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, '.,,*#

scv

sycip Go.E verayo & co 6760Ayab Av6nu6

Ter: {632) 691 0307

1226

ey.com/pli

Makariciry

Far (632) 419 0372

aOA/PRC Reg No 0001.

Dec6mb6r1.r 20i5. valid unrrlDecefrb6r31 2014 sEc acd6dharion No o012 FR-.4(Group a), November 10,2015 valrd unlilNowmbor 9 2013

INDEPENDENT AUDITOR'S R.EPORT ON SUPPLEMENTARY SCHEDULES

The Board of Directors and Stockholders PetoEnerry Resources CorPoration 7th floor, JMT Building, ADB Av€nu€ Ortigas Center, Pasig City

We have audited in accordance with PhilipPine Standards on Auditing, the consolidated financial statements ofPetroEnergy Resources Corporation and its subsidiari€s (the Group) as at and for the years ended December 31,2017 and 2016 and have issued our.eport ther€on dated April l l, 20l8 our audits were made for the purpose offorminS an oPinion on the basic financial statements taken as a whole. The schedules lisled in the lndex to consolidated Financial statements and supplementary schedules are the responsibility ofthe Group's management. These schedules are presented for purposes ofcomplying with Securities Regulation Code Rtrle 68, As Amended (201 l) and are not part ofthe basic financial statements. Theseichedules have been subjected to the auditing procedures applied in the audit ofthe basic financial statements and, in our opinion, fairly stat€s, in all material respects' the information reouired to be set forth thetein in relation to the basic financial statements taken as a whole

SYCIP GORRES VELAYO & CO,

krk",S,?'J Partner

CPA Cedficate No. 80470 SEC Accreditation No. 0660-AR-l (Group A), March 2,201?, valid until March 1,2020 Tax Identification No. 102-082-670 BIR Accreditation No. 08-001998-63-201 I, February 14,2018, valid untilFebruary 13,2021 PTR No. 6621232, January 9, 2018, Makati City

April I1,2018

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PETROENERGY RXSOURCES CORPORATION A}ID SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENIS AI\D SIJPPLEMENTARY SCHEDULES SEC FORM 17-A

CONSOLIDATED FINA}TCIAL STATEMENTS Statement ofManagement's Responsibility for Consolidated Finanoial Statemenls Report of Independent Auditors' Report

consolidated Statements ofFinancial Position as at December

3l,

201? and 2016

Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements ofComprehensive [ncome for the years ended December 3l, 2017, 2016 and 2015 Consolidated Statements ofchanges in Equity for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements ofcash Flows for the years ended December 31, 2017, 2016 and 2015 Notes to Consolidated Financial Statements

SUPPLEMENTARY SCIIEDULES Report of Independent Auditors' on Supplementary Schedules Schedules Required under SRC Rule 68-E Financial Assels Amounts Receivable from Directors, Officers, Employees, Related Parties, and Principal Stockholders (Other than Related Parlies) Amounts Receivable from Related Paities which are Eliminated during the

A. B.

C. D. E. F. C. H.

Consolidation of Financial Staternents Intangible Assets - Other Assets Long-term Debt Indebtedness to Related Parties Cuarantees of Securities ofOther IssueN Capital Stock

Additional Components Schedule of Financial Soundness Indicators Schedule

ofall

the effective standards and interpretations under PFRS as ofDecember 31, 2017

Map of the retationships ofrhe Companies widrin the Croup

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PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION AND DISCLOSURES REQUIR.ED ON SRC RULE 68 AS AMENDED DECEMBER 3t, 201?

Philippine Securities and Exchange Commission (SEC) issued lhe amended Securities Regulation Code Rule SRC Rule 6E which consolidates the nvo sep?rate rules and labeled in the amendment as "Part I" and "Part II", respectively. [t also prescribed the additional information and schedule requirements for issuers ofsecurities to the public.

Below are the additional information and sohedules required by SRC Rule 68, as Amended (201l) that are relevant to the Group. This information is presented for purposes of filing with the SEC and is not required part ofthe basic financial statementsSchedule A. Financial Assets The Croup is not requir€d to disclose thc financial assets in equity securities as the total financial assets at fair value through profit and loss securities amounting to $181,215 do not constitute 50% or more ofthe total current assets of the Group as at December 3 I , 20 I 7.

B.

Amounts Receivable lrom Directors. Offrcers. EmDloYees. Related Parties and Principal Stockholde$ fother tlan Related Parties) As of December 31. 2017. there are no amounts receivable from directors, officers, employees, related parties and principal stockholders that aggregates each to more than P100,000 or l% oftotal assets which_ ever is less, Schedule

Schedule C. Amounts Receivable ftorn/Pa],able Consolidation of Financial Statements

to Related Panies which arc Elimilated duine the

The following is the schedule ofrec€ivables from related padies, which are eliminated in the consolidated financialstate ents as at December 3),20171 Balance al

Amounls Amounts beginningof pcdod Addiions @llcctcd witten off Nol Cunelt Nme und Designalion ofdeblor $$ $$57,658 S57,65E r*roGrcin Energy Corporation 764,654 )55,280 116,939 Mdbrara Geothemal, lnc.

140,060 140,060 NRDCI

145.650)

s719.004 $352.998

J314,65?

F

Balance al end ofpcrigd

$-

F

802'995

01,!l!)

St57,531

.Diftcrcncc is dueto forcign exchrng€ diferenccs.

Transactions with other related parties outside the Group.

Please refer to Note 25 ofthe Consolidated Financial Statements Schedule D. Intangible Asset The Group has an insignificant amount of intangible assets as of December 3t, 2017 amounting to $2.8E million. Bulk ofthe intangible asset pertains to lhe land rights acquisition ofPetrosolar' Schedule E. Lonq-telm Debt Please rcfer to the Consolidaled Audited Financial StalemehL Note

l6for

delails of lhe loaB

||ff ililtilm|iltilililil|tffi

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-2Schedule F. lndebtedness to Related Parties (Lons Term Loans from Related Componies) The Croup has no outstanding long-term indebtedness to related parties as of December 3 I , 20 I 7.

Schedul€ G. Guarantees of Securities of Other Issuers The Group does no! have guarantees ofsecurities ofother issuers as ofDecember 31, 2017.

Schedule H. Capital Stock

Offic€ls ard

Title ofissuc

Others

?00,000,000

4

t0,736,330

92,029,566

4,068,415

I r4,618,149

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PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES SCHEDULE OF FINANCIAL SOTJNDNESS INDICATORS AS OF' DECEMBDR 31, 2017 and 2016 Financ ial Soundness I ndi cato^ Below are th€ financial ratios that are

rcleva

to the croup for the

ye

ended Decemb€r 31,2017 and 2016:

2011

Financial ratios Cunent ratio (rmder page

3 I,

KPI

)

Total current assets Total current liabilities

Solvency ratio

Afler tax netprofit + depreciation Long-term + shon-tem liabiliries

Debt-to-Equity Ratio

Totalliabiliries

(under page 31, KPI)

2016

l.2ltl

|.24:l

0,llrl

0.1l:l

1.37:1

1.4:l

2.37t1

2.4.1

2.02:1

1.6.t:1

Total stocklolder's equity

Assetto-Equity Ratio

Total assels

(under page 31, KPI)

Total stockholde/s €quity

Interest rate coverag€

mtios

EarDinSs per share

EaminSs before interest and taxes

(EBIT)

Net income Weight€d average no.

Price Eamings Ratio

Closing price Eamings per share

Nel income

Long term debi-to-equity ratio

Long l€rm debr

Equity EBITDA to toral inter€sl paid rlnterest erpense is capitalized

'*Ea

s0.0092

Fl3,l5

20.33

22.6ry"

t2.129.

t.09:l

Ll5:l

2.82

2.52

EBITDA** Total interest paid as

s0.004J

pad ofthe constrltctioh-in_prcgess account under ppE.

ings belorc intercst, tares, depreciation ahd amortization (EB|TDA)

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PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES SCHEDULE OF ALL THE EFFECTIVE STANDARDS AND INTERPRETATIONS UNDER PFRS AS OF DECEMBER 3I. 2017

Below is the list ofall effective Philippine Finaacial Reporting Standards (PFRS), Philippine Accounting Standards (PAS) and Philippine Interpretations of Intemational Financial Reporting Interpretations Committee (lFRlC) as ofD€cember 31, 2017:

Framework for the Pr€paration and Preseltlaion ofFinancisl strtements Conceptual Fmmework PhaseA: Objectives snd qualitativ€ characterisrics PFRSS

Pnctic€ Statcmcnt Management Commentrry

Philippin€ Finrncial R€portlng Strndards PFRS I (Revised)

First-time Adoption

of

Philippine Financial Reporting

Standards

Arnendments to PFRS I and PAS 27: Cost ofan Investment in a Subsidiary Jointly Controll€d Entiry orAssociate Amendments to PFRS

Amendment

to

Amendments

to

l: Additional Exemprions for First-

l:

PFRS Limired Exemprion from Comparalive PFRS ? Disclosures for Firsl-time Adopters PFRS

lr

Severe Hyperinflation and

Removal of Fixed Date for First-time Adopters

Amendments to PFRS lr Govemrn€nt Loans PPRS 2

Share-based Pa),rnent

Amendments to PFRS 2: Vesling Condi$ons and Cancellations Amendmenls to PFRS 2: Group Casb-settled Share-based Pa),rnent Transactions

lmprovement to PFRS 2r Definition ofVesting Condition Amendrnents to PFRS 2: Classification and Measurem€nr

of

Share-based Pa),noDt Transactions

PFRS 3 (Revised)

Business Combinations

Amendment

to

PFRS

3r

Accounring

for

Contingent

Consideration in a Busin€ss Combination

Amendmeni

:o

PFRS

3:

Scope Exceprions

for

Joint

PFRS 4 Amendments to PAS 39 and PFRS 4t Pinancial Cuarantee Contracts

PFRS 4

Amendment

to

PFRS

4: Applying

PFRS

9,

Financial

||iltruflilffiililt|

-2-

(cont.)

PFRS

lnsrruments, with PFRS 4 5

Non-currenl Assets Held

for

Sale and Discontinued

Operalions

Amendment to PFRS 5r Changes in Methods ofDisposal

PFRS

6

PFRS 7

Exploration for and Evaluation ofMineral Resources Financial lnsEum€ntsr Disclosures

of

Amendments to PAS 19 and PFRS 7: Reclassification

FinancialAssets Am€ndment! to PAS 39 and PFRS 7: Reclassification FinancialAssets - Effective Date and Transition

of

Amendmerts to PFRS 7: Improving Disclosures about Financial lnstruments Am€ndments to PFRS 7: Disclosues - Transfers

of

FinancialAssets Amendm€nts to PFRS 7: Disclosures - OfTsettine Financial Assets and Financial Liabilities Am€ndments to PFRS 7: Mandatory Effective Dare PFRS 9 and Transition Dis€losures

of

PFRS 7r Financial lnstrumcnts: Disclosures - Servicing

Contracb Amendmenr to PFRS 7: Applicabiliry of the Amendments to PFRS 7 ro Condensed lnterim Financial Statement

PFRS

E

Operating Segments

Amendm€nts

to

PFRS

8:

Aggregation

of

Operaring

Segments and R€conciliation ofth€ Total ofthe Reportable Segments'Assets to the Entity's Ass€ts

PFRS 9

Financial Insmments Amendmentsto PFRS 9: Maodatory EFective Date ofPFRS 9 and Transition Disclosures

PFRS IO

Consolidated Financial Statem€nrs Amendments to PFRS l0: lnvestment Entities

Amendments to PFRS I0: Sale or Conniburion of Asscts between an Investor and its Associate or Joint Ventue

Amendments

to

PFRS

l0: Applying the

Consolidation

Exceplion

PFRS

II Amendments to PFRS I I: Accounring for Acquisitions Interests in Joint Operations

PFRS 12

of

Disclosura of Intercsts in Other Entities

ililililtffi ililillilNililil]ililililrilil]

Amendments to PFRS l2r lnvestment Entities Amendments 1o PFRS l2: lnvestnent Entities: Applying th€ Consolidation Exception

Amendnents

to PFRSI2: Clarificarion of

Scope

of

the

Slandard

PFRS T3

Fair Value Measurement Amendment to PFRS 13: Portfolio Exception

PFRS 14

Regularory Deferral Accounts

PFRS 15

Rev€nue liom ContsacB with Customers

PFRS 16

Leases

Ph

llippin€ Accou nting Standrrds

PAS I (Revised)

Presentation of Financial Stat€ments

Amendment to PAS lr Capital Disclosures

Am€ndmonts to PAS 32 and PAS lr Punable Financial Insfuments and Obligations Arhing on Liquidation

l:

lo PAS Presentation CohDr€hensive ltcome or OCI Amondments

of Ilems of

Other

Amendm€nts to PAS I: Disclosure lnitiative PAS 2 PAS ?

Slatement ofCash Flows

Am€ndments to PAS 7: Disclosure lniriative PAS 8

Accounting Policies, Changes in Accounting Estirnaies and Errors

PAS IO

Dvents after the Repoddg Date

PAS

II

PAS 12

Construction Contracts lncome Taxes

Amendment to PAS 12 UnderlyingAsseb Amendments

-

to PAS 12:

Def€red Tax: R€covery of

Recognirion

of

Deferr€d Tax

Assets for Unrealized Losses

PAS 16

Property, Plani and Equipment

Amendments

to PAS 16: Clarificarior of

Acceprable

Meft ods of Depreciation and Amortization Amendments to PAS 16, Property, Planl and Equiprnenl Bearer Plant PAS 16

(cont.)

Amendmentto PAS 16rRevaluation Medod

- ProDortionate Restatemenr of Accumulated Depreciation and Am;nizauon

||utut]ilillutufll

PAS I7

L€ases

PAS 18 PAS 19

(Rcvised)

Ernployee Benefiir

Amendments to PAS l9r Defined Benefit Plans - Employee Contributions Amendment to PAS Discount Rate

PAS 20

Accounting

for

l9r Regional Market

Issue Regarding

Gov€mment crants and Disclosure

of

Govemment Assistance PAS 2I

The Emects of Changes in Foreign Exchang€ Rates Amendment: Net Invenmenr in

PAS 23

a

Forcign Operalion

Bonowing Cost!

(Revised) PAS 24 (R€vised)

Related Party Disclosules

PAS 26

Accounling and ReponinS by R€riremenr Benefil Plans

PAS 27

Sepanle Financial Statements

(Amendcd)

Amendment to PAS 24: Key Management Personnel

Amendments lo PAS 27: Investment Entities

Amendments to PAS Firancial Statements PAS 28

(Am€nded)

27: Equity Method in

Separat€

Investments inAssociates and Joint Van(ures

Am€ndments to PAS 28: Sale or Contribution of Assets between an Investor and ils Associate or Joinr Venrure Amendments to PAS 28: Investment Entiti€s: Applying the Consolidation Exception Amendments to PAS 28: Long-term lnierests iD Associates

PAS 29

Financial Reporting in Hyperinflationary Economies

PAS 32

Financial Instruments: Disclosure and Presentatior Amendments

to PAS 32 and PAS

l:

Putrable Financial

Insrruments and Obligarions Arisrng on Liquidarion

Amendm€nt to PAS 32: Classification ofRights Issu€s Amendmenrs to PAS 32i Otrsetting Financial Assets and Financial Liabilitics PAS 33

Eamin8s per Share

PAS 34

lnterirh Financial R€porring

Amendment

to

PAS 34r Disclosur€

of

Information

ltililililllilil|il|tffi mil|ll|frlilltl

-)-

"Elsewhere in dre Interim Financial Repon" Impairmenl ofAssets

PAS 36

Amendrnents to PAS 36: ImPairment ofA$eis' Recovcrable Amount Disclosures for Non'Financial Assets PAS 37

Provisions, Contingent Liabilities and Conlingent Ass€ts

PAS 38

In(angible Ass€ts

Amendments

to

PAS 38: Clarificadon

of

Acceptablc

Methods of Depreciation and Amonizadon

to PAS 38: Proponionate Restatement ot Accumulated Depreciation and Anortization Amendment

Financial Instruments: Recoglition and Messurehent

PAS 39

Am€ndments to PAS 39: Transition and Initial Recognition ofFinancial Assets and Financial Liabilities

Amendmerts to PAS 39: Cash Flow Hedge Accourling

of

Forecast Intragroup Transaclions

Amendments to PAS 39r The Fan Value Option Amendmenls to PAS 39 and PFRS 4: Financial Guamntee Contracts Amendments to PAS 39 and PFRS FinancialAss€ts

7l R€classification of

of

Amendments to PAS 39 and PFRS 7: R€classification FinancialAssets - Effective Date and Transition

Amendm€nts to PhiliPpine lnterPretalion IFRIC 9 and PAS 39: Embedded Derivatives Amendment to PAS l9: Eligible H€dged Il€ms Amendments to PAS 39:Financial ln$ruments: Recognition

and Measuement

-

Novation

of

Dcrivatives

and

Continuation of H€dge Accounting lnv€stment ProPertY

PAS 40

Amendments to PAS 40: Transfer of lnvestm€nt Properties PAS

4I

Agriculture Amendmenrs

to

PAS

4l:

Bearer Plants

Philipptne In erPretations

IFRIC I

Changes in Existing Decommissioning, Restoration and Sirnilar Liabiliri€s

IFRIC 2

Members'Share

in

Co-oPerative Entities and Similar

lnsfuments

tFRlc

4

Delernining whether

an Aftahgement

Contai$ a I'edte

ffimil[il|ilil||11ilffiil|nililru

-6-

IFRIC 5

Righls

to

lnterests arising Aorn DecommissioniDg,

Restoration and EnviroDmental Rehabilitation Funds

IFRIC 6

Liabilities arbingfron Paiicipating in a Specilic Market Waste Electrical and Electrcnic EauiDnent

IFR]C 7

Applying the Restatenent Approach under PAS 29 Financial Repoting in Hlpetinfationary Ecohomies

IFRIC

E

ITRIC 9

Reassessment of Embedded Derivatives

Amcndments ro Philippine lnterpretarion IFNC 9 and PAS 39: Embedded Derivatives

IFRIC

10

Interim Financial Reporting and lnpaimenl

IFRIC

II

PFRS 2 - Croup and lreasury Sha.re lransacuons

IFRIC I2

Service Conc€ssion Arrangements

II'RIC I3

Cuslomer Loyalty Progmmmes

IFRIC I4

The Limil on a Defined Benefit Asset, Minimum Funding Requir€ments and their Interaction

to Philippine Interpretations IFRIC ofa Minimum Funding R€quirement

Am€ndments Prepaymenls

IFRIC

15

Aere€ments for the Construction ofReal Esrate

IFRIC

16

Hedges of a Net Investment in a ForeiSn Op€ration

IFRIC

17

DisEibutions of Non-cashAssets to Owners

-

14,

IFRIC I8

Transfers ofAssets from Cuslomers

IFRIC 19

ExtinSuishing Financial Liabilili€s wilh Equiry InstrumenLs

IFRIC 20

Stripping Costs in the Production Phase of a Surface Mine

IFRIC 2I

Levies

r[RIC

Foreign Curency Transactions and Advance Consideration

22

IFRIC 23

Unc€(ainty over lncome Tax Treaments

SIC-7

lntroduction of rhe Euro

SIC.IO

Govemment Assistance - No Sp€cific Relation to Operating

Aclivities

sIc-t2

Consolidation - Special Purpose Entities Amendment to SIC - 12: Scope ofSIC l2

slc-13

Jointly Controlled Entities - Non-Monctary Contributions by

sIc-15

Op€raling Leases - Inc€ntives

ililtililtililililil]ffi |ilililililtilil

-7 -

-

of

slc-21

In€ome Taxes

sIc-25

lncome Taxes - Changes in tbc Tax Staius of an Enlity or its

Rccovery

Revalu€d Non-Deprecisble

Shareholders

of

slc-27

Evaluating the Substanc€ Legal Form ofa L€ase

sIc-29

Service Concession Arangemenls: Disclosures,

slc-31

Revenu€

-

Transactions Involving the

Baner Transactions lnvolving Advertising

Services

sIc-32

lntangible Assels - Web Site Cosb

Standads tagged as "Not applicable" have been adopted by the Parent Company but have no significant covered transactions for the year ended Decomber 31, 2017.

Standards tagged as 'Not adopted" are standards issued bul not yet effective as ofDecember 3l ,2017. T'he Parent Company will adopt the Standards and lnterpretations when these become effective.

illlfr

llilliltilfl fl 1ililil!ililililililu

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de:

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ta

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F

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F>-

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l*l L--r lEl l 8l

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$; 69

,5

PETROENERGY RESOURCES CORPORATTON RECONCILIATION OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION DECEMBER 31, 2or7

Unappropriat€d Rctained f, arnings! Beginning Prior year adjushDents: Unrealized foreign exchange gain Unrealized actuarial gains Unrcali4d MIM gain on

-

(483,543)

net

(5,779)

FVPI

(ql.a02)

Unappropristcd Rctained f, arnings, as adiusted January l,2017 Net loss based on the face ofaudited linancial Less: Non-actual/unrealiz€d income net oftax Equity in ne1 income ofan associate/JV

strtcm€nts

Unrealized foreign exchange loss - nel (except those attributable to cash and cash Unrealized actuarial gain Fair value adjustment (marked{o-market Fair valuc adjustment of investment propcrtics resuling lo gain Adjustment due to deviation from PFRS/GAAP - gain Other unrealized gains or adjustments to the

equivalents) gaint

Add:

$2,107,211

1.525.987

(3,483,469)

30,611

(l8,341)

retained eamings as a result ofcertain transactions account€d lbr under PFRS

Nol-actual/unrealized losses net oftax DeDreciation on revaluation incremenl Adjustment due to deviation fiom PFRS/GAAP - loss Loss on fair value adjustment ofinvcstment properties Vov<ment in deferred tat asrets Net income actual/realiz€d Less: Dividend declarations during the year l\ppropriations durrng rhe )ear Total Parent Company Unapproprial€d Rctained EarDingy(Deficit) Available For Dividend Distribution, Dec€mb€r 31,2017

(3,471,201)

($1,945,214)

il||ilil]il|illil ll ilil]ilutiliilililililtilil||il

COVER SHEET

A S O 9 4 - 0 8 8 8 0 SEC Registration Number

P E T R O E N E R G Y A N D

R E S O U R C E S

C O R P O R A T I O N

S U B S I D I A R I E S

(Company’s Full Name)

7 T H

F L O O R

A D B

A V E N U E

P A S I G

J M T

B U I L D I N G

O R T I G A S

C E N T E R

C I T Y (Business Address: No. Street City/Town/Province)

Carlota R. Viray

637-2917

(Contact Person)

(Company Telephone Number)

First Quarter

1 2

3 1

Month

Day

1

7

-

Q

0 7

2 6

Month

(Fiscal Year)

Day

(Annual Meeting)

(Secondary License Type, If Applicable)

Dept. Requiring this Doc.

Amended Articles Number/Section Total Amount of Borrowings

Total No. of Stockholders

Domestic

Foreign

To be accomplished by SEC Personnel concerned

File Number

LCU

Document ID

Cashier

STAMPS Remarks: Please use BLACK ink for scanning purposes.

-2SECURJTIES AND EXCHANGE COMMISSION sEc FoRM | 7-Q QUARTERLY REPORT PURSUANT TO SECTION I t OF THE SECURITIES REGULATION CODE (SRC) AND SRC RULE l7(a)-l (b) (2) THEREUNDER

t0lL

3l

March For the quanerly period ended

2.

SEC ldentification Number ASO94-08880

4.

PetmE Resources Exact name of registrant as sp€cified in its chaner

5.

Manila.

3. BIR lax ldenlification No.004471419-000

Philippines

6.

(SEC Use Only.)

Industry Classifi cation Code:

of incorporation '7.

?I!!q!'!.!MT

Condominium, ADB Avenue, Pasiq Citv

Address of principal

t605

oflce

Postal Code

8.

(632') 637-2917 Rcgistrant's telephone number, including area code

9.

Not Aonlicable Former name, former address and former fiscal year, ifchanged since last report

I

0.

Securities registered pursuant lo Sections 8 and I 2 of the Code, or Section 4 and g of the RSA

Title ofEach Class

Number oi Shares ofCommon Stock Outstanding

Common (par value ofPl.00/share)

Amounr ofDebt Oursranding = $t29.086

1t.

12.

568,711,842

MiIion

Are any or all ofthe securiti€s l;sted on the Philippine Slock Exchange?

All issued and outstanding common shares are listed in the philippine Stock Exchang€.

Indicate by check mark whether the registmnt:

a.

ll

has filed all repo(s required to be filed by Section of the Securjties Regulalion Code(SRC) and SRC Rule I l(a)-l lhereunder and Secrions 26 and l4l of rhe Corporarion Code of the Philippines, during the preceding 12 months (or for such shorter period the regislrant was required to file such reports)

yes [4

b.

has been

subjectlo such filing requirements for the past 90 days

Yes Ul

-3TABLE OF CONTENTS Page no.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements 1. Consolidated Statements of Financial Position As of March 31, 2018, March 31, 2017 and December 31, 2017 2. Consolidated Statements of Income For the quarter ended March 31, 2018 and March 31, 2017 3. Consolidated Statements of Comprehensive Income For the quarter ended March 31, 2018 and March 31, 2017 4. Consolidated Statement of Changes in Equity As of March 31, 2018, March 31, 2017 and December 31, 2017 5. Consolidated Statement of Cash flows As of March 31, 2018, March 31, 2017 and December 31, 2017 6. Notes to Financial Statements

4 5 6 7 8 9 - 57

Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations 1. Financial Condition – March 31, 2018 and March 31, 2017 2. Results of Operations – For the quarter ended Mar 31, 2018 and Mar 31, 2017 3. Financial Condition – March 31, 2018 and March 31, 2017 4. Key performance indicators 5. Discussion of Indicators of the Company’s Level of Performance 6. Disclosure in view of the current global financial crisis.

7. Operations review and business outlook PART II OTHER INFORMATION Supplementary Information and disclosures required on SRC Rule 68 Schedule of Financial Soundness Indicators Reconciliation of Retained Earnings Available for Dividend Declaration Report on Stock Rights Offering Map of relationships of companies within the group SIGNATURES

55 - 57 58 - 60 61 – 63 63 64 65 66 - 68

69 - 70 71 72 73 74

-4-

PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In U.S. Dollars)

ASSETS Current Assets Cash and cash equivalents Financial assets at fair value through profit and loss (FVPL) Receivables Advances, prepaid expenses and other current assets Total Current Assets Noncurrent Assets Property and equipment-net Deferred oil exploration cost Investment in Associate Deferred tax assets-net Investment properties-net Other non-current assets Total Noncurrent Assets

LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued expenses Loans payable - Current Income tax payable Deposit for future stock subscription Total Current Liabilities Noncurrent Liabilities Loans payable - Non Current Asset retirement obligation Deferred tax liability-net Other Non-Current Liability Total Noncurrent Liabilities Total Liabilities Equity Attributable to equity holders of the Parent Company Capital stock Additional paid- in capital Retained earnings Appropriated Unappropriated Equity reserve Remeasurement loss on define benefit obligation Cumulative translation adjustment Noncontrolling interest - BS Total Equity

Unaudited

Unaudited

Audited

31-Mar-18

31-Mar-17

31-Dec-17

$ 14,708,785 176,219 8,270,899 23,153,817 46,309,720

$ 12,885,523 171,512 7,903,167 9,485,220 30,445,422

$ 20,110,581 181,215 7,789,463 5,332,588 33,413,847

155,820,939 4,040,286 27,684,057 242,137 31,417 10,578,716 198,397,552 $ 244,707,272

147,076,858 10,410,180 27,954,440 308,128 31,417 11,784,168 197,565,191 $ 228,010,613

162,806,394 3,982,542 28,196,245 242,686 31,417 10,815,279 206,074,563 $ 239,488,410

$ 6,737,644 15,967,450 130,003 22,835,097

$ 6,606,511 18,458,693 128,350 4,256,343 29,449,897

$ 5,698,427 21,867,859 56,952 27,623,238

103,975,451 1,646,208 598,724 106,220,383 129,055,480

102,477,647 1,376,196 1,524,098 202,451 105,580,392 135,030,289

108,504,253 1,642,504 572,638 110,719,395 138,342,633

12,500,454 47,435,328

9,391,311 35,620,588

9,391,311 35,620,588

3,149,555 23,530,726 1,859,173 (17,136) (5,873,213) 67,661,004 25,319,320 92,980,324 $ 228,010,613

3,149,555 24,466,415 1,859,173 (194,480) (5,291,774) 69,000,788 32,144,989 101,145,777 $ 239,488,410

3,149,555 26,201,971 1,859,173 (192,596) (7,623,615) 83,330,270 32,321,522 115,651,792 $ 244,707,272

-5-

PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (In U.S. Dollars)

Unaudited For the 1st Quarter ending 31-Mar-18 REVENUES Electricity sales Oil revenues

31-Mar-17

7,396,244 1,746,456 9,142,700

7,582,721 1,719,589 9,302,310

2,821,066 1,019,674 384,988 4,225,728

2,831,327 853,718 441,539 4,126,584

GROSS INCOME

4,916,972

5,175,726

GENERAL AND ADMINISTRATIVE EXPENSES

1,059,695

581,641

125,760 178,965 3,038

7,395 47,156 11,508

COST OF SALES Cost of sales - Electricity Oil production operating expenses Depletion

OTHER INCOME (CHARGES) Interest income Net unrealized foreign exchange gain (loss) Net unrealized gain on fair value changes on financial assets at FVPL Interest expense Accretion expense Share in net income of an Associate Miscellaneous income (charges)

(1,639,547) (22,264) 702,473 37,375 (614,200)

(1,641,546) (13,070) 1,336,610 44,837 (207,110)

INCOME BEFORE INCOME TAX PROVISION FOR INCOME TAX NET INCOME

3,243,077 91,551 3,151,526

4,386,975 81,391 4,305,584

NET INCOME ATTRIBUTATBLE TO: Equity Holders of the Parent Company Noncontrolling interest - IS NET INCOME

1,735,556 1,415,970 3,151,526

2,858,012 1,447,572 4,305,584

0.0031

0.0070

EARNINGS PER SHARE FOR NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY- BASIC AND DILUTED

-6PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In U.S. Dollars) Unaudited For the 1st Quarter ending 31-Mar-18 NET INCOME

31-Mar-17

$3,151,526

$4,305,584

(3,808,141)

(473,905)

1,884 ($654,731)

$3,831,679

(594,400) (60,331) ($654,731)

2,514,437 1,317,242 $3,831,679

OTHER COMPREHENSIVE INCOME (LOSS) Item to be reclassified to profit or loss in subsequent periods Movements in cumulative translation adjustment Item not to be reclassified to profit or loss in subsequent periods Remeasurement gains(losses) on net accrued retirement liability - net of tax TOTAL COMPREHENSIVE INCOME COMPREHENSIVE INCOME ATTRIBUTABLE TO: Equity holders of the Parent Company Noncontrolling interest

-7PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In U.S. Dollars) Unaudited

Audited

Audited

31-Mar-18

31-Mar-17

31-Dec-17

$9,391,311 3,109,143

$9,391,311 -

$9,391,311 -

12,500,454

$9,391,311

$9,391,311

Balance beginning of year

35,620,588

35,620,588

35,620,588

Additions during the period

11,814,740

CAPITAL STOCK Authorized capital Increase in capital on June 2015 Total authorized capital Issued and outstanding Balance beginning of year Issuance during the period Total issued and outstanding

330,000,000 370,000,000 700,000,000 410,736,330 157,975,512 568,711,842

ADDITIONAL PAID-IN CAPITAL

APPROPRIATED RETAINED EARNINGS UNAPPROPRIATED RETAINED EARNINGS Balance at beginning of year Net Income

REMEASUREMENT OF NET ACCRUED RETIREMENT LIABILITY Balance at beginning of year Remeasurement gain (loss) on accrued retirement liability

-

-

47,435,328

35,620,588

35,620,588

3,149,555

3,149,555

3,149,555

24,466,415 1,735,556

20,672,714 2,858,012

20,672,714 3,793,701

26,201,971

23,530,726

24,466,415

(194,480) 1,884

(17,136) -

(17,136) (177,344)

(192,596)

(17,136)

(194,480)

(5,291,774) (2,331,841)

(5,399,308) (473,905)

(5,399,308) 107,534

(7,623,615)

(5,873,213)

(5,291,774)

1,859,173

1,859,173

1,859,173

TOTAL EQUITY ATTRIBUTED TO EQUITY HOLDERS OF PARENT

83,330,270

67,661,004

69,000,788

NONCONTROLLING INTEREST Balance at beginning of year Net income Increase in non-controlling interests - stock issuances Movement in cumulative translation adjustment Remeasurement loss on defined benefit obligation Cash dividends

32,144,989 1,415,970 236,864 (1,476,301) -

24,002,078 1,447,572 (130,330) -

24,002,078 4,669,372 4,542,322 (303,809) (63,993) (700,981)

32,321,522

25,319,320

32,144,989

$115,651,792

$92,980,324

$101,145,777

CUMULATIVE TRANSLATION ADJUSTMENT Balance at beginning of year Movement of cumulative translation adjustment

PARENT'S OTHER EQUITY RESERVES

TOTAL EQUITY

-8PETROENERGY RESOURCES CORPORATION CONSOLIDATED STATEMENTS OF CASHFLOWS (In U.S Dollars) 31-Mar-17

31-Mar-18

31-Dec-17

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax

3,243,077

4,386,975

7,330,855

Interest expense

1,639,547

1,641,546

7,159,803

Depletion, depreciation and amortization

1,790,153

1,860,375

7,566,135 (1,496,888)

Adjustments for:

Impairment loss on Gabon assets

1,945,425

-

Share in net income (loss) of joint venture

(702,473)

(1,336,610)

Net unrealized foreign exchange loss (gain)

(178,965)

(47,156)

47,340

13,070

66,530

Accretion expense

22,264

Dividend income

-

-

(1,629)

Gain on sale of property, plant and equipment Net loss (gain) on fair value changes on financial assets at fair value through profit or loss Interest income

-

(391)

(7,405)

(3,038)

(11,508)

(18,343)

(125,760)

(7,395)

(371,815)

Movement in accrued retirement liability Operating income before working capital changes

5,684,805

-

51,362

6,498,906

22,271,370

1,854

80,294

Decrease (increase) in: Receivables Crude oil inventory Prepaid expenses and other current assets Input VAT

(433,211) (17,821,229) -

(2,718,770) -

(486,164) (1,839,125)

Increase (decrease) in: Accounts payable and accrued expenses

(466,567)

531,095

931,328

(13,036,202)

4,313,085

20,957,703

Interest received

77,535

8,944

Income taxes paid

(18,500)

Cash generated from (used in) operations

Net cash provided by (used in) operating activities

(12,977,167)

-

395,555 (325,021)

4,322,029

21,028,237

(11,109,222)

(20,424,903)

CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property, plant and equipment

(973,897)

Proceeds from disposals of property, plant and equipment

-

Dividends received

-

Increase in Other noncurrent assets Contribution to escrow fund Increase in deferred oil exploration costs Increase in deferred development costs Net cash used in investing activities

236,563 (57,744) (795,078)

1,412 (1,379,864) (275,946) -

7,475 1,629 (69,019) (172,838) (253,948) (2,081,735)

(12,763,620)

(22,993,339)

6,479,266 2,474,703

33,736,094 2,742,139

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from: Availments of long term debt Deposits fro future stock subscriptions to non-controlling interest Issuance of stocks Issuance of stocks to NCI

2,070,552 14,923,883

-

236,864

-

26,037

Payments of: Loans Interest

(7,036,043) (133,763)

(210,097)

(18,855,178) (7,815,144)

Dividends to Non-Controlling Interest

-

-

(700,981)

Dividends

-

-

(113)

Increase in other noncurrent liabilities

8,078

19,757

Net cash provided by financing activities

10,069,571

8,763,629

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

(1,699,122)

(351,103)

28,241

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(5,401,796)

(29,065)

7,195,993

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR

9,132,854

20,110,581

12,914,588

12,914,588

14,708,785

12,885,523

20,110,581

-9-

PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information a. Organization PetroEnergy Resources Corporation (“PERC” or “PetroEnergy” or the Parent Company) is a publicly-listed domestic corporation. Its registered office and principal place of business is 7th Floor, JMT Building, ADB Avenue, Ortigas Center, Pasig City.

PERC was organized on September 29, 1994 as Petrotech Consultants, Inc. to provide specialized technical services to its then parent company, Petrofields Corporation, and to companies exploring for oil in the Philippines.

In 1997, PERC simultaneously adopted its present name and changed its primary purpose to oil exploration and development and mining activities. Subsequently in 1999, PERC assumed Petrofields’ oil exploration contracts in the Philippines and the Production Sharing Contract covering the Etame discovery block in Gabon, West Africa.

On August 11, 2004, PERC’s shares of stock were listed at the Philippine Stock Exchange (PSE) by way of introduction.

In 2009, following the enactment of Republic Act No. 9513, otherwise known as the “Renewable Energy Act of 2008”, PERC amended its articles of incorporation to include among its purposes the business of generating power from renewable sources such as, but not limited to, biomass, hydro, solar, wind, geothermal, ocean and such other renewable sources of power.

On March 31, 2010, PERC incorporated PetroGreen Energy Corporation (PetroGreen or PGEC), 90%-owned subsidiary, to act as its renewable energy arm and holding company.

PGEC ventured into renewable energy development and power generation through its subsidiaries and affiliate: (a) Maibarara Geothermal, Inc. (MGI, 65%-owned) - owner and Renewable Energy (RE) developer of the 20 MW Maibarara Geothermal Power Project (MGPP-1) in Santo Tomas, Batangas and its expansion, the 12 MW MGPP-2; (b) PetroSolar Corporation (PetroSolar, 56%-owned) - owner and RE developer of the 50MW Tarlac Solar Power Project (TSPP-1) in Tarlac City and ; and (c) PetroWind Energy, Inc. (“PetroWind”, 40%-owned) – owner and developer of the 36 MW Nabas Wind Power Project (NWPP-1) in Nabas and Malay, Aklan.

As of March 31, 2018 and December 31, 2017, MGI and PetroSolar are effectively indirect subsidiaries of PetroEnergy through PetroGreen. PetroGreen owns majority of the voting power of MGI and PetroSolar. PetroEnergy, PetroGreen, MGI and PetroSolar are collectively referred to as the “Group” and were incorporated in the Philippines. b. Nature of Operations The Group’s four (4) main energy businesses are petroleum, geothermal, solar and wind, through the group’s affiliate, PetroWind.

Petroleum Petroleum production is on-going in the Etame (Gabon) concession, while the other petroleum concessions in the Philippines (Northwest Palawan, Offshore Mindoro, Eastern Visayas) are still in the advanced exploration stages or pre-development stages.

- 10 Geothermal Energy The geothermal projects are the 20-MW Maibarara Geothermal Power Project (MGPP) in Sto. Tomas, Batangas and its 12MW expansion that is expected to start commercial operations by the second quarter of 2018.

Solar Energy The Solar power project is the 50MW Tarlac Solar Power Plant (TSPP) in Tarlac City, Tarlac.

Wind Energy The wind energy project is the 36-megawatt (MW) NWPP in Nabas, Aklan, where PetroWind has a wind farm. c.

Approval of Consolidated Financial Statements The accompanying unaudited interim financial statements were approved and authorized for issue by the BOD.

2. Basis of Preparation The accompanying consolidated financial statements have been prepared under the historical cost convention method, except for financial assets carried at fair value through profit or loss (FVPL) and crude oil inventory that have been measured at fair value. Figures are presented in United States (US) Dollar ($), the Parent Company’s functional and presentation currency. All amounts are rounded to the nearest dollar unless otherwise indicated.

Statement of Compliance The accompanying consolidated financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

3. Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous calendar year, except that the Group has adopted the following new accounting pronouncements starting January 1, 2018. Adoption of these pronouncements did not have any significant impact on the Group’s financial position or performance unless otherwise indicated. 

PFRS 9, Financial Instruments PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, Financial Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. Retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.

The adoption of PFRS 9 will have an effect on the classification, measurement and impairment methodology of the Group’s financial assets, but will have no impact on the classification and measurement of the Group’s financial liabilities.

The Group plans to adopt the new standard on the mandatory effective date and will not restate comparative information.

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- 11 PFRS 15, Revenue from Contracts with Customers PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in PFRS 15 provide a more structured approach to measuring and recognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under PFRSs. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018.

The Group is currently assessing the impact of PFRS 15 and plans to adopt the new standard on the required effective date.

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Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle) The amendments clarify that an entity that is a venture capital organization, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss.

They also clarify that if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which (a) the investment entity associate or joint venture is initially recognized; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture first becomes a parent.

The amendments should be applied retrospectively, with earlier application permitted.

4. Summary of Significant Accounting Policies Basis of Consolidation The consolidated financial statements comprise the financial statements of the Group as at March 31, 2018, December 31, 2017 and March 31, 2017. The financial statements of the subsidiaries are prepared in the same reporting year as the Group, using consistent accounting policies.

Below are the Group’s subsidiaries, which are all incorporated in the Philippines, with its respective percentage ownership as of March 31, 2018 and December 31, 2017: PetroGreen Percentage share of PetroGreen in its subsidiaries: MGI PetroSolar Navy Road Development Corporation (NRDC)

90% 65% 56% 100%

Subsidiaries are entities controlled by PERC. PERC controls an investee if and only if the PERC has: a) Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); b) Exposure, or rights, to variable returns from its involvement with the investee; and

- 12 c) The ability to use its power over the investee the amount of the investor’s returns.

When PERC has less than a majority of the voting or similar rights of an investee, PERC considers all relevant facts and circumstances in assessing whether it has power over an investee, including: a) The contractual arrangement with the other vote holders of the investee; b) Rights arising from other contractual arrangements; and c) The Group’s voting rights and potential voting rights. d) PERC re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidations of a subsidiary begins when PERC obtains control over the subsidiary and ceases when the PERC loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date PERC gains control until the date PERC ceases to control the subsidiary.

The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Adjustments where necessary are made to ensure consistency with the policies adopted by the Group. All intra-group balances and transactions, intra-group profits and expenses and gains and losses are eliminated during consolidation. All intra-group balances, transactions, income and expenses and profit and losses are eliminated in full.

A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction, as transactions with the owners in their capacity as owners. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

If the Group loses control over a subsidiary, it:   

Derecognizes the assets (including goodwill) and liabilities of the subsidiary, the carrying amount of any non-controlling interest and the cumulative translation differences recorded in equity.

Recognizes the fair value of the consideration received, the fair value of any investment retained and any surplus or deficit in the consolidated statement of comprehensive income.

Reclassifies the parent’s share of components previously recognized in other comprehensive income (OCI) to the consolidated statement of comprehensive income or retained earnings, as appropriate.

Non-controlling interests are presented separately from the Parent Company’s equity. The portion of profit or loss and net assets in subsidiaries not wholly owned are presented separately in the consolidated statement of comprehensive income and consolidated statement of changes in equity, and within equity in the consolidated statement of financial position.

Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three (3) months or less from the dates of acquisition and that are subject to an insignificant risk of change in value.

- 13 Fair Value Measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:  

In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:   

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Financial Instruments Date of recognition The Group recognizes a financial asset or a financial liability in the consolidated statement of financial position when it becomes a party to the contractual provisions of the instrument.

Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the settlement date.

Initial recognition and measurement All financial assets and financial liabilities are recognized initially at fair value. Transaction costs are included in the initial measurement of all financial assets and financial liabilities, except for financial assets and financial liabilities measured at fair value through profit or loss (FVPL).

Financial assets are classified into the following categories: financial assets at FVPL, loans and receivables, held-to-maturity (HTM) financial assets, or available-for-sale (AFS) financial assets.

Financial liabilities are classified as either financial liabilities at FVPL or other financial liabilities. The classification depends on the purpose for which the financial assets were acquired or financial liabilities were incurred and whether they are quoted in an active market.

Management determines the classification of its financial assets and financial liabilities at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

Financial assets and financial liabilities are classified as liabilities or equity in accordance with the

- 14 substance of the contractual arrangement. Financial assets and financial liabilities are offset when there is a legally enforceable right to offset and intention to settle either on a net basis or to realize the asset and settle the liability simultaneously.

As of March 31, 2018 and December 31, 2017, the Group’s financial assets and financial liabilities include financial assets at FVPL, loans and receivables and other financial liabilities.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivables. Loans and receivables are recognized initially at fair value, which normally pertains to the billable amount. After initial measurement, loans and receivables are carried at amortized cost in the statement of financial position. Amortization is determined using the effective interest rate (EIR) method, less allowance for probable losses, if any.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. The amortization, if any, is included in the interest income in the profit or loss.

Gains and losses are recognized in profit or loss when loans and receivables are derecognized or impaired, as well as through the amortization process.

As of March 31, 2018 and December 31, 2017, the loans and receivables of the Group consist of cash and cash equivalents, receivables and restricted cash.

Financial assets at FVPL Financial assets at FVPL include financial assets held for trading purposes, derivative instruments, or those designated by management upon initial recognition as at FVPL, subject to any of the following criteria:   

the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them on a different basis; or the assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed and their performance are evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

Financial assets at FVPL are recorded in the consolidated statement of financial position at fair value. Changes in fair value are reflected in the consolidated statement of comprehensive income.

Interest earned or incurred is recorded in interest income or expense, respectively.

As of March 31, 2018 and December 31, 2017, the Group’s financial assets at FVPL include marketable equity securities held for trading purposes and investment in golf club shares.

Derivative financial instruments Derivative financial instruments (including bifurcated embedded derivatives), if any, are initially recognized at fair value on the date at which the derivative contract is entered into and is subsequently re-measured at fair value. Any gains or losses arising from changes in fair value of the derivative (except those accounted for as accounting hedges) is taken directly to the consolidated statement of comprehensive income under “Other income”. The derivative is carried as asset when the fair value is positive and as liability when the fair value is negative.

- 15 Other Financial Liabilities All financial liabilities are initially recognized at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in the consolidated statement of comprehensive income when the liabilities are derecognized or impaired, as well as through the amortization process.

As of March 31, 2018 and December 31, 2017, the Group’s other financial liabilities include accounts payable and accrued expenses (excluding withholding taxes payable) and loans payable.

Impairment of Financial Assets The Group assesses at each reporting date whether a financial or group of financial assets is impaired.

A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortized cost The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant or collectively for financial assets that are not individually significant. If there is an objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset’s original EIR (i.e., the EIR computed at initial recognition).

If it is determined that no objective evidence of impairment exists for an individually assessed financial asset loan or receivable, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

The carrying amount of the asset is reduced through the use of an allowance for impairment loss account. The amount of the loss shall be recognized in the consolidated statement of comprehensive income.

If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of comprehensive income, to the extent that the carrying value of the asset does not exceed what would have been the amortized cost at the reversal date had there been no impairment recognized.

- 16 Derecognition of Financial Assets and Liabilities A financial asset (or where applicable, a part of a group of financial assets) is derecognized when:  

the rights to receive cash flows from the assets have expired; or the Group has transferred substantially all the risks and rewards of the asset, or has assumed an obligation to pay them in full without material delay to a third-party under a “passthrough” arrangement and neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred the rights to receive cash flows from an asset or has entered into a pass-through arrangement and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Financial liabilities are derecognized when the obligation under the liability is discharged, cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of comprehensive income.

Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Prepaid Expenses and Other Current Assets Prepayments are expenses paid in advance and recorded as asset before these are utilized. This account comprises prepaid expenses and advances to contractors. The prepaid expenses are apportioned over the period covered by the payment and charged to the appropriate accounts in profit or loss when incurred and the advances to contractors are reclassified to the proper asset or expense account and deducted from the contractor’s billings as specified in the provisions of the contract. Prepayments that are expected to be realized for a period of no more than 12 months after the financial reporting period are classified as current assets, otherwise, these are classified as noncurrent assets.

Restricted Cash Restricted cash is recognized when the Company reserves a portion of its cash to pay loan interest charges and loan principal amortization expected to be settled within one year.

Crude Oil Inventory Crude oil inventory is stated at fair market value.

Property, Plant and Equipment Property, plant and equipment, except for land, are stated at cost less accumulated depletion, depreciation and amortization and any accumulated impairment losses. Land is stated at cost less any accumulated impairment losses. The initial cost of the property, plant and equipment consists of its purchase price, including any import duties, taxes and any directly attributable costs of bringing the assets to its working condition and location for its intended use and abandonment costs.

Expenditures incurred after the fixed assets have been put into operation, such as repairs and

- 17 maintenance, are normally charged to the consolidated statement of comprehensive income in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property, plant and equipment.

Depreciation of an item of property, plant and equipment begins when it becomes available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation ceases at the earlier of the date that the item is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, and the date the asset is derecognized.

Wells, platforms and other facilities related to oil operations are depleted using the units-ofproduction method computed based on estimates of proved reserves. The depletion base includes the exploration and development cost of the producing oilfields.

Power plant, fuel collection and reinjection system (FCRS) and production wells are depreciated using the straight-line method over twenty five (25) years or the remaining life of the service contract, whichever is shorter.

Land improvements consist of betterments, site preparation and site improvements that ready land for its intended use. These include excavation, non-infrastructure utility installation, driveways, sidewalks, parking lots, and fences.

Other property, plant and equipment are depreciated and amortized using the straight-line method over the estimated useful lives of the assets as follows: Power plant, FCRS and production wells Office condominium units Land improvements Transportation equipment Office improvements Office furniture and other equipment

Number of Years 25 15 5 4 3 2 to 3

The useful lives and depletion, depreciation and amortization methods are reviewed periodically to ensure that the period and method of depletion, depreciation and amortization are consistent with the expected pattern of economic benefits from items of property, plant and equipment.

Construction in progress represents property, plant and equipment under construction and is stated at cost. This includes the cost of construction to include materials, labor, professional fees, borrowing costs and other directly attributable costs. Construction in progress is not depreciated until such time the construction is completed.

When the assets are retired or otherwise disposed of, the cost and the related accumulated depletion, depreciation and amortization and any accumulated impairment losses are removed from the accounts and any resulting gain or loss is recognized in profit or loss.

Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in

- 18 which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Deferred Oil Exploration Costs PERC follows the full cost method of accounting for exploration costs determined on the basis of each SC area. Under this method, all exploration costs relating to each SC are tentatively deferred pending determination of whether the area contains oil reserves in commercial quantities.

Deferred oil and gas exploration costs are assessed at each reporting period for possible indications of impairment. This is to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case or is considered as areas permanently abandoned, the costs are written off through the consolidated statement of comprehensive income.

Exploration areas are considered permanently abandoned if the related permits of the exploration have expired and/or there are no definite plans for further exploration and/or development.

The exploration costs relating to the SC where oil in commercial quantities are discovered are subsequently reclassified to “Wells, platforms and other facilities” shown under “Property and equipment” account in the consolidated statements of financial position upon substantial completion of the development stage. On the other hand, all costs relating to an abandoned SC are written off in the year the area is permanently abandoned. SCs are considered permanently abandoned if the SCs have expired and/or there are no definite plans for further exploration and/or development.

Deferred Development Costs - Geothermal included in Other Noncurrent Assets All costs incurred in the geological and geophysical activities such as costs of topographical, geological and geophysical studies, rights of access to properties to conduct those studies, salaries and other expenses of geologists, geophysical crews, or others conducting those studies are charged to profit or loss in the year such costs are incurred.

If the results of initial geological and geophysical activities reveal the presence of geothermal resource that will require further exploration and drilling, subsequent exploration and drilling costs are accumulated and deferred under the “Other noncurrent assets” account in the consolidated statement of financial position.

These costs include the following:   

Costs associated with the construction of temporary facilities; Costs of drilling exploratory and exploratory type stratigraphic test wells, pending determination of whether the wells can produce proved reserves; and Costs of local administration, finance, general and security services, surface facilities and other local costs in preparing for and supporting the drill activities, etc. incurred during the drilling of exploratory wells.

If tests conducted on the drilled exploratory wells reveal that these wells cannot produce proved reserves, the capitalized costs are charged to expense except when management decides to use the unproductive wells for recycling or waste disposal.

Once the project’s technical feasibility and commercial viability to produce proved reserves are established, the exploration and evaluation assets shall be reclassified to property, plant and equipment and depreciated accordingly.

Deferred Development Costs - Solar Power Project included in Other Noncurrent Assets These are costs incurred in the development of the solar plant expansion project. Costs are capitalized if the technological and economic feasibility is confirmed, usually when a project

- 19 development has reached a defined milestone according to an established project management model. These costs include the following  

Costs incurred for the expansion of the solar plant project Costs of administration, finance, general and security services and other costs attributed to the expansion of the project.

Deferred development costs of the Solar Power Project is recognized under “Other noncurrent assets” in the statement of financial position. Once the project’s technical feasibility and commercial viability has been established, development costs shall be reclassified to property, plant and equipment.

Investment in a Joint Venture (JV) A JV is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Investment in a JV is accounted for under the equity method of accounting.

Under the equity method, the investment in a JV is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group’s share of net assets of the JV since the acquisition date.

The consolidated statement of comprehensive income reflects the Group’s share of the financial performance of the joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognized directly in the equity of the JV, the Group recognizes its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealized gains and losses from transactions between the Group and the JV are eliminated to the extent of the interest of the JV. The aggregate of the Group’s share in profit or loss of a JV is shown under “Other income (charges)” in the consolidated statement of comprehensive income and represents profit or loss after tax and non-controlling interests in the subsidiaries of the JV. The financial statements of the JV are prepared in the same reporting period of the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method for the investment in a JV, the Group determines whether it is necessary to recognize an impairment loss on its investment in a JV. At each reporting date, the Group determines whether there is objective evidence that the investment in JV is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the JV and its carrying value, then recognizes the loss in the consolidated statement of comprehensive income.

Upon loss of joint control over the JV, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of joint control and the fair value of the retained investment and proceeds from disposal is recognized in the consolidated statement of comprehensive income.

Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any.

- 20 Intangible assets with finite lives are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates.

The amortization expense on intangible assets with finite lives is recognized in the statement of comprehensive income in the expense category consistent with the function of the intangible assets.

Software related to windows application is amortized using the straight-line method over one (1) to two (2) years. Land rights is amortized using the straight-line method over 25 years.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of comprehensive income when the asset is derecognized.

Investment Properties Investment properties consist of land held for capital appreciation. Land is stated at cost less any impairment in value.

The initial cost of the investment properties comprises of purchase price and any directly attributable costs of bringing the asset to its working condition. Expenditures incurred after the investment properties have been put into operation, such as repairs and maintenance, are normally charged to expense in the year when costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of investment properties beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of investment properties.

Investment property is derecognized when either it has been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of investment properties are recognized in the consolidated statement of comprehensive income in the year of retirement or disposal.

Transfers are made to investment properties when, and only when, there is a change in use, evidenced by the end of owner-occupation, commencement of an operating lease to another party or by the end of construction or development. Transfers are made from investment properties when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sell.

Interest in Joint Operations A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.

The Group recognized in relation to its interest in a joint operation its:  assets, including its share of any assets held jointly  liabilities, including its share of any liabilities incurred jointly  revenue from the sale of its share of the output arising from the joint operation  share of the revenue from the sale of the output by the joint operation

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- 21 expenses, including its share of any expenses incurred jointly

The Group accounts for the assets it controls and the liabilities it incurs, the expenses it incurs and the share of income that it earns from the sale of crude oil by the joint operations.

As of December 31, 2017 and 2016, the Group’s participating interest in the Etame block in Gabon, West Africa and participating interests in Philippine service contracts are classified as joint operations.

Impairment of Nonfinancial Assets The Group assesses at each reporting date whether there is an indication that an asset (e.g., property, plant and equipment, investment properties, deferred costs, and intangible assets) may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets.

Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depletion, depreciation and amortization had no impairment loss been recognized for the asset in prior years.

Such reversal is recognized in the consolidated statement of comprehensive income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.

Capital Stock and Additional Paid-in Capital The Group records common stock at par value and additional paid-in capital in excess of the total contributions received over the aggregate par values of the equity shares. When the Group issues more than one class of stock, a separate account is maintained for each class of stock and the number of shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as a deduction from proceeds, net of tax. When any member of the Group purchases the Group’s capital stock (treasury shares), the consideration paid, including any attributable incremental costs, is deducted from equity attributable to the Group’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity.

Deposits for Future Stock Subscriptions Deposits for future stock subscriptions is recorded based on the redeemable amounts received and is presented under liabilities unless the following items were met for classification as part of equity:

- 22 a. The unissued authorized capital stock of the entity is insufficient to cover the amount of shares indicated in the contract; b. There is BOD approval on the proposed increase in authorized capital stock (for which a deposit was received by the Group); c. There is stockholders’ approval of said proposed increase; and d. The application for the approval of the proposed increase has been filed with the Securities and Exchange Commission (SEC).

Deposits represent subscription payments received from prospective investors for the Group’s common shares which are yet to be issued upon approval by the SEC of the application for increase in the authorized capital stock. This will be reclassified to ‘Capital stock’ upon issuance of the subscribed shares.

Retained Earnings Retained earnings represent the cumulative balance of consolidated net income, effects of changes in accounting policy and other capital adjustments, net of dividend declaration.

Unappropriated retained earnings represent the portion which can be declared as dividends to stockholders after considering the undistributed accumulated equity in a subsidiary, funds appropriated for corporate expansion projects or programs, restrictions under loan agreements and funds retained under special circumstances for probable contingencies.

Appropriated retained earnings represent the portion which has been restricted and therefore is not available for any dividend declaration.

Cumulative Translation Adjustment Cumulative translation adjustment represents the resulting exchange differences in the remeasurement of accounts due to change in functional currency.

Equity Reserve Equity reserve is made up of equity transactions other than equity contributions such as gain or loss resulting from increase or decrease of ownership without loss of control.

Dividend Distribution Cash dividends on capital stock are recognized as a liability and deducted from equity when approved by the BOD. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured regardless of when the payment is being made.

Revenue is measured at the fair value of the considerations received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as principal in all of its revenue arrangements since it is the primary obligor in all the revenue arrangements, has pricing latitude and is also exposed to inventory and credit risks.

Electricity sales Sale of electricity using renewable energy is consummated whenever the electricity generated by the Group is transmitted through the transmission line designated by the buyer, for a consideration.

Oil revenues Revenue from oil wells is recognized as income at the time of production. Revenue is measured at the fair value of the consideration received.

- 23 Interest income Interest income is recognized as the interest accrues taking into account the effective yield on the asset.

Share in net income of a joint venture Share in net income of a joint venture represents the Group’s share in profit or loss of its affiliate, PWEI. Dividend income Dividend income is recognized according to the terms of the contract, or when the right of the payment has been established.

Miscellaneous income Miscellaneous income is recognized when the Group’s right to receive the payment is established.

Costs and Expenses Cost of electricity sales Costs of electricity sales pertain to direct costs in generating electricity power which includes operating and maintenance costs (O&M) for power plant and fluid collection and reinjection system (FCRS), depreciation and other costs directly attributed to producing electricity.

Oil production Oil production are costs incurred to produce and deliver crude oil inventory, including transportation, storage and loading, among others.

General and administrative expenses General and administrative expenses constitute costs of administering the business.

Costs and expenses are recognized as incurred.

Other Comprehensive Income (Loss) Other comprehensive income (loss) comprises items of income and expense (including items previously presented under the consolidated statement of changes in equity) that are not recognized in the consolidated statement of income for the year in accordance with PFRSs. Income Taxes Current Tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those that are enacted or substantively enacted at the reporting date.

Deferred Tax Deferred tax is provided using the balance sheet liability method on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences except to the extent that the deferred tax liabilities arise from the: a) initial recognition of goodwill; or b) the initial recognition of an asset or liability in a transaction which is not: i) a business combination; and ii) at the time of the transaction, affects neither accounting profit nor taxable profit or loss.

Deferred tax assets are recognized for all deductible temporary differences with certain exceptions, and carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT) over RCIT and unused net operating loss carryover (NOLCO), to the extent

- 24 that it is probable that sufficient taxable income will be available against which the deductible temporary differences and carryforward benefits of unused tax credits from excess MCIT and unused NOLCO can be utilized. Deferred tax assets, however, are not recognized when it arises from the: a) initial recognition of an asset or liability in a transaction that is not a business combination; and b) at the time of transaction, affects neither the accounting income nor taxable profit or loss.

The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date, and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax assets to be recovered. The Group does not recognize deferred tax assets and deferred tax liabilities that will reverse during the income tax holiday.

Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted as of the reporting date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.

Deferred tax items are recognized in correlation to the underlying transaction either in profit or loss or other comprehensive income.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Value-Added Tax (VAT) Revenues, expenses and assets are recognized net of the amount of VAT, if applicable.

When VAT from sales of goods or services (output VAT) exceeds VAT passed on from purchases of goods or services (input VAT), the excess is recognized as payable in the consolidated statement of financial position. When VAT passed on from purchases of goods or services (input VAT) exceeds VAT from sales of goods and/or services (output VAT), the excess is recognized as an asset in the consolidated statement of financial position as part of “Other noncurrent assets” to the extent of the recoverable amount.

Accrued Retirement Liability The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using the projected unit credit method.

Defined benefit costs comprise the following:  Service cost  Net interest on the net defined benefit liability or asset  Remeasurements of net defined benefit liability or asset Service costs which include current service costs, past service costs and gains or losses on nonroutine settlements are recognized as expense in the consolidated statement of comprehensive income. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries.

- 25 Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset.

Net interest on the net defined benefit liability or asset is recognized as expense or income in the consolidated statement of comprehensive income.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in OCI in the period in which they arise. Remeasurements are not reclassified to consolidated statement of comprehensive income in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are not available to the creditors of the Group nor can they be paid directly to the Group. Fair value of plan assets is based on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligations). If the fair value of the plan assets is higher than the present value of the defined benefit obligation, the measurement of the resulting defined benefit asset is limited to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined benefit obligation is recognized as a separate asset at fair value when and only when reimbursement is virtually certain.

Asset Retirement Obligation (ARO) The Group records present value of estimated costs of legal and constructive obligations required to restore the oilfields and plant sites upon termination of its operations. The nature of these restoration activities includes dismantling and removing structures, rehabilitating settling ponds, dismantling operating facilities, closure of plant and waste sites, and restoration, reclamation and re-vegetation of affected areas. The obligation generally arises when the asset is constructed or the ground or environment at the sites are disturbed. When the liability is initially recognized, the present value of the estimated cost is capitalized as part of the carrying amount of the ARO assets (included under “Property, plant and equipment”) and ARO liability.

Liability and capitalized costs included in oil properties is equal to the present value of the Group’s proportionate share in the total decommissioning costs of the consortium on initial recognition. Additional costs or changes in decommissioning costs are recognized as additions or charges to the corresponding assets and ARO when they occur.

For closed sites or areas, changes to estimated costs are recognized immediately in the consolidated statement of comprehensive income. If the decrease in liability exceeds the carrying amount of the asset, the excess shall be recognized immediately in profit or loss.

For the oil operation, the Group depreciates ARO assets based on unit of production method.

For the renewable energy, the Group depreciates ARO assets on a straight-line basis over the estimated useful life of the related asset or the service contract term, whichever is shorter, or written off as a results of impairment of the related asset.

The Group amortizes ARO liability using the EIR method and recognizes accretion expense in profit or loss over the service contract term.

- 26 The Group regularly assesses the provision for ARO and adjusts the related liability and asset.

Operating Lease Group as a lessee Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss on a straight-line basis over the lease term. Minimum lease payments are recognized on a straight-line basis.

Foreign Currency-denominated Transactions and Translation The consolidated financial statements are presented in US Dollars, which is the Parent Company’s functional and presentation currency. Transactions in foreign currencies are initially recorded in the functional currency using the exchange rate at date of transaction. Monetary assets and liabilities denominated in foreign currencies are reinstated to the functional currency using the closing exchange rate at reporting date.

All exchange differences are taken to the consolidated statement of comprehensive income with the exception of differences on foreign currency borrowings that provide, if any, a hedge against a net investment in a foreign entity. These are taken directly to equity until disposal of the net investment, at which time they are recognized in the consolidated statement of comprehensive income. Non-monetary items that are measured in terms of historical cost in foreign currency are translated using the exchange rates as at the dates of initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currency of the Group’s immediate subsidiary, PetroGreen and its subsidiaries, namely MGI and PetroSolar, is the Philippine Peso. As at reporting date, the assets and liabilities of these subsidiaries are translated into the presentation currency of the Group (the US Dollars) at the exchange rate at the reporting date and the consolidated statement of comprehensive income accounts are translated at weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to “Cumulative translation adjustment” account in the equity section of the consolidated statement of financial position. Upon disposal of a subsidiary, the deferred cumulative translation adjustment amount recognized in equity relating to that particular subsidiary is recognized in the consolidated statement of comprehensive income.

Earnings Per Share Basic earnings per share is computed on the basis of the weighted average number of shares outstanding during the year after giving retroactive effect to any stock split or stock dividends declared and stock rights exercised during the current year, if any.

Diluted earnings per share is computed on the basis of the weighted average number of shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

PERC does not have potentially dilutive common stock.

Segment Reporting The Group’s operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and services and serves different markets. Financial information on business segments is presented in Note 28 to the consolidated financial statements.

Provisions and Contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits

- 27 will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed when an inflow of economic benefits is probable. Contingent assets are assessed continually to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognized in the consolidated financial statements.

Events After the Reporting Period Post year-end events that provide additional information about the Group’s situation at the reporting date (adjusting events) are reflected in the financial statements, if any. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material.

5. Significant Accounting Judgments, Estimates and Assumptions The preparation of the consolidated financial statements in compliance with PFRS requires the Group to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and contingent liabilities.

Future events may occur which will cause the assumptions used in arriving at the estimates to change. The effects of any change in judgments, estimates and assumptions are reflected in the consolidated financial statements, as they become reasonably determinable.

Judgments, estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Judgments In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which has the most significant effect on the amounts recognized in the consolidated financial statements: Determination of Functional Currency The entities within the Group determine the functional currency based on economic substance of underlying circumstances relevant to each entity within the Group. The Parent Company’s functional currency is the US Dollar ($). The functional currency of PetroGreen, MGI and PetroSolar is the Philippine Peso (P =).

As of March 31, 2018 and December 31, 2017, the Group’s cumulative translation adjustment amounted to $7.62 million and $5.30 million, respectively.

- 28 Capitalization of Deferred Oil Exploration Costs and Deferred Development Costs Initial capitalization of costs is based on management’s judgment that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. If the accounting policy on capitalization of development costs are not met, such costs are expensed.

As of March 31, 2018 and December 31, 2017, the carrying value of deferred oil explorations costs amounted to $4.04 million and $3.98 million, respectively, and the Group’s deferred development costs amounted to $0.37 million and $0.22 million as of March 31, 2018 and December 31, 2017, respectively.

Classification of Joint Arrangements Judgment is required to determine when the Group has joint control over an arrangement, which requires an assessment of the relevant activities and when the decisions in relation to those activities require unanimous consent. The Group assesses their rights and obligations arising from the arrangement and specifically considers:  The structure of the joint arrangement - whether it is structured through a separate vehicle  When the arrangement is structured through a separate vehicle, the Group also considers the rights and obligations arising from:  The legal form of the separate vehicle  The terms of the contractual arrangement  Other facts and circumstances, considered on a case by case basis This assessment often requires significant judgment. A different conclusion about both joint control and whether the arrangement is a joint operation or a joint venture, may materially impact the accounting of the investment.

The Group’s investment in PetroWind Energy Inc. (PetroWind or PWEI) is structured in a separate incorporated entity. The Group and the parties to the agreement only have the right to the net assets of the joint venture through the terms of the contractual arrangement. Accordingly, the joint arrangement is classified as a joint venture. As of March 31, 2018 and December 31, 2017, the Group’s investment in a joint venture amounted to $27.68 million and $28.20 million, , respectively.

The Group and the parties to the agreement in investment in Gabon, West Africa have joint control over its rights to the assets and obligations for the liabilities, relating to the arrangement.

Accordingly, the joint arrangement is classified as a joint operation.

Derecognition of Derivative Liability The Group reviews its liabilities to assess if the possibility of outflow of economic resources to settle the obligation is remote. In particular, judgment by management is required in determining if its obligations are extinguished.

Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed in the next page.

Estimation of Geothermal Field Reserves MGI performed volumetric reserve estimation and numerical modeling to determine the reserves of the Maibarara geothermal field. As a requirement for project financing, MGI engaged at its own cost the New Zealand firm Sinclair Knight Merz (SKM) in 2011 to undertake a comprehensive third-party technical review of the Maibarara geothermal field. This review included analysis of the resource assessment performed in-house by MGI as well as a separate SKM reserve estimation and numerical modeling of the Maibarara reserves.

- 29 As the economic assumptions used may change and as additional geological information is obtained during the operation of a field, estimates of recoverable reserves may change. Such changes may impact the Group’s reported financial position and results, which include:  The carrying value of exploration and evaluation asset; and property, plant and equipment;  Provisions for decommissioning may change - where changes to the reserve estimates affect expectations about when such activities will occur and the associated cost of these activities; and  The recognition and carrying value of deferred tax assets may change due to changes in the judgments regarding the existence of such assets and in estimates of the likely recovery of such assets.

As of March 31, 2018 and December 31, 2017, there has been no significant change in the estimated reserves that would affect the useful lives and carrying value of MGI’s property, plant and equipment.

Estimation of Proved Oil Reserves The Group assesses its estimate of proved oil reserves on an annual basis. The estimate is based on the technical assumptions and is calculated in accordance with accepted volumetric methods, specifically the probabilistic method of estimation. Probabilistic method uses known geological, engineering and economic data to generate a range of estimates and their associated probabilities.

As of March 31, 2018 and December 31, 2017, there has been no significant change in the estimated recoverable reserves for the Gabon assets. The same estimated remaining recoverable reserve was used to compute the depletion rate used.

As of March 31, 2018 and December 31, 2017, the carrying value of “Wells, Platforms and other Facilities” under “Property, Plant and Equipment” amounted to $37.02 million and $15.83 million, respectively.

Estimation of Useful Lives of Property, Plant and Equipment The Group reviews on an annual basis the estimated useful lives of property, plant and equipment based on expected asset utilization as anchored on business plans and strategies that also consider expected future technological developments and market behavior.

It is possible that future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of property, plant and equipment would increase the recorded depletion, depreciation and amortization expense and decrease noncurrent assets.

There is no change in the estimated useful lives of property, plant and equipment as of March 31, 2018 and December 31, 2017. As of March 31, 2018 and December 31, 2017, the Group’s depreciable property, plant and equipment amounted to $123.04 million and $129.63 million, respectively.

Impairment of Nonfinancial Assets The Group assesses at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less cost of disposal and its value in use.

The recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less cost of disposal and its value in use. The fair value less cost of disposal is the amount obtainable from the sale of an asset in an arm’s length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset or CGU and

- 30 from its disposal at the end of its useful life.

In determining the present value of estimated future cash flows expected to be generated from the continued use of an asset or CGU, the Group is required to make estimates and assumptions that can materially affect the consolidated financial statements.

Facts and circumstances that would require an impairment assessment as set forth in PFRS 6, Exploration for and Evaluation of Mineral Resources, are as follows:  The period for which the Group has the right to explore in the specific area has expired or will expire in the near future, and is not expected to be renewed;  Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned;  Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area; and  Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

There are no indicators of impairment that would trigger impairment review in March 31, 2018 and 2017 other than those mentioned below.

The related balances of the Group’s nonfinancial assets as of March 31, 2018 and December 31, 2017 follow:

Property, plant and equipment Deferred oil exploration costs Intangible assets Deferred development costs Investment properties

Unaudited 31-Mar-18 $155,820,939 4,040,286 2,736,545 372,009 31,417 $163,001,196

Audited 31-Dec-17 $162,806,394 3,982,542 2,878,262 224,026 31,417 $169,922,641

Gabon, West Africa In assessing whether impairment is required, the carrying value of the asset is compared with its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. Given the nature of the Group’s activities, information on the fair value of an asset is usually difficult to obtain unless negotiations with potential purchasers or similar transactions are taking place. Consequently, unless indicated otherwise, the recoverable amount used in assessing the impairment loss is value in use. The Group generally estimates value in use using a discounted cash flow model. The Group believes that the low crude oil prices in the market, political risks in Gabon, discount rates and changes in other assumptions such as change in production profile which is based on continued production until the term of the existing PSC are indicators that the assets might be impaired and thus prompted the Group to perform impairment testing of the assets.

The value in use as of December 31, 2017 amounted to $9.17 million at a discount rate of 10.10%. In 2017, the Group recorded an impairment loss amounting to $1.95 million, pertaining to the assets in Gabon, Africa used for oil production.

- 31 The Group recognized an impairment loss for the Gabon Assets in December 31, 2017 (nil as of March 31, 2018):

Wells, platforms and other facilities Deferred oil exploration costs

Audited 31-Dec-17 $1,945,425 ‒ $1,945,425

As of March 31, 2018 and December 31, 2017, the net carrying value of wells, platforms and other facilities related to Gabon amounted to $8.79 million and $9.17 million, respectively.

SC 14-C2 - West Linapacan, Northwest Palawan Production activities in the West Linapacan Oilfield (WLO) remained on suspension mode for the last twenty (20) years. The investment in WLO included in “Wells, platforms and other facilities” account under “Property and equipment” amounted to $6.66 million as of December 31, 2017 and 2016. Management assessed that the said investment is fully recoverable as SC 14-C is not yet expired, with the 15-year extension of the SC as approved by the DOE, from December 18, 2010 to December 18, 2025 and the existing redevelopment activities led by Pitkin Petroleum Ltd. (Pitkin) of the United States of America. Based on oil prices existing at December 31, 2017, the prices have not gone below the breakeven level for the Group in so far as its WLO investment is concerned. Thus, no impairment was recognized for as of March 31, 2018 and December 31, 2017. As of March 31, 2018 and December 31, 2017, the carrying value of wells, platforms and other facilities amounted to $6.66 million.

Estimation of Asset Retirement Obligations The Group has various legal obligation to decommission or dismantle its assets related to the oil production, geothermal energy project and solar power project at the end of each respective service contract. In determining the amount of provisions for restoration costs, assumptions and estimates are required in relation to the expected costs to restore sites and infrastructure when such obligation exists. The Group recognizes the present value of the obligation to dismantle and capitalizes the present value of this cost as part of the balance of the related property, plant and equipment, which are being depreciated and amortized on a straight-line basis over the useful life of the related assets (for the renewable energy) and based on unit-of-production method based on estimates of proved reserves (for the oil operations).

Cost estimates expressed at current price levels at the date of the estimate are discounted using a rate ranging from 4.61% to 5.70% in 2017 to take into account the timing of payments. Each year, the provision is increased to reflect the accretion of discount and to accrue an estimate for the effects of inflation, with charges being recognized as accretion expense.

Changes in the asset retirement obligation that result from a change in the current best estimate of cash flow required to settle the obligation or a change in the discount rate are added to (or deducted from) the amount recognized as the related asset and the periodic unwinding of the discount on the liability is recognized in profit or loss as it occurs.

While the Group has made its best estimate in establishing the asset retirement obligation, because of potential changes in technology as well as safety and environmental requirements, plus the actual time scale to complete decommissioning activities, the ultimate provision requirements could either increase or decrease significantly from the Group’s current estimates. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances.

- 32 Asset retirement obligation as of March 31, 2018 and December 31, 2017 follows:

PetroEnergy - Oil production MGI - Geothermal energy project PetroSolar - Solar power project

Unaudited 31-Mar-18 $1,225,361 300,486 120,361 $1,646,208

Audited 31-Dec-17 $1,210,697 307,838 123,969 $1,642,504

Recognition of deferred income tax assets The Group reviews the carrying amounts of deferred tax assets at each reporting date and reduces them to the extent that it is no longer probable that sufficient future taxable profit will be available to allow all or part of the deferred tax assets to be utilized.

As of March 31, 2018 and December 31, 2017, the Group did not recognize deferred tax assets on certain NOLCO and MCIT as the Group believes that it may not be probable that sufficient taxable income will be available in the near foreseeable future against which the tax benefits can be realized prior to their expiration. As of December 31, 2017, deferred tax assets recognized amounted to $0.48 million.

6. Cash and Cash Equivalents

Cash on hand Cash in banks Cash equivalents

Unaudited 31-Mar-2018 $4,140 6,589,060 8,115,585 $14,708,785

Audited 31-Dec 2017 $4,324 7,117,335 12,988,922 $20,110,581

Cash in banks earn interest at the prevailing bank deposit rates. Cash equivalents are made for varying periods of up to three months depending on the immediate cash requirements of the Group, and earn interest at the prevailing short-term deposit rates.

The Group has no short-term investments with periods of more than three months but less than one year as of March 31, 2018 and December 31, 2017.

Interest income earned on cash in banks and short-term investments amounted to $0.08 million and $0.18 million as of March 31, 2018 and December 31, 2017, respectively.

7. Financial Assets at Fair Value Through Profit or Loss

Marketable equity securities Investment in golf club shares

Unaudited 31-Mar-2018 $161,457 14,762 $176,219

Audited 31-Dec 2017 $165,793 15,422 $181,215

- 33 Net gain on fair value changes on financial assets at FVPL included in the consolidated statements of comprehensive income amounted to $3,038 and $18,343 as of March 31, 2018 and December 31, 2017, respectively.

Dividend income received from equity securities amounted to nil and $1,629, as of March 31, 2018 and December 31, 2017, respectively.

8. Receivables Accounts receivable from: Feed-in-Tariff (FiT) revenue from TransCo Electricity sales to PHINMA Consortium operator Electricity sales to WESM Affiliate Others Interest receivable Less allowance for impairment losses

Unaudited 31-Mar-2017

Audited 31-Dec-2017

$5,666,481 1,527,545 1,029,086 6,956 25,272 5,915 61,071 8,322,326 51,427 $8,270,899

$5,830,139 1,667,011 320,914 7,396 – 4,881 12,846 7,843,187 53,724 $7,789,463

The Group’s receivables are mainly due from FiT sales to TransCo, sale of electricity to PHINMA and consortium operator. These are generally on 30 days credit terms except for receivables from consortium operator which is due within one (1) year. Interest income earned from the delayed payment of FiT differential amounted to $0.05 million and $0.19 million as of March 31, 2018 and December 31, 2017, respectively.

The table below shows the disclosure of reconciliation of allowance for impairment losses on receivables from a consortium operator:

Balance at beginning of year Effect of foreign currency translation Balance at end of year

Unaudited 31-Mar-2018 $53,724 (2,297) $51,427

Audited 31-Dec-2017 $53,950 (226) $53,724

Unaudited 31-Mar-2018 $19,628,462 1,059,996 1,528,260 261,197 252,525 354,462 68,915 $23,153,817

Audited 31-Dec-2017 $2,613,333 790,958 728,628 632,794 273,548 233,138 60,189 $5,332,588

9. Prepaid Expenses and Other Current Assets

Restricted cash Supplies inventory Prepaid expenses Crude oil inventory Prepaid taxes Advances to contractors Others

- 34 Restricted cash pertains to the amount of fund that the Group is required to maintain in the Debt Service Payment Account and Debt Service Reserve Account pursuant to the Omnibus Loan and Security Agreement (OLSA) of MGI and PetroSolar, respectively.

Supplies inventory refers to purchases of supplies that are intended to be used for operations and maintenance.

Prepaid expenses include various prepaid insurances, services and prepaid rent. The prepaid rents pertain to the current portion of the advance rental payment paid for the Land Lease Agreement (LLA) with the National Power Corporation (NPC) and the Power Sector Assets and Liabilities Management Corporation (PSALM) over MGPP’s steamfield lot in Sto. Tomas, Batangas (see Note 14) and unamortized prepayment of land lease with Luisita Industrial Park Corporation.

Prepaid taxes pertains to creditable withholding taxes and prior year’s income tax credit.

Advances to contractors pertain to downpayments to various contractors for the purchase of materials and equipment.

Others pertain to advances, supplies and deferred financing costs on undrawn credit line.

- 35 10. Property, Plant and Equipment

Cost Balances at beginning of year Additions Disposal Balances at end of year Accumulated depletion and depreciation Balances at beginning of year Depletion and depreciation Disposals Balances at end of year Accumulated impairment losses Balances at beginning of year Impairment losses Balances at end of year Cumulative translation adjustments Net book values

31-Mar-2018 (Unaudited) Office condominium units and Transportation improvements equipment

Power plants

FCRS and production wells geothermal

Wells, platforms and other facilities

Land and land improvements

$105,381,579 24 ‒ 105,381,603

$24,541,043 5,726 ‒ 24,546,769

$41,590,762 17,472 ‒ 41,590,762

$1,970,279 ‒ ‒ 1,987,751

$797,853 ‒ ‒ 797,853

11,615,229 1,022,023 ‒ 12,637,252

2,787,740 190,180 ‒ 2,977,920

21,187,144 384,988 ‒ 21,572,132

322,370 27,356 ‒ 349,726 ‒ ‒ ‒ (149,802) $1,488,223

‒ ‒ ‒ (6,365,341) $86,379,010

‒ ‒ ‒ (1,929,053) $19,639,796

(4,572,136) (4,572,136) ‒ $15,446,494

Office furniture and other equipment

Construction in progress

Total

$975,147 357 ‒ 975,504

$2,243,322 21,088 ‒ 2,264,410

$35,418,869 929,230 ‒ 36,348,099

$212,918,854 973,897 ‒ 213,892,751

793,644 ‒ ‒ 793,644

471,676 45,924 ‒ 517,600

1,427,013 85,379 ‒ 1,512,392

‒ ‒ ‒ ‒

38,604,816 1,755,850 ‒ 40,360,666

‒ ‒ ‒ ‒ $4,209

‒ ‒ ‒ (23,301) $434,603

‒ ‒ ‒ (57,074) $694,944

‒ ‒ ‒ (4,614,439) $31,733,660

(4,572,136) ‒ (4,572,136) (13,139,010) $155,820,939

- 36 -

Cost Balances at beginning of year Additions Change in ARO estimate (Note 18) Transfers from deferred oil exploration costs (Note 11) Transfers from deferred development cost (Note 14) Reclassification/adjustments Disposal Balances at end of year Accumulated depletion and depreciation Balances at beginning of year Depletion and depreciation Disposals Balances at end of year Accumulated impairment losses Balances at beginning of year Impairment losses Balances at end of year Cumulative translation adjustments Net book values

31-Dec-2017 (Audited) Office condominium units and Transportation improvements equipment

Power plants

FCRS and production wells geothermal

Wells, platforms and other facilities

Land and land improvements

$105,078,680 62,995 (23,507) ‒ ‒ 263,411 ‒ 105,381,579

$22,475,381 2,047,449 ‒ ‒ ‒ 18,213 ‒ 24,541,043

$41,206,101 ‒ 183,999 200,662 ‒ ‒ ‒ 41,590,762

$1,768,461 201,818 ‒ ‒ ‒ ‒ ‒ 1,970,279

$797,183 670 ‒ ‒ ‒ ‒ ‒ 797,853

$1,006,693 163,087 ‒ ‒ ‒ ‒ (194,633) 975,147

$1,793,339 448,616 ‒ ‒ ‒ 9,844 (8,477) 2,243,322

2,040,345 747,395 ‒ 2,787,740

19,200,604 1,986,540 ‒ 21,187,144

213,065 109,305 ‒ 322,370

793,134 510 ‒ 793,644

513,744 152,565 (194,633) 471,676

1,087,065 347,615 (7,667) 1,427,013

‒ ‒ ‒ (83,856) $1,564,053

‒ ‒ ‒ ‒ $4,209

‒ ‒ ‒ (12,108) $491,363

‒ ‒ ‒ (27,874) $788,435

7,534,860 4,080,369 ‒ 11,615,229 ‒ ‒ ‒ (2,507,607) $91,258,743

‒ ‒ ‒ (1,050,345) $20,702,958

(2,626,711) (1,945,425) (4,572,136) ‒ $15,831,482

Office furniture and other equipment

Construction in progress $11,314,639 20,934,983 50,391 ‒ 3,410,324 (291,468) ‒ 35,418,869 ‒ ‒ ‒ ‒ ‒ ‒ ‒ (3,253,718) $32,165,151

Total $185,440,477 23,859,618 210,883 200,662 3,410,324 ‒ (203,110) 212,918,854 31,382,817 7,424,299 (202,300) 38,604,816 (2,626,711) (1,945,425) (4,572,136) (6,935,508) $162,806,394

- 37 Power plants represent MGI’s geothermal power plant and PetroSolar’s photovoltaic plant.

The Group’s construction in progress account includes steam assets and other on-going construction projects related to Maibarara 2 Expansion Geothermal Project (M2) and civil works in the solar plant. Steam assets are mainly composed of in-progress production wells and FCRS, while other construction projects include on-going rehabilitation activities in the plants, work-over activities and other constructions. M2 is expected to start commercial operations by the second quarter of 2018. Civil works in the solar plant were completed in 2017.

Change in ARO estimate and transfers from advances to contractors, deferred oil exploration costs and development costs are considered as noncash investing activities.

Depletion of wells, platforms and other facilities is presented under cost of sales in the consolidated statements of comprehensive income.

As of March 31, 2018 and December 31, 2017, the participating interest of PERC in various service contracts areas are as follows: Gabonese Oil Concessions West Linapacan - SC 14C2

2.525% 4.137%

11. Deferred Oil Exploration Costs

Balances at beginning of year Additions Transferred to wells and platforms Balances at end of year Accumulated impairment losses

10,245,264 (6,204,978) $4,040,286

Audited 31-Dec-17 $10,134,234 253,948 (200,662) 10,187,520 (6,204,978) $3,982,542

Unaudited 31-Mar-18 $6,262,722 3,018,042 546,680 379,991 37,829 10,245,264 (6,204,978) $4,040,286

Audited 31-Dec-17 $6,204,978 3,018,042 546,680 379,991 37,829 10,187,520 (6,204,978) $3,982,542

Unaudited 31-Mar-18 $10,187,520 57,744

Details of deferred oil exploration costs follow:

Gabonese Oil Concessions Octon Malajon Block - SC 6A NW Palawan -SC 75 East Visayas - SC 51 West Linapacan - SC 14C2 Total Accumulated impairment losses

Philippine Operations Under the SCs entered into with the DOE covering certain petroleum contract areas in various locations in the Philippines, the participating oil companies (collectively known as Contractors) are obliged to provide, at their sole risk, the services, technology and financing necessary in the performance of their obligations under these contracts. The Contractors are also obliged to spend specified amounts indicated in the contract in direct proportion to their work obligations.

- 38 However, if the Contractors fail to comply with their work obligations, they shall pay to the government the amount they should have spent but did not in direct proportion to their work obligations. The participating companies have Operating Agreements among themselves which govern their rights and obligations under these contracts.

The full recovery of these deferred costs is dependent upon the discovery of oil in commercial quantities from any of the petroleum concessions and the success of future development thereof.

As of March 31, 2018 and December 31, 2017, the participating interest of the Group in various Petroleum SC areas are as follows: Octon Malajon Block - SC 6A East Visayas - SC 51 NW Palawan -SC 75

16.667% 20.050% 15.000%

12. Investment in a Joint Venture The investment in a joint venture represents PetroGreen’s 40% interest in PetroWind, a company incorporated in the Philippines. The primary purpose of PWEI is to carry on the general business of generating, transmitting and/or distributing power derived from renewable energy sources.

The movements in the carrying value as of December 31 follow:

Balance at beginning of year Share in net income of a joint venture Translation adjustment Balance at end of year

Unaudited 31-Mar-18 $28,196,245 702,473 (1,214,661) $27,684,057

Audited 31-Dec-17 $26,843,396 1,496,888 (144,039) $28,196,245

The carrying value of the investment in PetroWind is equivalent to the Group’s 40% share in PetroWind’s equity, plus the fair value adjustment of = P764.49 million (or $15.31 million) was recognized when the Group lost control over PetroWind in 2014.

Selected financial information of PetroWind follows:

Current assets Noncurrent assets Current liabilities Noncurrent liabilities Equity

Unaudited 31-Mar-18 $14,337,510 73,933,399 (11,264,619) (45,679,010) $31,327,280

Audited 31-Dec-17 $15,604,146 78,114,075 (12,710,316) (50,092,098) $30,915,807

- 39 Summary of statements of comprehensive income of PetroWind for the years ended December 31 follows: Unaudited 31-Mar-18 Revenue (electricity sales and other income) Cost and expenses Income before tax Tax benefit Net income Group’s share of the net income

$4,484,647 (2,728,465) 1,756,182 $1,756,182 $702,473

Audited 31-Dec-17

Unaudited 31-Dec-16

$14,774,581 $16,447,112 (11,033,640) (13,631,166) 3,740,941 2,815,946 1,280 8,862 $3,742,221 $2,824,808 $1,496,888 $1,129,923

13. Investment Properties As of March 31, 2018 and December 31, 2017, this account consists of land and parking lot space in Tektite Tower located in Pasig City with total carrying value of $31,417.

The fair value of the investment properties of the Group amounted to $40,278 as of March 31, 2018 and December 31, 2017. The Group determined the fair values of the Group’s investment properties on the basis of recent sales of similar properties in the same areas as the investment properties and taking into account the economic conditions prevailing at the time the valuations were made.

As of March 31, 2018 and December 31, 2017 and 2016, the fair value of the investment properties is classified under the Level 2 category.

Except for insignificant amounts of real property taxes on the investment properties, no other expenses were incurred, and no income was earned in relation to the investment properties as of March 31, 2018 and December 31, 2017, 2016.

14. Other Noncurrent Assets

Input VAT Intangible assets Prepaid rent - noncurrent portion Restricted cash Deferred development costs Others

Unaudited 31-Mar-18 $4,716,774 1,494,136 2,736,545 875,924 372,009 383,328 $10,578,716

Audited 31-Dec-17 $4,876,950 2,878,262 1,560,867 875,924 224,026 399,250 $10,815,279

Input VAT Input VAT represents VAT due or paid on purchases of goods and services that can be claimed against any future liability to the Bureau of Internal Revenue (BIR) for output VAT from sale of goods and services.

Input VAT also includes outstanding input VAT claims of MGI that were applied for refund with the BIR and Court of Tax Appeals (CTA). As of March 31, 2018 and December 31, 2017, the

- 40 outstanding input VAT claims which are still pending with the BIR and CTA amounted to P149 million and = P126.96 million (or $2.54 million), respectively.

Intangible assets Intangible assets pertain to land rights, which refers to grant of easement of right of way entered

by PetroSolar to construct, operate, maintain, repair, replace and remove poles, wire, cables, apparatus, and equipment and such other apparatus and structures needed for the transmission line.

This also includes software licenses of the Group.

Prepaid rent - noncurrent portion On April 23, 2012, MGI entered into a LLA with the NPC and PSALM over MGI’s steamfield lot in Sto. Tomas, Batangas.

Under the LLA, MGI will lease the steamfield lot for a period of 25 years, extendable for another 25 years upon mutual agreement of the parties. Prepaid rent pertains to the advance rental paid for the lease agreement.

Restricted cash Restricted cash pertains to the Parent Company’s share in the escrow fund for the abandonment of the Gabon assets. This also includes escrow to secure payment and discharge of the Group’s obligations and liabilities under the Floating Production Storage and Offloading (FPSO) contract.

The amount for the share in escrow of the Parent Company’s obligation for the FPSO was deducted from the share on lifting proceeds during the first lifting made by Etame in November 2002 and will be paid back to the Group at the end of the contract which is in 2020.

In 2017, the Parent Company contributed its share in the abandonment of the Etame Marine Permit to the escrow fund amounting to $0.17. Contributions for 2018 is expected in the last quarter.

Deferred development costs These pertains to costs incurred in the exploration, development, production and expansion of renewable energy projects.

Others Other noncurrent assets pertain to noncurrent portion of prepaid insurance and security deposit.

15. Accounts Payable and Accrued Expenses

Accounts payable Accrued expenses: Interest Sick/vacation leaves Professional fees Utilities Government share Others Withholding taxes and VAT payable Dividends payable Due to related party Others

Unaudited 31-Mar-18 $ 3,093,519

Audited 31-Dec-17 $3,312,295

2,711,090 179,292 72,891 38,671 24,780 261,343 113,283 199,259 43,516 $ 6,737,644

1,205,306 235,572 25,860 37,124 12,942 172,668 315,255 208,159 5,625 167,621 $5,698,427

- 41 Accounts payable consists of payable to suppliers and contractors that are currently involved in the development, construction and operations of energy projects. The Group’s accounts payable and accrued expenses are due within one year.

Dividends payable pertain to unclaimed checks as of March 31, 2018 and December 31, 2017.

Other payables mainly pertain to accrued security services, utilities and condominium dues.

16. Loans Payable The Group’s loans payable as of March 31, 2018 and December 31, 2017 follow:

Principal, balance at beginning of year Add availments during the year Less principal payments during the year Foreign currency translation adjustments Cumulative translation adjustment Principal, balance at end of year Less unamortized deferred financing cost Less current portion - net of unamortized deferred financing cost Noncurrent portion

Unaudited 31-Mar-18 $132,394,443 2,070,552 (7,036,043) (658,892) (5,001,376) 121,768,684 (1,825,783) 119,942,901

Audited 31-Dec-17 $117,252,692 34,558,382 (18,855,178) (14,381) (463,028) 132,478,487 (2,106,375) 130,372,112

(15,967,450) $103,975,451

(21,867,859) $108,504,253

PetroEnergy’s short-term and long-term loans payable PetroEnergy entered into unsecured loan agreements specifically to finance its Etame Expansion Project and investments in Renewable Energy Projects.

On April 27, 2015, PetroEnergy entered into an Omnibus Credit Line Agreement (OCLA) with the Development Bank of the Philippines (DBP) which provides a credit facility in the principal amount not exceeding = P420.00 million (or $9.30 million). On June 29, 2016 the credit facility was increased to P =500.00 million (or $10.01 million) Loans payable as of March 31, 2018 and December 31, 2017 pertains to:  loans from various lenders amounting to $5.40 million with an interest rate of 3.7% - 5% and maturity on November 2019 ($1.57 million), February 2018 ($3.43 million) and January 2018 ($0.4 million); and  loans from DBP amounting to $10.01 million with interest rate of 5.03% - 5.43% with maturity on January 2018 ($2.6 million) October 2017 ($7.41 million).

PetroGreen’s short-term and long-term loans payable In November 2015, PetroGreen entered into a 5-year credit line facility with Chinabank amounting to P =500.00 million (or $10.62 million) with an annual interest rate of 5.24% subject to repricing payable every May and November. = P400.00 million (or $8.01 million) out of the total loan facility were granted to PetroGreen.

In November 2016, PetroGreen availed additional = P30.00 million (or $0.60 million) loan from Chinabank with a term of 4 years and annual interest of 5.33%.

- 42 PGEC’s short-term loans payable amounting to P =46.00 million (or $0.92 million) as of December 31, 2017 (nil as of December 31, 2016) pertains to loans from various lenders with interest rate of 3.5% and maturity in January 2018.

MGI’s long-term loans payable Omnibus Loan and Security Agreement with RCBC and Bank of the Philippine Islands (BPI) On September 26, 2011, MGI, together with PNOC RC and Trans-Asia (presently PHINMA), entered into a P =2,400.00 million (or $54.00 million) Omnibus Loan and Security Agreement (OLSA) with RCBC and BPI specifically to finance the design, development, procurement, construction, operation and maintenance of its 20 MW geothermal power plant project.

As of December 31, 2016, the outstanding balance of the loan amounted to = P0.1 million (or $0.002 million) (nil as of December 31, 2017). Thereafter, on September 5, 2016, MGI consolidated the outstanding principal of the above loan, incidental costs, general corporate expenditures and working capital requirement by executing a new Project Loan Facility Agreement now with RCBC only.

Bridge Financing Loan with RCBC Capital Corporation On January 15, 2016, MGI entered into a Bridge Financing Loan with RCBC Capital Corporation specifically to finance the operation and maintenance of its 20 MW geothermal power plant project. Total principal amount and interest amounting to P =150.00 million (or $3.02 million) and =7.06 million (or $0.15 million), respectively. These were fully paid as of November 25, 2016.

P Project Loan Facility Agreements with RCBC On May 19, 2016, MGI, together with PHINMA and PNOC RC executed the Project Loan Facility Agreement with RCBC for a P =1,400.00 million (or $28.40 million) project loan to finance the design, development and construction of MGPP-2. The first loan drawdown was made on June 2, 2016.

On September 5, 2016, the MGI, together with PHINMA and PNOC RC executed another Project Loan Facility Agreement with RCBC for a P =2,100.00 million (or $42.06 million) project loan to consolidate the outstanding principal of the term loan under the 2011 OLSA with RCBC and BPI. The drawdown of the total loan amount was made on October 10, 2016. As of March 31, 2018 and December 31, 2017, MGI has outstanding drawdowns of = P3,218.80 million (or $64.47 million).

MGPP-1 or M1 new Loan The new M1 Loan amounting to = P2,100.00 million (or $42.06 million) has a term of ten (10) years from the Drawdown Date of October 10, 2016. Interest and principal are payable semi-annually.

Interest payment started on October 12, 2016, while the twenty (20) semi-annual principal payments started on April 12, 2017.

Interest rate is fixed for the first five (5) years from Drawdown Date, based on the sum of the prevailing 5-Year Fixed Benchmark Rate on the Pricing date and the margin of 1.75% (the “Initial Interest Rate”). On the Repricing Date, the interest for the remaining five (5)-year term of the Loan will be the higher of (i) the sum of then prevailing 5-Year Fixed Benchmark Rate plus the margin of 1.75%, or (ii) the Initial Interest Rate. As of March 31, 2018 and December 31, 2017, the outstanding balance related to this loan amounted to = P1,983.08 million (or $39.32 million).

MGPP-2 or M2 Expansion Loan The M2 Expansion Loan amounting to = P1,400.00 million (or $28.40 million) has a term of twelve (12) years including thirty-six (36) months grace period from Initial Drawdown Date of June 2, 2016. Interest and principal are payable semi-annually. Interest payment started on October 12, 2016, while the eighteen (18) semi-annual principal payments will start on October 12, 2019.

- 43 Interest rate is fixed for the first seven (7) years from the Initial Drawdown Date based on the sum of the prevailing 7-Year Fixed Benchmark Rate on the Pricing Date and the applicable margin of (1) 1.25% per annum prior to Commercial Operations Date, or (ii) 1.75% per annum from and after the Commercial Operations Date (the “Initial Interest Rate”). For subsequent Drawdowns, interest rate will be the three (3)–day simple average interpolated rate based on the remaining tenor and computed using the straight-line method. On the Repricing Date, the interest for the remaining five (5)-year term of the Loan will be the higher of (i) the sum of the then prevailing 5Year Fixed Benchmark Rate plus the applicable margin, or (ii) the weighted average interest rate during the first seven (7) years of the Loan.

Deferred financing costs are incidental costs incurred in obtaining the loan, which include documentary stamp tax, transfer tax, chattel mortgage, real estate mortgage, professional fees, arranger’s fees and other out-of-pocket expenses.

As of March 31, 2018 and December 31, 2017, the outstanding balance of these loans amounted to P1,235 million and P =1,215.06 million (or $24.34 million), respectively.

The loan covenants covering the outstanding debt of MGI include, among others the following conditions: maintenance at all times of Debt-to-Equity (DE) Ratio of not greater than 70:30, Default Debt Service Coverage Ratio (DSCR) of at least 1.10x both until full payment of the Loans, and Dividend DSCR of at least 1.20x. MGI is also required to transfer in the DSPA equivalent to one-sixth (1/6) of the amount sufficient to pay for the forthcoming debt service scheduled in April and October of every year until the loan is fully paid off. As of March 31, 2018 and December 31, 2017, MGI has been compliant with the above conditions.

PetroSolar’s long-term loans payable On November 12, 2015, the PetroSolar, together with PGEC and EEIPC, as third party mortgagors and pledgors, entered into a = P2.6 billion (or $55.25 million) OLSA with PNB and DBP specifically to partially finance the design, development, procurement, construction, operation and maintenance of its TSPP. The PetroSolar shall fully pay the loan for the pro-rata account of each lender within twelve (12) years from and after the date of the initial drawdown. Interest and principal are payable semiannually. Interest payment started on May 27, 2016, while the twenty-two (22) semi-annual principal payments started on November 27, 2016.

The rate of the interest applicable to the facility or the relevant part thereof for each interest period shall be fixed for the first seven periods (7) from the initial drawdown date (the Initial Interest Rate). Prior to the FIT entitlement and collection of FIT revenues of the borrower, the rate shall be the higher of: (i) the aggregate of the seven (7) year PDST-R2 and the initial credit spread, or (ii) the minimum interest rate. Upon FIT entitlement of at least 40MW and collection of FIT revenues by the borrower equivalent to an aggregate of at least four hundred seventy three million pesos (P =473,000,000) within a period not exceeding twelve (12) consecutive months, the rate shall be the higher of (i) the weighted average interest rate in previous drawdowns less the step down credit spread, or (ii) minimum interest rate, and which interest rate shall be applied beginning the following month immediately succeeding the month wherein the aforesaid FIT entitlement and FIT revenue collection thresholds were satisfied.

Deferred financing costs are incidental costs incurred in obtaining the loan, which include documentary stamp tax, transfer tax, chattel mortgage, real estate mortgage, professional fees, arranger’s fee and other out-of-pocket expenses.

PetroSolar mortgaged all of its property and equipment as collateral in connection with the loan.

- 44 The loan covenants covering the outstanding debt of PetroSolar include, among others, maintenance of debt-to-equity ratio of 75:25 and establishment of DSPA required balance. As of March 31, 2018 and December 31, 2017, PetroSolar is in compliance with the said loan covenants.

Deferred financing costs Deferred financing costs are incidental costs incurred in obtaining the loan which includes documentary stamp tax, transfer tax, chattel mortgage, real estate mortgage, professional fees, arranger’s fee and other costs directly attributable in obtaining the loan. The portion pertaining to the drawn amount of the loan is presented as deduction from the loans payable account and is amortized over the life of the loan using the effective interest rate method. Amortization of deferred costs will be capitalized until all activities necessary to prepare the power plant for its intended use are substantially complete.

17. Asset Retirement Obligation The Group has recognized its share in the abandonment costs associated with the Etame, Avouma and Ebouri oilfields located in Gabon, West Africa, geothermal field located in Sto. Tomas Batangas, and photovoltaic (PV) solar power facility in Tarlac.

Movements in this account follow:

Balance at beginning of year Additions or change in estimates (Note 10) Accretion expense Translation adjustment Balance at end of year

Unaudited 31-Mar-18 $1,642,504 22,264 (18,560) $1,646,208

Audited 31-Dec-17 $1,366,511 210,883 66,530 (1,420) $1,642,504

18. Equity Under the existing laws of the Republic of the Philippines, at least 60% of the Parent Company’s issued capital stock should be owned by citizens of the Philippines for the Parent Company to own and hold any mining, petroleum or renewable energy contract area. As of March 31, 2018, the total issued and subscribed capital stock of the Parent Company is 99.59% Filipino and 0.41% non-Filipino as compared to 99.67% Filipino and 0.33% non-Filipino as of December 31, 2017.

As of March 31, 2018 and December 31, 2017, paid-up capital consists of: Unaudited 31-Mar-18 Capital stock - Shares Authorized – 700,000,000 shares Issued and outstanding shares Capital stock – in USD Additional paid in capital – in USD

568,711,842 $12,500,454 47,435,328 $59,935,782

Audited 31-Dec-17 410,736,330 $9,391,311 35,620,588 $45,011,899

- 45 The Group’s track record of capital stock follows:

Listing by way of introduction -August 11, 2004 Add (deduct): 25% stock dividend 30% stock dividend 1:1 stock rights offering December 31, 2010 Deduct: Movement December 31, 2011 Deduct: Movement December 31, 2012 Deduct: Movement December 31, 2013 Deduct: Movement December 31, 2014 Add (Deduct): 2:1 stock rights offering December 31, 2015 Deduct: Movement December 31, 2016 Deduct: Movement December 31, 2017 Add: 2.6 : 1 stock rights offering Deduct: Movement March 31, 2018

Number of shares registered

Issue/offer price

Date of SEC approval

84,253,606

P =3/share

August 4, 2004

21,063,402 31,595,102 136,912,110 273,824,220 − 273,824,220 − 273,824,220 − 273,824,220

Number of holders as of year-end

= P1/share September 6, 2005 = P1/share September 8, 2006 = P5/share May 26, 2010 2,149 (26) 2,123 (10) 2,113 (41) 2,072 (29) 2,043

273,824,220 136,912,110 410,736,330 − 410,736,330 − 410,736,330

P =4.38/share

June 3, 2015

(15) 2,028 (1) 2,027 (15) 2,012

157,975,512 568,711,841

(3) 2,009

Dividends There were no declaration of cash dividends as of March 31, 2018 and December 31, 2017.

Appropriated Retained Earnings On January 15, 2008, the BOD approved the appropriation of $0.49 million for the development of the Ebouri oilfield in Gabon, West Africa in addition to the $0.56 million originally appropriated amount.

On July 24, 2008, the BOD approved additional appropriation of retained earnings amounting to $1.0 million for the development of the Ebouri oil field in Gabon, West Africa.

On February 19, 2013, the BOD approved additional appropriated retained earnings amounting to $1.10 million to cover for the Group’s share in the cost of the committed wells in the Etame oilfield in Gabon, West Africa.

Equity Reserve On June 9, 2015, PetroEnergy sold its 10% interest in PetroGreen to EEIPC, bringing its ownership in PetroGreen from 100% to 90%. The transaction was accounted as an equity transaction since there was no change in control.

The effect of change in the ownership interest in PetroGreen on the equity attributable to owners of PetroEnergy is summarized as follows:

- 46 Consideration received from non-controlling interest Carrying amount of non-controlling interest sold, net of related cost Excess of consideration received recognized in equity

$4,669,613 (2,810,440) $1,859,173

Capital Management The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholders’ value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may increase its debt from creditors, adjust the dividend payment to shareholders or issue new shares.

As of March 31, 2018 and December 31, 2017, the Group monitors capital using a debt-to-equity ratio, which is total liabilities divided by total equity.

The Group’s sources of capital are as follows:

Loans payable Capital stock Additional paid-in capital Retained earnings Equity reserve Deposits for future stock subscriptions

Unaudited 31-Mar-18 $119,942,901 12,500,454 47,435,328 29,351,526 1,859,173 − $211,089,382

Audited 31-Dec-17 $130,372,112 9,391,311 35,620,588 27,615,970 1,859,173 − $204,859,154

The table below demonstrates the debt-to-equity ratio of the Group:

Total liabilities Total equity Debt-to-equity ratio

Unaudited 31-Mar-18 $129,055,480 115,651,792 1.12:1

Audited 31-Dec-17 $138,342,633 101,145,777 1.37:1

Based on the Group’s assessment, the capital management objectives were met as of March 31, 2018 and December 31, 2017.

19. Related Party Transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party in making financial and operating decisions or the parties are subject to common control or common significant influence (referred to as ‘Affiliates’). Related parties may be individuals or corporate entities.

- 47 Significant transactions with related parties are as follows:

Transactions for the Period Unaudited Audited Related Party/Nature 31-Mar-18 31-Dec-17 Stockholder HI Internal audit services ($13,333) ($13,333) Joint Venture PetroWind Due from PetroWind $− $− Rental income 17,006 4,285 Management income 159,809 33,809 Advances 108,191 108,191

Outstanding Balance Receivables (Payables) Unaudited Audited 31-Mar-18 31-Dec-2017

Terms and Conditions

($6,566)

($5,625)

Note a

$− − − − ($6,566)

$− − − − ($5,625)

Note b Note b Note c Note d

a. PetroEnergy has engaged HI to perform internal audit services on PetroEnergy. HI charges retainer fee of = P672,000 ($13,333), inclusive of VAT per annum. Also, on March 22, 2016, PetroEnergy engaged HI for IT General Controls and System Implementation Review. b. On March 6, 2015, PetroWind availed of a P =20.00 million (or $0.42 million) loan from PGEC at 5.6% annual interest payable in June 2016. This was rolledover and paid on December 29, 2016. On May 4, 2015, PetroWind availed of an additional loan from PERC amounting = P 20.00 million (or $0.42 million) payable in May 2016 at annual interest rate of 6.104%. This was rolled over and paid on December 28, 2016. c. Management income refers to timewriting charges, management fees for accounting, legal, management and other support services rendered by PetroEnergy and PetroGreen to PetroWind. d. Advances represents minimal reimbursement of costs and expenses. e. On November 12, 2015, PetroSolar, together with PGEC and EEIPC, as the third party mortgagors and pledgors, entered into a P =2.60 billion (or $52.07 million) OLSA with PNB and DBP. PetroSolar mortgaged all of its property and equipment as collateral in connection with the loan (see Note 10).

Terms and conditions of transactions with related parties Outstanding balances at year-end are unsecured, interest-free and settlement occurs in cash.

There have been no guarantees provided or received for any related party receivables or payables.

The Group has not recognized any impairment on amounts due from affiliated companies for the years ended December 31, 2017 and 2016. This assessment is undertaken each financial year through a review of the financial position of the related party and the market in which the related party operates.

Compensation of Key Management Personnel The Group has a profit-sharing plan for directors, officers, managers and employees as indicated in its by-laws. The amount, the manner and occasion of distribution is at the discretion of the BOD, provided that profit share shall not exceed 5% of the audited income before income tax and profit share.

- 48 20. Financial Instruments The Group’s principal financial instruments include cash and cash equivalents, trading and investment securities (financial assets at FVPL), receivables, restricted cash, loans payable, accounts payable, accrued expenses and dividends payable. The main purpose of these financial instruments is to fund the Group’s working capital requirements.

Categories and Fair Values of Financial Instruments As of December 31, 2017 and 2016, the carrying amounts of the Group’s financial assets and financial liabilities approximate their fair values except for loans payable. The fair value of the loans payable as of December 31, 2017 and 2016 amounted to $130.87 million and $120.39 million compared to their carrying value of $130.37 million and $115.49 million, respectively.

The methods and assumptions used by the Group in estimating the fair value of financial instruments are: Cash and cash equivalents, Restricted cash, Receivables and Accounts payable and accrued expenses

Due to the short-term nature of the instruments, carrying amounts approximate fair values as of the reporting date.

Equity securities

Fair values are based on published quoted prices.

Golf club shares

Fair values are based on quoted market prices as at reporting date.

Loans payable

Estimated fair value of long term loans is based on the discounted value of future cash flows using the prevailing PDST-R2 at the reporting period adjusted for credit spread.

The tables in the next page show financial instruments recognized at fair value as of March 31, 2018 and December 31, 2017. The fair value is based on the source of valuation as outlined below:   

quoted prices in active markets for identical assets or liabilities (Level 1); those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly (Level 2); and those with inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

Level 1 Financial assets at FVPL Marketable equity securities Investment in golf club shares

31-Mar-18 (Unaudited) Level 2 Level 3 Fair Value

$161,457 14,762 $176,219

$− − $−

$− − $−

$161,457 14,762 $176,219

- 49 Level 1 Financial assets at FVPL Marketable equity securities Investment in golf club shares

31-Dec-17 (Audited) Level 2 Level 3

$165,793 15,422 $181,215

$− − $−

Fair Value

$− − $−

$165,793 15,422 $181,215

As of March 31, 2018 and December 31, 2017, there were no transfers of financial instruments among all levels.

Financial Risk Management Objectives and Policies The Group manages and maintains its own portfolio of financial instruments in order to fund its own operations and capital expenditures. Inherent in using these financial instruments are the following risks on liquidity, market and credit.

Financial Risks The main financial risks arising from the Group’s financial instruments are liquidity risk, market risk and credit risk.

Liquidity Risk Liquidity risk is the risk that the Group is unable to meet its financial obligations when due. The Group monitors its cash flow position and overall liquidity position in assessing its exposure to liquidity risk. The Group maintains a level of cash and cash equivalents deemed sufficient to finance its operations and to mitigate the effects of fluctuation in cash flows. To cover its shortterm and long-term funding requirements, the Group intends to use internally generated funds as well as to obtain loan from financial institutions.

The tables below summarize the maturity profile of the Group’s financial assets and financial liabilities as of March 31, 2018 and December 31, 2017 based on contractual payments:

On demand Financial Assets Financial assets at FVPL Loans and receivables: Cash and cash equivalents Accounts receivable Interest receivable Restricted cash Financial Liabilities Loans payable Accounts payable and accrued expenses* Net financial assets (liabilities)

Financial Assets Financial assets at FVPL Loans and receivables: Cash and cash equivalents Accounts receivable Interest receivable Restricted cash Financial Liabilities

31-Mar-18 (Unaudited) Less than 6 months to More than 6 months 12 months 12 months

Total

$176,219

$−

$−

$−

$176,219

6,593,200 977,659 − − 7,575,689

8,115,585 7,232,169 61,071 − 20,505,570

− − − 19,628,462 2,613,333

− − − 875,924 875,924

14,708,785 8,209,828 61,071 3,489,257 31,570,516

−

9,164,110

7,117,784

103,661,007

119,942,901

− − $7,575,689

6,624,361 15,788,471 $$4,717,099

− 7,117,784 ($4,504,451)

− 103,661,007 ($102,785,083)

6,624,361 126,567,262 ($94,996,746)

On demand

Less than 6 months

$181,215

$−

7,121,659 271,030 1,785 − 7,575,689

12,988,922 7,505,587 11,061 − 20,505,570

31-Dec-17 (Audited) 6 months to 12 months

More than 12 months

Total

$−

$−

$181,215

− − − 2,613,333 2,613,333

− − − 875,924 875,924

20,110,581 7,776,617 12,846 3,489,257 31,570,516

- 50 -

Loans payable** Accounts payable and accrued expenses* Net financial assets (liabilities)

31-Dec-17 (Audited) 6 months to More than 12 months 12 months 1,691,258 123,710,807

On demand −

Less than 6 months 28,646,451

542,968 542,968 $7,032,721

4,201,586 32,848,037 ($12,342,467)

− 1,691,258 $922,705

− 123,710,807 ($122,834,883)

Total 154,048,516 4,744,554 158,793,070 ($127,222,554)

*Excluding statutory payables **Includes future interest payments

b. Market Risk Market risk is the risk of loss on future earnings, on fair values or on future cash flows that may result from changes in market prices. The value of a financial instrument may change as a result of changes in equity prices, foreign currency exchanges rates, interest rates and other market changes.

Foreign Exchange Risk Foreign currency risk is the risk that the value of the Group’s financial instruments denominated other than the Group’s functional currency diminishes due to unfavorable changes in foreign exchange rates. The Group’s transactional currency exposures arise from cash and cash equivalents, financial assets at FVPL, receivables, restricted cash, loans payable and accounts payable and accrued expenses. Currency risk is monitored and analyzed systematically and is managed by the Group.

There is no other impact on the Group’s equity other than those already affecting income before income tax.

Interest Rate Risk The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s loans payable. Interest rate of loans payable is fixed for the first five (5) years or first seven (7) years and will be repriced thereafter.

There is no other impact on the Group’s equity other than those already affecting income before income tax. c. Credit Risk There are significant concentrations of credit risk within the Group since most of its financial assets are with consortium operator, although credit risk is minimal. The gross maximum exposure of the Group’s credit risk is equal to the carrying amounts of the financial assets.

The Group has a well-defined credit policy and established credit procedures. In addition, receivable balances are being monitored on a regular basis to ensure timely execution of necessary intervention efforts.

The Group determines the credit quality by class for loan-related consolidated statements of financial position lines based on the following: Cash in banks and short-term investments - based on the nature of the counterparties and the reputation of the financial institution.

Receivables - based on the payment behavior of the counterparty. High grade pertains to receivables from consortium operator and interest receivable from short-term investments and standard grade pertains to other receivables.

- 51 The tables below show the credit quality by class of asset for loan-related consolidated statements of financial position lines, based on the Group’s credit rating system as of March 31, 2018 and December 31, 2017: 31-Mar-18 (Unaudited) Neither past due nor impaired Past due High grade Standard grade and impaired Cash and cash equivalents* Accounts receivable Interest receivable Restricted cash

Cash and cash equivalents* Accounts receivable Interest receivable Restricted cash

$12,885,523 8,209,828 61,071 20,504,386 $41,660,808

$− 51,427 − − $51,427

$12,885,523 8,261,255 61,071 20,504,386 $41,712,235

31-Dec-17 (Audited) Neither past due nor impaired Past due High grade Standard grade and impaired

Total

$20,106,257 7,776,617 12,846 3,489,257 $31,384,977

$− − − − $−

Total

$− − − − $−

$− 53,724 − − $53,724

$20,106,257 7,830,341 12,846 3,489,257 $31,438,701

*excluding cash on hand

21. Segment Information For management purposes, the Group is organized into business units based on their products and has four reportable segments as follows:    

The oil production segment is engaged in the oil and mineral exploration, development and production.

The geothermal energy segment develops and operates geothermal steamfields and power plants.

The solar energy segment carries out solar energy operations of the Group.

Other activities pertain to research and investment activities.

No operating segments have been aggregated to form the above reportable operating segments.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements.

- 52 -

Segment revenue Net income (loss) Other comprehensive loss Other information: Segment assets except deferred tax assets Deferred tax assets - net Segment liabilities except deferred tax liabilities Deferred tax liabilities - net Provision for (benefit from) income tax Capital expenditures Deferred oil exploration costs Depletion, depreciation and amortization

Segment revenue Net income (loss) Other comprehensive loss Other information: Segment assets except deferred tax assets Deferred tax assets - net Segment liabilities except deferred tax liabilities Deferred tax liabilities - net Cash flows from (used in): Operating activities Investing activities Financing activities Provision for (benefit from) income tax Capital expenditures Deferred oil exploration costs Depletion, depreciation and amortization

Oil Production $1,746,456 (376,190) (3,806,257)

Geothermal Energy $4,082,005 1,614,971 –

31-Mar-18 (Unaudited) Other Solar Energy Activities $3,314,239 $– 1,399,720 (181,504) – –

Elimination $– 694,529 –

Consolidated $9,142,700 3,151,526 (3,806,257)

$73,350,449 $110,541,389 $206,739 $23,292

$66,384,518 $12,106

$39,873,214 $–

($91,994,155) $–

$198,155,415 $242,137

$12,328,573 $–

$42,172,541 $–

$8,313,748 $–

($705,371) $–

$129,055,480 $–

$66,945,989 $–

$14,858 $8,745 $4,040,286

$83 $974,987 $–

$75,402 $6,036 $–

$1,208 $3,219 $–

$– ($19,090) $–

$91,551 $973,897 $4,040,286

$409,901

$728,651

$646,331

$5,519

($249)

$1,790,153

Oil Production $6,510,755 (3,483,469) (87,138)

Geothermal Energy $16,508,677 5,716,165 (154,199)

31-Dec-17 (Audited) Other Solar Energy Activities $12,342,104 $– 4,227,402 1,803,527 – –

Elimination $– 199,448 –

Consolidated $35,361,536 8,463,073 (241,337)

$63,840,627 $111,948,713 $206,739 $24,332

$67,041,789 $11,615

$44,204,260 $–

($47,789,666) $–

$239,245,723 $242,686

$17,366,443 $–

$43,190,528 $–

$9,537,075 $–

($723,949) $–

$138,342,633 $–

$68,972,536 $–

$2,013,715 (4,354,105) 5,778,711 $137,310 $118,258 $3,982,542

$10,470,771 (21,887,133) 13,376,338 $3,227 $23,355,388 $–

$8,508,056 (280,897) (7,914,758) $239,106 $320,551 $–

$2,083,736

$2,917,493

$2,543,365

$139,204 (3,060,608) 4,503,349 $4,895 $84,510 $– $21,789

($103,509) 6,589,404 (6,610,787) ($1,516,756) ($19,089) $– ($248)

InterGroup investments, revenues and expenses are eliminated during consolidation.

$21,028,237 (22,993,339) 9,132,853 ($1,132,218) $23,859,618 $3,982,542 $7,566,135

- 53 22. Basic/Diluted Earnings Per Share The computation of the Group’s earnings per share follows: Unaudited 31-Mar-18 Net income attributable to equity holders of the Parent Company Weighted average number of shares Basic/diluted earnings per share

Audited 31-Dec-17

Audited 31-Dec-16

$1,735,556

$3,793,701

$1,772,841

568,711,842 $0.0031

410,736,330 $0.0092

410,736,330 $0.0043

Earnings per share are calculated using the net income attributable to equity holders of the Parent Company divided by the weighted average number of shares. On June 3, 2015, the SEC approved the increase in the authorized capital from 330,000,000 shares to 700,000,000 shares at P =1 par value per share. Total issued and outstanding shares as of March 31, 2018 and December 31, 2017 amounts to 568,711,842 shares and 410,736,330 shares, respectively.

23. Noncontrolling Interests As of March 31, 2018 and December 31, 2017, noncontrolling interests (NCI) pertain to the 10% shareholdings of EEI-PC in PetroGreen, 35% shareholdings of PHINMA and PNOC in MGI and 44% shareholdings of EEI-PC in PetroSolar.

As of March 31, 2018 and December 31, 2017, the accumulated balances of and net loss attributable to noncontrolling interests are as follows: Unaudited 31-Mar-18 Accumulated balances of non-controlling interests: MGI PetroSolar PetroGreen Net income attributable to non-controlling interests: MGI PetroSolar PetroGreen

Audited 31-Dec-17

$15,266,542 10,658,597 6,396,383 $32,321,522

$15,115,270 10,499,665 6,530,054 $32,144,989

$565,240 615,877 234,853 $1,415,970

$2,000,658 1,860,057 808,657 $4,669,372

24. Others a. The Interim Financial Report (March 31, 2018) is in compliance with generally accepted accounting principles. b. The same policies and methods of computation were followed in the preparation of the interim financial report compared to the December 31, 2017 Consolidated Audited Financial Statements.

- 54 c. No unusual item or items affected the assets, liabilities, equity and cash flows of the March 31, 2018 Financial Statements. d. Earnings per share is presented in the face of the unaudited statements of income for the period ended March 31, 2018 and December 31, 2017. e. No significant events happened during the quarter that will affect the March 31, 2018 Unaudited Financial Statements. f.

There are no seasonal aspects that had a material effect on the financial condition or results of operation of the Company.

g. There is no foreseeable event that will trigger direct or contingent financial obligation that is material to the Company, including any default of accelerated obligation. h. There are no material off-balance sheet transactions, arrangements, obligations and other relationships of the Company with other entities or persons that were created during the period. i.

There are no changes in estimates of amounts reported in prior periods of the current financial year or changes in estimates of amounts reported in prior financial years that could have material effect in the current period.

j.

Our Company has no contingent liabilities or assets during the period.

- 55 Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 1.

Consolidated Financial Condition (March 31, 2018 and March 31, 2017) As of March 31 (Unaudited)

% Change

% to Total Assets

2018

2017

$14,708,785

$12,885,523

14.15%

6.01%

176,219 8,270,899

171,512 7,903,167

2.74% 4.65%

0.07% 3.38%

23,153,817 155,820,939 4,040,286 27,684,057 31,417 242,137 10,578,716

9,485,220 153,281,836 4,205,202 27,954,440 31,417 308,128 11,784,168

144.10% 1.66% -3.92% -0.97% 0.00% -21.42% -10.23%

9.46% 63.68% 1.65% 11.31% 0.01% 0.10% 4.32%

TOTAl ASSETS LIABILITIES AND EQUITY

$244,707,272

$228,010,613

7.32%

100.00%

Accounts payable and accrued expenses Current portion of loans payable Income tax payable Deposit for future stock subscription Loans payable - net of current portion Asset retirement obligation Accrued retirement liability Deferred tax liabilities Other noncurrent liability TOTAL LIABILITIES

6,737,644 15,967,450 130,003 103,975,451 1,646,208 598,724 129,055,480

6,606,511 18,458,693 128,350 4,256,343 102,477,647 1,376,196 51,197 1,524,098 151,254 135,030,289

1.98% -13.50% 1.29% -100.00% 1.46% 19.62% -100.00% -100.00% 295.84% -4.42%

2.75% 6.53% 0.05% 0.00% 42.49% 0.67% 0.00% 0.00% 0.24% 52.74%

83,330,270 32,321,522

67,661,004 25,319,320

23.16% 27.66%

34.05% 13.21%

$115,651,792 $244,707,272

$92,980,324 $228,010,613

24.38% 7.32%

47.26% 100.00%

ASSETS Cash and cash equivalents Financial assets at fair value through profit or loss (FVPL) Receivables Prepaid expenses and other current assets Property,plant and equipment Deferred oil exploration costs Investment in a joint venture Investment properties Deferred tax assets-net Other noncurrent assets

EQUITY Attributable to equity holders of the Parent Company Non-controlling interest TOTAL EQUITY TOTAL LIABILITIES AND EQUITY

Note: Differences in amounts are due to rounding off.

Total assets amounted to US$244.707 million and US$228,011 million as of March 31, 2018 and Mach 31, 2017, respectively.

Cash and cash equivalents consist of cash on hand, cash in banks and money market placements with original maturities of not more than three months. The 14.15% net increase from US$12.886 million as of March 31, 2017 to US$14.709 million as of March 31, 2018 is mainly due to the proceeds from sale of electricity sales, crude oil and proceeds from additional loan of MGI for MGPP Phase 2. This is offset by the capital and operating expenses incurred during the period.

Financial assets at fair value through profit and loss (FVPL) amounted to US$0.176 million and US$0.172 million as of March 31, 2018 and 2017, respectively. The 2.74% net increase in this account is due to the positive changes in the market prices of the Company’s investments in stocks.

The Receivables account mainly consists of receivables from electricity sales and lifting/sales of crude

- 56 oil revenue. This account slightly changed by 4.65% from US$7.903 million as of March 31, 2017 to US$8.271 million as of March 31, 2018 due to higher outstanding receivable from oil liftings, and electricity sales.

Prepaid expenses and other current assets consist of escrow fund, advances to contractor, deferred financing costs, prepaid insurance, supplies inventory, crude oil inventory, refundable deposits, restricted cash and other prepayments. This account amounted to US$9.485 million and US$23.154 million as of March 31, 2018 and March 31, 2017, respectively. The 144.10% net increase is mainly due to the remaining net proceeds of the Stock Rights Offering amounting to $14.039 (or PhP 732.288 million) put under escrow.

Property, plant and equipment (PPE) amounted to US$155.820 million and US$153.282 million as of March 31, 2018 and March 31, 2017, respectively. The 1.66% net increase is mainly due to the construction of the MGPP-2.

Deferred oil exploration cost amounted to US$4.040 million and $4.205 million as of March 31, 2018 and March 31, 2017, respectively. The 3.92% decrease is due to reclassification of deferred costs to PPE wells.

Investment in a joint venture refers to the remaining 40.00% shareholdings in PWEI. This amounted to US$27.684 million and US$27.954 million as of March 31, 2018 and March 31, 2017, respectively. The -0.97% net decrease mainly pertains to negative effect of the translation adjustments net of the Group’s share in net income generated during the period.

Investment properties remained unchanged as of March 31, 2018.

Deferred tax assets – net occurs due to timing differences in recognizing temporary deductible expenses and temporary taxable revenues such as accrued profit share, accretion expenses, accrued retirement liability, provision for probable losses, unrealized gains or losses and change in crude oil inventory. As of March 31, 2018 and March 31, 2017, this amounted to US$0.242 million and US$0.308 million.

The group also recorded a US$1.524 million deferred tax liability as of March 31, 2017 relative to PetroGreen’s unrealized gain on re-measurement of investment. However, in December 31, 2017, this amount was reversed because the Group, as a joint venturer, assessed that it can control the timing of the distribution of its share in profits in the joint arrangement and its share in profits will not be distributed in the foreseeable future. Therefore, deferred tax liability is not recognized starting December 31, 2017.

Other non-current assets amounted to US$10.579 million and US$11.784 million as of March 31, 2018 and March 31, 2017, respectively. This account mainly consists of input vat carry overs, noncurrent portion of advance rent, and restricted cash. The 10.23% net decrease is mainly due to the impact of forex translation adjustment in translating the Peso accounts to US$.

Accounts payable and accrued expenses amounted to US$6,738 million and US$6.607 million as of March 31, 2018 and March 31, 2017, respectively. The 1.98% increase mainly pertains to the progress billings from suppliers/contractors for the development of MGPP - 2.

Majority of the current portion of loans payable as of March 31, 2018 and March 31, 2017 refers to loans payable with maturity of not more than one (1) year; and the reclassification of non-current loans payable that are due within 1 year to current portion. The 13.50% net decrease mainly pertains to payment of short-term loans.

The group’s income tax payable as of March 31, 2018 and 2017 mainly refers to the PetroSolar’s tax payable during the quarter (under PEZA rules).

- 57 The deposit for future stock subscription as of March 31, 2017 pertains to total consideration received from non-controlling interests in excess of the authorized capital of entities within the Group, with the purpose of applying the same payment for future issuance of shares. Since the increase in capitalization was already approved by the SEC, this amount was reclassified to equity.

Loans payable – noncurrent amounted to US$103.975 million and US$102.478 million as of March 31, 2018 and March 31, 2017, respectively. The 1.46% net increase is mainly due to additional loans for the construction of the MGPP-2, net of translation adjustment.

Asset retirement obligation amounted to US$1.646 million and US$1.376 million as of March 31, 2018 and as of March 31, 2017, respectively. The 19.62% increase in this account resulted from the amortization of the net present value of abandonment costs estimate.

Other non-current liabilities pertain to accrued rent payable arising from the application of straight line amortization of operating lease and accrued retirement liability. This amounted to US$0.599 million and US$0.152 million as of March 31, 2018 and March 31, 2017, respectively. The 295.84% net increase mainly pertains to the initial set-up of retirement funding of MGI and rent levelization of PSOC’s land lease.

Equity attributable to equity holders of the Parent Company amounted to US$83.330 million as of March 31, 2018 as compared to US$67.661 million as of March 31, 2017.

Non-controlling interest (NCI) pertains to the following:  10% share of EEI-PC in PetroGreen;  25% share of Trans-Asia, the 10% share of PNOC-RC, and 10% of the 65% share of EEI-PC (indirect) in MGI;  44% share of EEI-PC (direct) and 10% of 56% share (indirect) in PSC; Non-controlling interest increased by 27.66% from US$32.322 million as of March 31, 2018 to US$25.319 million for the same period in 2017. This is due to the higher net income shared by other joint venture partners in the RE projects of the Group and additional equity infusion.

- 58 2.

Consolidated Results of Operations (For the quarter ending March 31, 2018 and March 31, 2017) % Change

% to Total Revenues

Unaudited 31-Mar-18 OIL REVENUES Electricity Sales Oil Revenues

31-Mar-17

$7,396,244 1,746,456 9,142,700

$7,582,721 1,719,589 9,302,310

-2.46% 1.56% -1.72%

72.58% 17.14% 89.72%

GROSS INCOME

2,821,066 1,019,674 384,988 4,225,728 4,916,972

2,831,327 853,718 441,539 4,126,584 5,175,726

-0.36% 19.44% -12.81% 2.40% -5.00%

27.68% 10.01% 3.78% 41.47% 48.25%

GENERAL AND ADMINISTRATIVE EXPENSES

1,059,695

581,641

82.19%

10.40%

125,760 178,965

7,395 47,156

1600.61% 279.52%

1.23% 1.76%

COST OF SALES Costs of Electricity Sales Oil production operating expenses Depletion

OTHER INCOME (CHARGES) Interest income Net unrealized foreign exchange gain (loss) Net unrealized gain (loss) on fair value changes on financial assets at FVPL Interest expense Accretion expense Miscellaneous income Share in net income of an Associate

3,038 (1,639,547) (22,264) 37,375 702,473 (614,200)

11,508 (1,641,546) (13,070) 44,837 1,336,610 (207,110)

-73.60% -0.12% 70.34% -16.64% -47.44% 196.56%

0.03% -16.09% -0.22% 0.37% 6.89% -6.03%

3,243,077

4,386,975

-26.07%

31.83%

91,551

81,391

12.48%

0.90%

NET INCOME

$3,151,526

$4,305,584

-26.80%

30.93%

NET INCOME (LOSS) ATTRIBUTABLE TO: Equity Holders of the Parent Company Noncontrolling interest

$1,735,556 1,415,970

$2,858,012 1,447,572

-39.27% -2.18%

17.03% 13.90%

NET INCOME

$3,151,526

$4,305,584

-26.80%

30.93%

$0.0070

-56.14%

INCOME BEFORE INCOME TAX PROVISION FOR INCOME TAX

EARNINGS PER SHARE(EPS) FOR NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY- BASIC AND DILUTED

$0.0031

Note: Differences in amounts are due to rounding off.

The Group generated net income amounting to US3.152 million and US$4.306 million for the period March 31, 2018 and March 31, 2017, respectively. Net income attributable to equity holders of the Parent Company amounts to US$1.736 million or $0.003 earnings per share and US$2.858 million or 0.0070 earnings per share for the 1st quarter ended March 31, 2018 and March 31, 2017, respectively.

- 59 Revenues: Electricity sales refer to the electricity power generated by MGPP and PetroSolar. The 2.46% decline is due to the translation adjustment from weakening of the Peso against US$ weighted average rate of 1US$:PhP 50.0073 to 1US$:PhP 51.478. Disregarding the translation adjustment, the electricity sale almost maintained same level of revenue with an increase of 0.4%.

Oil revenues increased by 1.56% from US$1.720 million to US$1.746 million for the 1st quarter 2018 and 2017, respectively. The increase is mainly due to higher average crude oil price from an average of $51.63/ barrel to $65.85/barrel, despite of the 22% decline in production due to shut-in wells.

Costs and Expenses: Costs of electricity sales pertain to the direct costs of generating electricity power including operating and maintenance costs (O&M) of power plant and fluid collection and reinjection system (FCRS), depreciation, and other costs directly attributed to producing electricity. This amounts to US$2.821 million and US$2.831 million for the 1st quarter 2018 and 2017 million.

Oil production expenses (OPEX) increased by 19.44% from $0.854 million as of March 31, 2017 US$1.02 million as of March 31, 2018 because of higher royalty (Gabon) expenses brought about by the recovery in average crude oil price and additional costs for workover of wells.

The 12.81% decrease in depletion is due to lower depletable cost as a result of the impairment main in Gabon assets in December 2017.

General and administrative expenses (G&A) increased by 82.19% from US$0.582 million as of March 31, 2017 to US$1.09 million. Higher G&A in 2016 is mainly due to expenses paid for the conduct of the Stock Rights Offering.

Other income (charges) amounted to US$ (0.614) million and US$ (0.207) million as of March 31, 2018 and 2017, respectively. Below presents the itemized discussion of the changes in other income (charges) – net account. 

47.4% decrease in share in net income of an associate amounted to US$0.702 million and US$1.337 million as of March 31, 2018 and March 31, 2017, respectively. The decrease pertains to lower net income of PWEI for the period due to lower electricity generation.



significant increase in interest income from US$7,395 as of March 31, 2017 to US$0.126 million as of March 31, 2018 is mainly due to the interest income accrued from the outstanding receivable from TransCo for the electricity sales and interest income earned from the escrow;



279.52% increase in forex changes from a gain of US$0.047 million in 2017 to US$0.179 million in 2018 is due to translation of the PhP loans to US$;



73.60% net decrease in net unrealized gain on fair value changes on financial assets at FVPL pertains to the minimal movements of its investments in stocks traded at the PSE during the period;



Interest expense amounted to US$1.64 million as of March 31, 2018 and US$1.642 million as of March 31, 2017. Interest during the period is 0.12% lower than last year mainly due to partial payment of the principal loans.



70.34% increase in accretion expense from US$0.013 million for the 1st quarter 2017 to US$0.022 million for the 1st quarter 2018 is mainly due to change in estimates;

- 60 

Miscellaneous income mainly pertains to the monthly time-writing charges and rental income.

The 16.64% decrease is due to revised fees staring January 2018.

Provision for (benefit from) income tax: Provision for income tax current - pertains to PSC’s outstanding tax payable - 5.00% provision for income tax under the PEZA rules.

Non-controlling interest (NCI) as of March 31, 2018 and 2017 pertains to the following:  10% share of EEI-PC in PetroGreen;  25% share of Trans-Asia, the 10% share of PNOC-RC, and 10% of the 65% share of EEI-PC (indirect) in Maibarara;  44% share of EEI-PC (direct) and 10% of 56% share (indirect) in to PetroSolar;

- 61 3. Financial Condition (March 31, 2018 and December 31, 2017)

ASSETS Cash and cash equivalents Financial assets at fair value through profit or loss (FVPL) Receivables Prepaid expenses and other current assets Property,plant and equipment Deferred oil exploration costs Investment in a joint venture Investment properties Deferred tax assets-net Other noncurrent assets TOTAl ASSETS LIABILITIES AND EQUITY Accounts payable and accrued expenses Current portion of loans payable Income tax payable Loans payable - net of current portion Asset retirement obligation Other noncurrent liabilities TOTAL LIABILITIES EQUITY Attributable to equity holders of the Parent Company Non-controlling interest TOTAL EQUITY TOTAL LIABILITIES AND EQUITY

Unaudite

Audited

31-Mar-18

31-Dec-17

$14,708,785

% Change

% to Total Assets

$20,110,581

-26.86%

6.01%

176,219 8,270,899

181,215 7,789,463

-2.76% 6.18%

0.07% 3.38%

23,153,817 155,820,939 4,040,286 27,684,057 31,417 242,137 10,578,716

5,332,588 162,806,394 3,982,542 28,196,245 31,417 242,686 10,815,279

334.19% -4.29% 1.45% -1.82% 0.00% -0.23% -2.19%

9.46% 63.68% 1.65% 11.31% 0.01% 0.10% 4.32%

$244,707,272

$239,488,410

2.18%

100.00%

6,737,644 15,967,450 130,003 103,975,451 1,646,208 598,724 129,055,480

5,698,427 21,867,859 56,952 108,504,253 1,642,504 572,638 $138,342,633

18.24% -26.98% 128.27% -4.17% 0.23% 4.56% -6.71%

2.75% 6.53% 0.05% 42.49% 0.67% 0.24% 52.74%

83,330,270 32,321,522

69,000,788 32,144,989

20.77% 0.55%

34.05% 13.21%

$115,651,792 $244,707,272

$101,145,777 $239,488,410

14.34% 2.18%

47.26% 100.00%

Note: Difference in amounts is due to rounding off.

Total assets amounted to $244.707 million and $239.488 million as of March 31, 2018 and December 31, 2017, respectively.

Cash and cash equivalents consist of cash on hand, cash in banks and money market placements with original maturities of not more than three months. The 26.86% net decrease from US$20.110 million as of December 31, 2017 to US$14.709 million as of March 31, 2018 is the capital and operating expenses incurred during the period. This is offset by the proceeds from sale of crude oil and electricity sales.

Financial assets at fair value through profit and loss (FVPL) amounted to US$0.176 million and US$0.181 million as of March 31, 2018 and December 31, 2017, respectively. The 2.76% net decrease in this account is due to the negative changes in the market prices of the Company’s investments in stocks.

The Receivables account mainly consists of receivables from electricity sales and lifting/sales of crude oil revenue. This account increased by 6.18% from US$7.789 as of December 31, 2017 to US$8.271 million as of March 31, 2018 due to higher outstanding receivable from oil revenues.

Prepaid expenses and other current assets consist of advances to contractor, deferred financing

- 62 costs, prepaid insurance, supplies inventory, crude oil inventory, refundable deposits, restricted cash and other prepayments. This account amounted to US$23.154 million and US$5.333 million as of March 31, 2018 and December 31, 2017, respectively. The 334.19% increase is due to the remaining net proceeds of the Stock Rights Offering amounting to $14.039 (or PhP 732.288 million) put under escrow.

Property, plant and equipment (PPE) amounted to US$155.820 million and US$162.806 million as of March 31, 2018 and December 31, 2017, respectively. The 4.29% net decrease is due to impact of forex translation adjustments and continuous depletion and depreciation of the power plants.

The deferred oil exploration cost amounted to US$4.040 million and $3.983 million as of March 31, 2017 and December 31, 2017, respectively. The 1.45% net increase is due to various expenses for the Etame.

Investment in a joint venture refers to the remaining 40.00% shareholdings in PWEI. This amounted to US$27.684 million and US$28.196 million as of March 31, 2018 and December 31, 2017, respectively. The -1.82% net decrease mainly pertains to negative effect of the translation adjustments net of the Group’s share in net income generated during the period.

Investment properties remained unchanged as of March 31, 2018.

Deferred tax assets (liability) (DTA/L) occurs due to timing differences in recognizing temporary deductible expenses and temporary taxable revenues such as accrued profit share, accretion expenses, accrued retirement liability, provision for probable losses, unrealized gains or losses and change in crude oil inventory.

The Group has a DTA of US$0.242 million as of March 31, 2018 and December 31, 2017.

Other non-current assets amounted to US$10.579 million and US$10. 815 million as of March 31, 2018 and December 31, 2017, respectively.

Accounts payable and accrued expenses amounted to US$6.737 million and US$5.698 million as of March 31, 2018 and December 31, 2017, respectively. The 18.24% increase mainly pertains to the progress billings from suppliers/contractors for the current development of MGPP Phase 2.

Current portion of loan payable posted as of March 31 2018 amounted to $15.967 million and $21.868 million as of December 31, 2017. The 26.98% decrease is mainly due to settlement of shortterm loans during the period.

Income tax payable as of March 31, 2018 pertains to PetroSolar’s 5% provision for income tax under the PEZA rules. The increase during the period pertains to the additional set-up of provision for the 1st quarter 2018.

The 4.17% decrease loans payable – noncurrent mainly pertains to the impact of the forex translation adjustment in translating the Peso loans to US$.

Asset Retirement Obligation amounted to US$1.646 million and US$1.643 million as of March 31, 2018 and as of December 31, 2017, respectively. The minimal increase pertains to the accretion of the net present value of abandonment costs estimate.

Other non-current liabilities pertain to accrued rent payable arising from the application of straight line amortization of operating lease and accrued retirement liability. This amounted to US$0.599 million and US$0.572 million as of March 31, 2018 and December 31, 2017, respectively. The 4.56% net increase mainly pertains to additions to the account.

- 63 Equity attributable to equity holders of the Parent Company amounted to US$83.330 million as of March 31, 2018 as compared to US$69.001 million as of December 31, 2017.

Non-controlling interest (NCI) as of March 31, 2018 and December 31, 2017 pertains to the following:  10% share of EEI-PC in PetroGreen;  25% share of Trans-Asia, the 10% share of PNOC-RC, and 10% of the 65% share of EEI-PC (indirect) in Maibarara;  44% share of EEI-PC (direct) and 10% of 56% share (indirect) in PetroSolar; The Philippines is still affected by the economic crises resulting in fluctuating foreign exchange rates and increased stock market uncertainties. Uncertainties remain as to whether the country will continue to be affected by regional trends in the coming months. The financial statements do not include any adjustments that might result from these uncertainties. Related effects will be reported in the financial statements, as they become known and estimable.

Material Commitments Maibarara is currently developing the Maibarara Geothermal Porwer Plant Phase 2 to increase power generation by additional 12 MW. This is funded through 70% debt and 30% equity.

4.

KEY PERFORMANCE INDICATORS

The following liquidity and profitability ratios indicate acceptable levels of financial condition and performance of the company: Unaudited Audited Unaudited 31-Mar-18 31-Dec-17 31-Mar-17 Current ratio Debt-to-equity ratio Asset-to-equity ratio Operating profit margin Asset turnover

2.03:1 1.12:1 2.12:1 53.78% 4.09%

1.21:1 1.37:1 2.37:1 49.16% 15.63%

1.03:1 1.45:1 2.45:1 55.64% 4.71%

Formula Total Current Assets/Total Current Liabilities Liabilities/Total Stockholders’ Equity Total Assets/ Total Stockholders' Equity Operating profit/Operating Revenue Total Revenue/Total Assets

There is an increase in the group’s current ratio as of March 31, 2018 compared to December 31, 2017 due to the proceeds from the SRO. There is a decline in the group’s debt-to-equity ratio as of March 31, 2018 compared to December 31, 2017 mainly due to increase in equity resulting from the increase in equity from the SRO and income during the period.

The asset-to-equity ratio indicates the group’s leverage. This decreased due to the SRO for the expansion of the Group’s projects.

The group has almost maintained the operating profit margin for the current year as compared to the same period last year.

Lower asset turn-over within the quarter is mainly due to the increase in assets resulting from the SRO.

- 64 5.

Discussion of indicators of the Company’s level of performance.

Productivity Program For the electricity sales, expansion of the Maibarara Geothermal Power Project will increase the power generation from 20 MW to 32 MW. For oil revenue, the operator of said project, VAALCO Gabon (Etame), Inc., and the members of the Consortium have defined some wells to be drilled to increase production. VAALCO has the necessary skills to manage the resources and complete the work on time and within budget.

Receivable Management The group’s receivables are mainly due from sale of electricity to PHINMA and Transco and crude oil in Etame Gabon, through the consortium operator. These are being recorded once sale is made.

Payment is received every 30-45 days following each sale.

For electricity sales form TSPP and NWPP, the payment for the Actual FIT Revenue is sourced from the FIT-All Fund, specifically the Actual FIT Differential (FD) and the Actual Cost Recovery Revenue (ACRR). The FD is the difference between the Actual FIT Revenue and the ACRR and is collected from on-grid consumers as a uniform charge and applied to all billed kilowatt-hours. For FIT-Eligible RE Plants connected to the Wholesale Electricity Spot Market (“WESM”), the ACRR refers to the WESM proceeds remitted by the Philippine Electricity Market Cooperation (“PEMC”) to the FIT-All Fund. PWEI and PSC regularly receive the ACRR component on time. On the other hand, the FD will normally reach PWEI and PSC after seven months from billing date and on a staggard basis, in two or three installments.

PWEI and PSC manage this risk through proper and meticulous allocation of funds, proper timing of expenditures, employment of cost-cutting measures, and sourcing short-term funding requirements from local banks and investment houses or from affiliated companies.

For the fifteen (15) years since oil production inception, there was no event that the buyer failed to remit the proceeds of the sale. However, the group is willing to look for another buyer should there be some problem that may happen in the future.

Liquidity Management Management of liquidity requires a flow and stock perspective. Constraint such as political environment, taxation, foreign exchange, interest rates and other environmental factors can impose significant restrictions on firms in management of their financial liquidity.

The Group considers the above factors and pays special attention to its cash flow management. The Company identifies all its cash requirements for a certain period and invests unrestricted funds to money market placements to maximize interest earnings.

The Group does not anticipate any cash flow or liquidity problems within the next twelve (12) months.

The Group is not in default of any, note, loan, lease, or other indebtedness or financing arrangement requiring it to make payments.

Inventory Management The only inventory is the crude oil produced in Gabon. The buyer lifts certain volume and pays the same in 30 days. The operator sees to it that crude oil inventory does not reach 800,000 barrels at any one time to avoid overflow and to generate revenues to cover production costs.

Cost Reduction Efforts In order to reduce costs, the Group employs a total of one thirty seven (137) employees with multitask assignments.

- 65 The Company’s general and administrative expense is equivalent to 10.40% of the total revenue.

Rate of Return of Each Stockholder The Company has no existing dividend policy. However, the Company intends to declare dividends in the future in accordance with the Corporation Code of the Philippines. Please see Part II, Item 5, 3.

Dividends for the Dividend declared for two (2) most recent years.

The Company declared cash/stock dividends to wit: Date of Declaration January 07, 2004 August 17, 2004 June 08, 2005 June 08, 2005 June 8, 2006 June 8, 2006 January 29, 2007 July 25, 2007 February 06, 2008 July 24, 2008 July 22, 2009 February 23, 2010 October 21, 2010 May 17, 2011 May 17, 2011 April 26, 2012 April 26, 2012 July 22, 2013

Dividends per Share Cash Stock 20% 20% 20% 25% 20% 30% 20% 20% 20% 30% 20% 20% 10% 10% 10% 10% 10% 5%

Record Date January 15, 2004 August 31, 2004 June 23, 2005 August 12, 2005 June 30, 2006 August 15, 2006 February 21, 2007 August 10, 2007 February 22, 2008 August 11, 2008 August 05, 2009 March 15, 2010 November 08, 2010 June 16, 2011 September 20, 2011 May 18, 2012 September 21, 2012 July 25, 2013

Payment Date February 16, 2004 September 24, 2004 July 18, 2005 September 06, 2005 July 26, 2006 September 8, 2006 March 16, 2007 September 05, 2007 March 17, 2008 August 29, 2008 August 31, 2009 April 05, 2010 December 2, 2010 July 13, 2011 October 14, 2011 June 14, 2012 October 17, 2012 August 20, 2013

6. Financial Disclosures in view of the current global financial condition: Assess the financial risks exposures of the Company and its subsidiaries particularly on currency, interest credit, and market and liquidity risks. If any change thereof would materially affect the financial condition and results of operation of the Company, provide a discussion in the report on quantitative impact or such risks and include a description of enhancement in the company’s risk management policies to address the same: The Group’s principal financial instruments include cash and cash equivalents, trading and investment securities (financial assets at FVPL) and receivables. The main purpose of these financial instruments is to fund the Company’s working capital requirements.

Financial Risk Management Objectives and Policies Please refer to Note 20.

- 66 7. Operations Review and Business Outlook A. OIL EXPLORATION Foreign Operations Gabon, West Africa The daily oil production of the four oil fields (Ebouri, Etame, North Tchibala and Avouma) as of March 2018 ranged from 11,200 – 15,150 barrels of oil per day (BOPD). The fluctuations in the daily production were due to 1) system alarms at the Etame and Ebouri Platforms in January and February, 2) flowline failure at ET-10H on January 06, and 3) minor trips at the FPSO boiler deck, 4) two tripping events on the FPSO Nautipa Gas Lift Compressor, and 5) gas detector alarm from the FPSO Nautipa.

Three (3) cargoes with volumes ranging from 334,000 – 400,000 bbls were lifted during 1Q 2018 under the new Crude Oil Sale Purchase and Services Agreement with Glencore. Total cargo lifted in 1Q 2018 amounted to 1.10 Million barrels.

Philippine Operations SC 14C2 – West Linapacan, Northwest Palawan Philodrill’s revised Work Program & Budget (WP&B) for 2018 to be submitted to the DOE comprise of 1) scoping study for possible re-entry and Extended Production Test (EPT) of the original WLA-1 well, 2) oil spill trajectory modeling, and 3) securing a Strategic Environmental Plan (SEP) clearance from PCSD. This firm scope totals US$ 165,090 (US$ 6,829 to PERC).

A contingent budget of US$ 140,000 (US$ 5,791 to PERC) will be allotted for the settling of remaining DOE training fund balance assumed from Pitkin (2011-2017), the former operator. The above budget is contingent on the positive results of the above scoping study. Overall 2018 WP&B totals US$ 305,090 (US$ 12,621 to PERC).

Summary of Petroleum Properties: Contract Expiry Production Sharing Contract (PSC) 93 – 2021 Gabon Service Contracts (SC) - Philippines SC 6A – Octon-Malajon Block 2024 SC 14C2 – West Linapacan 2025 SC 51 – East Visayan Basin 2019 SC 75 – Offshore Northwest Palawan 2020 Contract No.

Participating Interest % 2.525% 16.667% 4.137% 20.050% 15.000%

Location Gabon Offshore Northwest Palawan Northwest Palawan East Visayan Sea Northwest Palawan

The Company derives its revenues from its Gabon Operations. All contractual obligations with the Gabonese Government are complied with. The Philippine contracts are in exploration stage and some contracts are being farmed out to reduce risk inherent to the business.

- 67 B. RENEWABLE ENERGY PROJECTS Maibarara Geothermal Power Project The 20-MW Maibarara-1 Geothermal Power Plant (MGPP-1) is on continuous operations. From January 01 – March 31, 2018, the total net exported output is 40,500 MWh, with preliminary gross revenues of PhP 210.13 million.

A downhole shut-in pressure and temperature survey was conducted on the Maibarara-2 expansion facility (MGPP-2) production MB-15D last February 12 – 13, 2018 to acquire baseline data prior to its re-discharge. A downhole flowing pressure, temperature and spinner survey will also be conducted during well discharge to obtain its flowing characteristics for wellbore output modelling, simulation and forecasting, which are useful for plant operations.

On March 6, 2018, MB-15D was discharged to the test silencer in preparation for the steam supply to MGPP-2. A downhole flowing pressure, temperature and spinner survey was also conducted last March 9, 2018 to determine its flowing characteristics that will be used for wellbore modelling and forecasting once the well is in production (on-line to the plant). This production well was cut-in to the system on March 10, 2018 and is currently supplying steam to MGPP-2.

As part of the power plant commissioning process, MGPP-2 was first synchronized to the grid on March 9, 2018 at 12:04PM with an initial load of 3.10MW. The full 12 MW was attained on March 18, 2018. The reliability tests were done from March 18 to 27 during which the power plant was on full 12 MW operation during this period.

Nabas Wind Power Project From January 01 to March 31, 2018, the total net energy exported to the grid is 31,197 MWh for the Project’s Phase 1, with revenue of PhP 230.86 million.

After WTG 4 went off-line last January 22, 2018 due to a burnt generator stator, the failed unit was taken down and was replaced by the recently-acquired spare generator. The 300-ton crane to install the spare Generator arrived on-site on February 7, 2018, while the Gamesa O&M team from China carried out the 3-day installation works on February 10. WTG 4 went back on-line on February 11, 2018.

Gamesa has sent the damaged generator to China, and is currently assessing and evaluating the rootcause of the WTG 4 stator breakdown - all of which are for Gamesa’s account. However, Gamesa stated that the damaged generator will be replaced instead by a new generator - also for Gamesa's account. The said replacement generator will arrive on-site by May, to be utilized as the new spare generator unit."

The plant experienced several grid outages during the quarter, mainly due to 1) recurring communication failure alarms, 2) grid failures along the 69-kV Nabas-Caticlan line, and 3) transformer failures along the 69-kV line.

Tarlac Solar Power Project From January 01 to March 31, 2018, the total net energy exported to the grid is 19,633 MWh, with total revenue of PhP 170.61 million.

- 68 Puerto Princesa Solar Power Project PetroGreen is continuing its pre-development work program for the Puerto Princesa Solar Power Project (PPSPP). PetroGreen is currently awaiting the approval of both 1) Project Registration with the Board of Investments (BOI), and 2) Interconnection Agreement with the National Power Corporation (NPC) - both of which are prerequisite to PetroGreen declaring the PPSPP’s Commerciality with the DOE. Plan of operations for the next 12 months: Gabon, West Africa Crude production will continue from the existing wells.

SC 6A – Octon, Northwest Palawan Operator Philodrill will continue with the aforementioned G&G works to define new leads to be further de-risked.

SC 14C2 - West Linapacan, Northwest Palawan Operator Philodrill will conduct the proposed WLA-1 EPT scoping study, oil spill trajectory modelling, and the PCSD permitting works to validate the feasibility of extracting the remaining recoverable volumes in West Linapacan.

SC 51 - East Visayan Basin The consortium is awaiting DOE’s formal approval of the revised Work Program. Once approved, Trans-Asia will commence with the conduct of the pore pressure study and gravity survey.

SC 75 - Offshore Northwest Palawan The service contract is currently under Force Majeure. Once lifted, the Consortium will proceed to Subphase 2, with the conduct of a ~1,000 sq.km 3D seismic survey over the identified leads in SC 75.

Maibarara Geothermal Power Project Power generation from both Maibarara -1 and Maibarara-2 will continue.

Nabas Wind Power Project The plant will be in continuous operation from the 18 WTGs comprising the project's Phase 1.

Tarlac Solar Power Project The TSPP-1 will continue to supply electricity to the grid. Further, PetroSolar will continue to negotiate for the most feasible project offtake for TSPP-2.

Puerto Princesa Solar Power Project PGEC will continue with its pre-development activities for the PPSPP, a well as firming up the project costs in order to substantiate the project’s offtake options with PALECO. Part II - OTHER INFORMATION The Company has no other information that needs to be disclosed other than disclosures made under SEC Form 17-C (if any).

- 69 -

PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION AND DISCLOSURES REQUIRED ON SRC RULE 68 AS AMENDED MARCH 31, 2018 Philippine Securities and Exchange Commission (SEC) issued the amended Securities Regulation Code Rule SRC Rule 68 which consolidates the two separate rules and labeled in the amendment as “Part I” and “Part II”, respectively. It also prescribed the additional information and schedule requirements for issuers of securities to the public.

Below are the additional information and schedules required by SRC Rule 68, as Amended (2011) that are relevant to the Group. This information is presented for purposes of filing with the SEC and is not required part of the basic financial statements.

Schedule A. Financial Assets The Group is not required to disclose the financial assets in equity securities as the total financial assets at fair value through profit and loss securities amounting to $176,219 do not constitute 5% or more of the total current assets of the group as at March 31, 2018.

Schedule B. Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related Parties) As of March 31, 2018 there are no amounts receivable from directors, officers, employees, related parties and principal stockholders that aggregates each to more than = P100,000 or 1% of total assets which-ever is less.

Schedule C. Amounts Receivable from/Payable to Related Parties which are Eliminated during the Consolidation of Financial Statements The following is the schedule of receivables from related parties, which are eliminated in the consolidated financial statements as at March 31, 2018:

Name and Designation of debtor PetroGreen Energy Corporation Maibarara Geothermal, Inc. PetroSolar NRDC*

Balance at beginning of period $– 802,995 – (45,458) $757,537

Additions $10,116 25,995 15,239 – $51,350

Amounts collected $1,264 57,034 7,796 – $66,094

Amounts written off $– – – – $–

Balance at Not Current end of period $– $8,852 – 774,956 – 7,443 – (43,515) $– $757,537

*Difference is due to foreign exchange differences.

Transactions with other related parties outside the Group.

Please refer to Note 19 of the Unaudited Consolidated Financial Statements.

Schedule D. Intangible Asset The Group has an insignificant amount of intangible assets as of March 31, 2018 amounting to $1.49 million. Bulk of the intangible asset pertains to the land rights acquisition of PetroSolar.

Schedule E. Long-term Debt Please refer to the Consolidated Audited Financial Statement, Note 16 for details of the loans.

- 70 Schedule F. Indebtedness to Related Parties (Long Term Loans from Related Companies) The Group has no outstanding long-term indebtedness to related parties as of March 31, 2018.

Schedule G. Guarantees of Securities of Other Issuers The Group does not have guarantees of securities of other issuers as of March 31, 2018.

Schedule H. Capital Stock

Title of issue Common Shares

Number of shares authorized 700,000,000

Number of shares issued and outstanding as shown under related balance sheet caption 568,711,842

Number of Shares reserved for options, warrants, conversion and other rights –

Number of shares held by related parties 367,074,036

Directors, Officers and Employees 5,769,751

Others 195,868,055

- 71 PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES SCHEDULE OF FINANCIAL SOUNDNESS INDICATORS AS OF MARCH 31, 2018 AND DECEMBER 31, 2017 Financial Soundness Indicators Below are the financial ratios that are relevant to the Group for first quarter ended March 31, 2018 and year ended December 31, 2017: Financial ratios

Formula

Current ratio

Total current assets Total current liabilities

Long-term + short-term liabilities Debt-to-Equity Ratio

Audited 31-Dec-17

2.03:1

1.03:1

1.21:1

0.04:1

0.05:1

0.11:1

1.12:1

1.45:1

1.37:1

2.12:1

2.45:1

2.37:1

2.98:1

3.67:1

2.02:1

0.0031

0.0070

0.0092

30.77

11.46

13.15

31.48%

40.05%

22.61%

0.92:1

1.14:1

1.09:1

49.89

41.38

2.82

Total Liabilities Total Stockholder's equity

Asset-to-Equity Ratio

Total Assets Total Stockholder's equity

rate

Unaudited 31-Mar-17

After tax net profit + depletion and depreciation

Solvency ratio

Interest ratios

Unaudited 31-Mar-18

coverage

Earnings before interest and taxes (EBIT) Interest expense

Earnings per share

Net income Attributed to Parent Company Weighted average no. of shares

Price Earnings Ratio

Closing price Earnings per share

Return on revenue

Net income Total revenue

Long term debt-to-equity ratio

Long term debt Equity

EBITDA to total interest paid

EBITDA* Total interest paid

*Earnings before interest, taxes, depreciation and amortization (EBITDA)

- 72 PETROENERGY RESOURCES CORPORATION REPORT ON SRO PROCEEDS March 31, 2018 On July 26, 2017, at the BOD meeting, the Parent Company was authorized to raise approximately one billion pesos (P =1,000,000,000) in capital, by offering and issuing to all eligible stockholders as of record date, the rights to subscribe up to all of the existing unissued common shares of the Parent Company (“ Stock Rights Offer”).

On September 29, 2017, the Parent Company filed its application for the listing and trading of rights shares with the PSE. On December 13, 2017, the PSE approved the application to list the Rights Shares.

The rights offer entitled eligible stockholders as of record date of January 12, 2018 to subscribe to one rights share for every 2.6 shares held at an offer price of = P4.80 per share.

The rights offer was undertaken in January 22 to 26, 2018. Following the close of the offer period, the Parent Company successfully completed the stock rights offer for 157,975,512 common shares with gross proceeds of P =758.28 million and was subsequently listed on the PSE on February 2, 2018.

The proceeds from the stock rights offer will be used for the development and expansion plans of the Group’s renewable energy projects and general corporate requirements.

The table below shows the gross and net proceeds; each expenditure item where the proceeds were used.

Note

Proceeds from the S tock Rights Offering Gross Proceeds Less: Listing and Registration Fees Net Proceeds

1 2018 1st Quarter

Less: Expenditures A. Develop ment and exp ansion of Renewable Energy Projects

Total

-

B. General and Corp orate requirements

20,005,886

Total Expenses Allocated to Proceeds

20,005,886

PhP758,282,458 5,988,316 PhP752,294,142

-

2

20,005,886 20,005,886

Remaining proceeds as of March 31, 2018

In PhP

PhP732,288,256

Remaining proceeds as of March 31, 2018

In US D

PhP14,039,269

PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES MAP OF RELATIONSHIPS OF THE COMPANIES WITHIN THE GROUP Group Structure Below is a map showing the relationship between and among the Group and its subsidiaries as of March 31, 2018: PETROENERGY RESOURCES CORPORATION GROUP STRUCTURE PetroEnergy Resources Corporation 90% PetroGreen Energy Corporation 65 % Maibarara Geothermal, Inc.

*investment in a joint venture

56% PetroSolar Corporation

40% PetroWind Energy, Inc.*

PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES AGING OF ACCOUNTS RECEIVABLES AS OF MARCH 31, 2018

PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES AGING OF ACCOUNTS RECEIVABLES AS OF MARCH 31, 2018 Amounts in USD

SIGNATURES

ofthe Securities Regulation Code, the registrant has duly caused this report to be signed on behalfofthe undersigned thereunto duly authorizedPursuant to the requirements

Registrant

PETROENERGY RESOI]RCES CORPORATION

Signature and

Title

:

Signature and

Title

, a#il$Un*

Date

President

f^o,ja

lt,latl

-

Osst. Vice President for Finance