petroenergy-sec-17-q-1st-quarter-2016-

COVER SHEET -1A S O 9 4 - 0 8 8 8 0 SEC Registration Number

P E T R O E N E R G Y

R E S O U R C E S

C O R P O R A T I O N

(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)

Second Quarter

1 2

3 1

Month

Day

1

7

-

Q

0 7

2 1

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.

-2

SECURITIES AND F,XCHANGE COMMISS sEc FoRM l7-Q QUARTERLY REPORT PURSUANT TO SECTI OF THE SECURITIES REGULATION CODE (S A\D SRC RULE l7(a)- I(b) (2) THTREUIIDER

I t March 2016 For the quarterly period ended 2.

SEC ld€nlifi carion Number 4SQ94:0.8-8.80

4.

PetfoEner$/ Resources Corporation EXaCI nAme OI regrstranl as

5.

spec

3. BIR Tax Identificalion No. 004-471-419-000

reo rn r$ cnaner

Manila, Philippines Provrnce. country or olher Junsdrction

6.

(SEC Use Only) Inousrry Lrassrrcafi on Looe'

ofincorporation 7h F oofJMT Condorni Address ofpfincipal

7.

omce

Postal Cod€

/,(1t) 61?-.AI?

8.

Registranfs telephone number. including area code 9.

Not AoDlicable Former name, former address and former fiscal year, ifchanged since last r€port

t0.

S€curities registered pursuant to Sections 8 and l2 ofthe Code, or Section 4 and 8 oftbe RSA

Title ofEach Class

Common (par value of

Number ofShares ofCommon Stock Outslanding PI

.0o/share)

41o.736,330

Amounr ofDebt Outstanding = $143.813 Million .

t2.

Aro any or all of the securities listed on the Philippine Stock Exchange?

All issued and outstanding common shares are listed in the Philippine Stock Exchange. lndicate by check mark whetherthe registrant:

a.

has filed all reports requircd lo be filed by Section I I ofthe Securities Re8ulation Code(SRC) and SRC Rrile I l(a)-l thereunder and Sections 26 and l4l ofthe Corporation Code ofthe Philippines, during the preceding 12 months (or for such shorier period the registranl was required to file suah

reports)

Yes

b.

l/l

has been subject to such

Yes

Ul

filing requircmenls for the

past 90 days

-3TABLE OF CONTENTS Page no.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements 1. Consolidated Statements of Financial Position As of March 31, 2016, March 31, 2015 and December 31, 2015 2. Consolidated Statements of Income For the quarter ended March 31, 2016 and March 31, 2015 3. Consolidated Statements of Comprehensive Income For the quarter ended March 31, 2016 and March 31, 2015 4. Consolidated Statement of Changes in Equity As of March 31, 2016, March 31, 2015 and December 31, 2015 5. Consolidated Statement of Cash flows As of March 31, 2016, March 31, 2015 and December 31, 2015 6. Notes to Financial Statements

4 5 6 7 8 9 - 70

Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations 1. Financial Condition – March 31, 2016 and March 31, 2015 2. Results of Operations – For the quarter ended March 31, 2016 and March 31, 2015 3. Financial Condition – March 31, 2016 and December 31, 2015 4. Discussion of Indicators of the Company‟s Level of Performance 5. Disclosure in view of the current global financial crisis.

6. Results and Plan of Operations

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

71 - 73 74 - 76 77 - 79 80 81 82 - 85

86 - 87 88 89 90 91

92

-4PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In U.S. Dollars)

ASSETS Current Assets N ot Cash and cash equivalents N ot Financial assets at fair value through profit and loss (FVPL) N ot Receivables N Crude oil inventory Advances, prepaid expenses and other current assets ot Total Current Assets Noncurrent Assets Property and equipment-net Deferred oil exploration cost Investment in Associate Deferred tax assets-net Investment properties-net Advances and 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 Accrued retirement liability Asset retirement obligation Derivative liability 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 Remeasurement loss on define benefit obligation Retained earnings Appropriated Unappropriated Parent's other equity reserve Cumulative translation adjustment Noncontrolling interest Total Equity

N ot N ot N ot N ot

N ot N N ot N ot N ot N ot

N ot

N ot

Unaudited

Unaudited

Audited

31-Mar-16

31-Mar-15

31-Dec-15

$ 11,740,079 175,008 3,722,448 158,253 10,982,372 26,778,160

$ 4,400,677 171,212 3,871,738 382,455 6,745,572 15,571,654

$ 32,536,605 156,231 3,591,873 96,501 6,317,192 42,698,402

145,619,679 16,569,495 28,797,590 306,909 31,417 10,216,070 201,541,160 $ 228,319,320

79,355,165 19,546,768 28,291,776 166,241 31,417 6,416,811 133,808,178 $ 149,379,832

140,724,197 15,919,839 27,166,952 306,910 31,417 10,282,823 194,432,138 $ 237,130,540

$ 7,328,896 14,430,419 37,798.00 6,698,136 28,495,249

$ 4,815,544 22,891,103 692 27,707,339

$ 18,795,721 16,539,074 6,557,228 41,892,023

101,280,158 67,438 1,149,050 11,089,271 1,659,404 72,404 115,317,725 143,812,974

45,055,015 69,405 623,342 10,681,974 5,130,789 61,560,525 89,267,864

99,171,368 66,019 1,094,672 10,855,986 1,624,496 48,406 112,860,947 154,752,970

9,391,311 35,620,588 ($36,227)

6,321,533 25,244,737 (38,406)

9,391,311 35,620,588 (36,227)

3,149,555 19,417,744 1,859,173 (1,705,088) 67,697,056 16,809,290 84,506,346 $ 228,319,320

3,149,555 16,324,271 (664,004) 50,337,686 9,774,282 60,111,968 $ 149,379,832

3,149,555 18,899,873 1,859,173 (2,548,828) 66,335,445 16,042,125 82,377,570 $ 237,130,540

-5PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE FIRST QUARTER (In U.S. Dollars)

REVENUES Oil revenues Electricity sales COST OF SALES Cost of sales - Oil Oil production operating expenses Depletion Cost of sales - Electricity GROSS INCOME GENERAL AND ADMINISTRATIVE EXPENSES 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 (charges) Share in net income (loss) of an Associate

Unaudited

Unaudited

31-Mar-16

31-Mar-15

$ 1,053,659 5,356,156 6,409,815

$ 1,543,554 4,264,770 5,808,324

814,860 636,822 1,451,682 3,119,060 4,570,742

1,058,435 343,211 1,401,646 1,613,863 3,015,509

1,839,073

2,792,815

619,625

913,511

52,971 (52,453) 15,437

11,987 (29,352) 8,162

(1,246,382) (35,679) 47,863 1,046,823 (171,420)

(1,306,956) (14,697) 52,643 (68,070) (1,346,283)

1,048,028

533,021

INCOME BEFORE INCOME TAX PROVISION FOR INCOME TAX NET INCOME

1,048,028 39,340 $ 1,008,688

533,021 3,053 $ 529,968

NET INCOME (LOSS) ATTRIBUTATBLE TO: Equity Holders of the Parent Company Noncontrolling interest - IS NET INCOME

517,871 490,817 $ 1,008,688

104,605 425,363 $ 529,968

0.00126

0.0004

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 FOR THE FIRST QUARTER (In U.S. Dollars) Unaudited 31-Mar-16 NET INCOME OTHER COMPREHENSIVE INCOME Cumulative translation adjustment Remeasurement gains(losses) on net accrued retirement liability - net of tax TOTAL COMPREHENSIVE INCOME COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO: Equity holders of the Parent Company Noncontrolling interest

Unaudited 31-Mar-15

$1,008,688

$529,968

(2,284,665)

140,313

($1,275,977)

$670,281

(2,664,686) 1,388,709 ($1,275,977)

244,918 425,363 $670,281

-7PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In U.S. Dollars) Unaudited 31-Mar-16 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

Unaudited 31-Mar-15

Audited 31-Dec-15

330,000,000 370,000,000 700,000,000 273,824,220 136,912,110 410,736,330

$9,391,311 -

$6,321,533 -

$6,321,533 3,069,778.00

9,391,311

$6,321,533

$9,391,311

35,620,588

25,244,737

25,244,737

ADDITIONAL PAID-IN CAPITAL Balance beginning of year Additions during the period

APPROPRIATED RETAINED EARNINGS UNAPPROPRIATED RETAINED EARNINGS Balance at beginning of year Net Income CUMULATIVE TRANSLATION ADJUSTMENT Balance at beginning of year Movement of cumulative translation adjustment

Remeasurement of Net Accrued Retirement Liability Balance at beginning of year Remeasurement gain (loss) on accrued retirement liability

-

-

10,375,851.00

35,620,588

25,244,737

35,620,588

3,149,555

3,149,555

3,149,555

18,899,873 517,871

16,219,666 104,605

16,219,666 2,680,207

19,417,744

16,324,271

18,899,873

(2,548,828) 843,740

(804,317) 140,313

(804,317) (1,744,511)

(1,705,088)

(664,004)

(2,548,828)

(36,227) -

(38,406) -

(38,406) 2,179

(36,227)

(38,406)

(36,227)

PARENT'S OTHER EQUITY RESERVES Gain on sale of investment in subsidiary

1,859,173

-

1,859,173

PARENT'S OTHER EQUITY RESERVES

1,859,173

-

1,859,173

TOTAL EQUITY ATTRIBUTED TO EQUITY HOLDERS OF PARENT

67,697,056

50,337,686

66,335,445

NON-CONTROLLING INTEREST Balance at beginning of year Net income Increase in non-controlling interests - stock issuances Movement in cumulative translation adjustment NCI attributed to deconsolidated subsidiary NCI attributed to sale of 10% stake in PGEC

16,042,125 490,817 39,484 236,864 -

8,679,634 425,363 669,285

8,679,634 1,928,863 3,163,342 (540,154)

16,809,290

9,774,282

16,042,125

84,506,346

60,111,968

$82,377,570

TOTAL EQUITY

-

2,810,440

-8PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASHFLOWS (In U.S. Dollars) Unaudited

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Interest expense Depletion, depreciation and amortization Net unrealized loss on derivatives Net unrealized foreign exchange (gain) loss Accretion expense Net loss (gain) on fair value changes on financial assets at fair value through profit and loss Dividend income Interest income Share in net loss (income) of a joint venture Operating income before working capital changes Decrease (increase) in: Crude oil inventory Short-term investments Receivables Prepaid expenses and other current assets Increase (decrease) in: Accounts payable and accrued expenses Accrued retirement liability Cash generated from (used in) operations Interest received Income taxes paid Net cash provided by (used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of interest in a subsidiary Increase in other non-current liabilities Dividends received Decrease (increase) in other noncurrent assets Additional deferred oil exploration costs Acquisitions of property, plant and equipment Additional investment in a joint venture Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITY Proceeds from availment of debt

Audited

31-Mar-16

31-Mar-15

31-Dec-15

$1,048,028

$533,021

$1,176,135

1,246,382 1,804,604 52,453 35,679 (15,437) (52,971) (1,046,823) -

1,306,956 410,359 29,352 14,697 (8,162)

4,934,680 4,704,110 734,060 178,876 140,635 (1,392)

(203) (11,987) 68,070

(1,704) (112,537) (241,481)

3,071,915

2,342,103

11,511,382

(61,752) (83,949) (4,665,180) (12,107,686) (13,846,652) 6,345 -

36,687 186,513 (301,866) (4,123,060)

322,641 186,513 (16,112) (3,694,680)

(1,344,274) (3,203,897) 13,723 (35,252)

13,782,992 (2,110) 22,090,626 108,384 (40,435)

(13,840,307)

(3,225,426)

22,158,575

23,998 66,753 (649,656) (3,652,339) (4,211,244)

203 (182,579) (434,197) (707,883) (65,669) (1,390,125)

4,669,613 48,406 1,704 (4,269,732) (5,616,676) (60,378,258) (680,833) (66,225,776)

6,297,053

76,733,682

(127) (289,221) 6,007,705

13,445,629 6,557,228 3,163,342 (535) (5,063,372) (20,000,529) 74,835,445

190,369

(1,049,793)

-

Proceeds from issuance of stocks Proceeds from deposits from future stock subscriptions Additional capital from noncontrolling interest Dividends paid Interest paid Payment of loans Net cash provided by (used in) financing activities EFFECT OF FOREX EXCHAGE RATE CHANGES IN CASH AND CASH EQUIVALENTS NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

1,341,850 (168) (605,353) (3,506,913) (2,770,584)

(20,796,526)

1,582,523

29,718,451

CASH AND CASH EQUIVALENTS AT BEGINNING OF QUARTER/YEAR

32,536,605

2,818,154

2,818,154

CASH AND CASH EQUIVALENTS AT END OF QUARTER / YEAR

$11,740,079

$4,400,677

$32,536,605

25,609

-9-

PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U.S. Dollars)

1. Corporate Information a. Organization PetroEnergy Resources Corporation (“PERC”, “PetroEnergy” or the “Company”), formerly Petrotech Consultants, Inc., was organized on September 29, 1994 to provide specialized technical services to its then parent company, Petrofields Corporation, and to companies exploring for oil in the Philippines.

In 1997, the Company‟s name was formally changed into “PetroEnergy Resources Corporation”, simultaneous with the change in its primary purpose from rendering technical services to oil exploration and development and mining activities.

On June 25, 1999, the Department of Energy (DOE) authorized the assumption by the Company of Philippine oil exploration contracts. The Ministry of Energy of Gabon, West Africa had also been duly notified of the transfer to PERC of Petrofields‟ Production Sharing Contract covering the Etame discovery block in the Atlantic shelf.

On May 23, 2003, the Securities and Exchange Commission (SEC) approved the Company‟s application for a decrease in authorized Capital from One Billion (1,000,000,000) common shares at a par value of One Peso (P1.00) per share to Three Hundred Thirty Million (330,000,000) shares at a par value of One Peso (P1.00) per share.

On July 28, 2004, the Philippine Stock Exchange, Inc. (PSE) approved the Listing by Way of Introduction of the entire issued capital of the Company.

On August 4, 2004, the SEC issued to the Company the certificate of permit to offer securities for sale.

This certifies that the shares of the Company have been registered and licensed for Listing by Way of Introduction and by then be sold or offered for sale in the Philippines.

On August 11, 2004, the Company‟s shares were listed at the PSE. On July 22, 2009, the Board of Directors (BOD) and Stockholders approved the amendment of the articles of incorporation of the Company to include the business of generating power from conventional sources such as coal, fossil fuel, natural gas, nuclear and other viable sources of power and from renewable sources such as, but not limited to, biomass, hydro, solar, wind, geothermal, ocean and such other renewable sources of power. The amendment to the Company‟s Articles of Incorporation was approved by the SEC on September 23, 2009.

On February 23, 2010, the BOD Approved a 1:1 Stock Rights Offering (SRO). Under the SRO, the shares were offered at P5.00 per share, giving a net proceeds of P683.436 million, which was used for the 20MW Phase 1 of the Maibarara power Project (MGPP). The SRO was undertaken during the period June 28, 2010 to July 5, 2010.

5, 2014, the BOD approved a 2:1 SRO. The SRO was undertaken during the period May 11 to 15, 2015. The proceeds of the SRO amounted to P599.675 million and which The proceeds from the SRO will be used to partially finance the expansion, construction and development of renewable energy projects, such as the MGPP (Phase 2) and Solar Power Project, as well as the expansion of the Etame Project in Gabon, West Africa.

- 10 On June 03, 2015, SEC approved the Company‟s application for an increase in Authorized Capital from Three Hundred Thirty Million (330,000,000) shares at par value of One Peso (P1.00) to Seven Hundred Million (700,000,000) shares at par value of One Peso.

Subsidiaries of the Company: In order to insulate PetroEnergy‟s core oil business from its renewable energy ventures, PetroEnergy, with the approval of the BOD on February 23, 2010, created a wholly-owned subsidiary called PetroGreen Energy Corporation (PetroGreen or PGEC). PetroGreen shall carry-out the renewable energy projects of PetroEnergy. The SEC approved the incorporation of PetroGreen on March 31, 2010.

On May 19, 2010, PetroGreen signed a Joint Venture Agreement (JVA) with Trans-Asia Oil and Energy Development Corporation (Trans-Asia) and PNOC Renewables Corporation (PNOC RC) (collectively the “JV Partners”), whereby the JV Partners agreed to pool their resources together to develop and operate the Maibarara Geothermal Power Project (MGPP) through the formation of a joint venture corporation to be named Maibarara Geothermal, Inc. (MGI). Pursuant to the JVA, PetroGreen holds a 65% interest in MGI, while Trans-Asia and PNOC RC hold 25% and 10% interests, respectively. On August 11, 2010, the SEC approved the incorporation of MGI, whose principal business is to develop and operate geothermal steam fields and power plants. On January 5, 2011, the DOE approved the transfer of the Maibarara GRESC from PERC to MGI. In January 2013, through a Special Meeting of the Board of Directors, PetroGreen created a subsidiary, PetroWind Energy Inc. (PetroWind or PWEI) that will undertake the Nabas Wind Power Project (NWPP). PetroWind was incorporated on March 6, 2013, wherein PetroGreen initially held 100% interest. On July 15, 2013, EEI Power Corporation (EEIPC) subscribed to a 20% equity share in PetroWind. EEIPC formally became a stockholder of PertroWind upon the SEC‟s approval of PetroWind‟s increase in authorized capital stock on August 23, 2013. Effectively as of December 31, 2013, PetroGreen holds 80% equity share in PetroWind.

On November 21, 2013, PetroGreen and CapAsia Asean Holdings Cooperatief U.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 PetroWind held by PetroGreen, which is equivalent to 40% of the total issued and outstanding shares of PetroWind. The purchase price for the sale of shares, as set out in Section 3 of the SPA, shall be $5,337,079 upfront payment and a premium of $2,600,000, payable on a staggered basis.

Simultaneously, on November 21, 2013, PetroGreen, CapAsia and EEIPC entered into a Shareholders‟ Agreement (SA). The SA will govern their relationship as shareholders of PetroWind, and provides their respective rights and obligations in relation to PetroWind. Further, the SA contains provisions regarding voting requirements for relevant activities that require unanimous consent of all the parties.

PetroGreen, CapAsia and EEIPC agree that their equity ownership ratio in PetroWind are at 40%, 40% and 20%, respectively.

Although the SPA and the SA were executed on November 21, 2013, these did not immediately result in PetroGreen‟s loss of control over PetroWind. The loss of control did not happen until February 14, 2014, the Closing Date.

On February 14, 2014, the Closing Date, the payment has been received from sale of the shares as executed in the Deed of Assignment covering the transfer of shares from PetroGreen to CapAsia and all the conditions precedent have been satisfactorily completed. As such, PetroGreen lost its control over PetroWind while CapAsia was given full voting and economic rights as a 40% shareholder. The transaction made PetroWind a joint venture among PetroGreen, CapAsia and EEIPC. As of December 31, 2014, MGI was effectively a subsidiary of PetroEnergy through PetroGreen, since

- 11 PetroEnergy wholly owned PetroGreen and PetroGreen owned majority of the voting power of MGI. PetroEnergy, PetroGreen and MGI are collectively referred to as the Group.

On June 9, 2015, EEIPC acquired 10% of PetroEnergy‟s share in PetroGreen, leaving PetroEnergy with 90% share in PetroGreen (Note 21).

On March 19, 2015, PetroGreen was awarded by the DOE with the Solar Energy Service Contract (SESC) No. 2015-03-115 giving it the right and obligation to explore, develop and utilize the solar energy resource within the service contract area located in Tarlac City. By virtue of the Tarlac SESC, PetroGreen commenced the pre-development activities for the 50 MW Tarlac Solar Power Project (TSPP) to be constructed within a 55 hectare property in Cenral Technopark, San Miguel, Tarlac City.

On June 17, 2015, PetroSolar Corporation (“PetroSolar”) was incorporated. PetroGreen has 56% shareholdings in PetroSolar, while EEIPC owns the remaining 44%.

On June 19, 2015, by virtue of the Deed of Assignment and Assumption, PetroGreen transferred its interest in the SESC to PetroSolar. The assignment was approved by the DOE on September 15, 2015.

The DOE confirmed the commerciality of the TSPP on September 24, 2015. Construction of the TSPP commenced by the third quarter of 2015 which was completed in January 2016.

As of March 31, 2016 and December 31, 2015, MGI and PetroSolar are effectively subsidiaries of PetroEnergy through PetroGreen, since PetroEnergy owned 90% of PetroGreen while PetroGreen owned majority of the voting power of MGI and PetroSolar. PetroEnergy, PetroGreen, MGI and PetroSolar are collectively referred to as the Group.

The Company has not been subject to any bankruptcy, receivership or judicial proceedings nor has its ever been a party to any merger or consolidation. b. Nature of Operations The Group‟s three (4) main energy businesses are petroleum, geothermal, wind and solar.

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.

Geothermal Energy The geothermal project is the 20-MW Maibarara Geothermal Power Project (MGPP) in Sto. Tomas, Batangas.

Wind Energy The wind energy project is the 36-megawatt (MW) NWPP in Nabas, Aklan, where PetroWind has a wind farm.

Solar Energy The Solar power project is the 50MW Tarlac Solar Power Plant (TSPP) in Tarlac City, Tarlac.

The accompanying interim financial statements were approved and authorized for issue by the BOD.

- 12 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), derivative liability and crude oil inventory that have been measured at fair value. Figures are presented in United States (US) Dollar ($), the Parent Company‟s functional 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).

Basis of Consolidation The consolidated financial statements comprise the financial statements of the Group as at March 31, 2016 and December 31, 2015. The financial statements of the subsidiaries are prepared for the same reporting year as the Group, using consistent accounting policies.

Below are the Group‟s subsidiaries with its respective percentage ownership as of March 31, 2016 and December 31, 2015: PetroGreen Percentage share of PetroGreen to its subsidiaries MGI PetroSolar PetroWind Navy Road Development Corporation (NRDC)

90%1 65% 56% 40%2 100%

As a result of the sale of 10% stake in PGEC, consolidated PERC‟s ultimate share in MGI and PetroSolar‟s retained earnings and income is reduced by 10% as of March 31, 2016 and for the year ended December 31, 2015.

1

2

As a result of the loss of control on February 14, 2014, PetroWind became a joint venture between PetroGreen, CapAsia and EEIPC. PetroGreen has control over PetroSolar, since PetroGreen is largely involved in the key decisions concerning the financial and operating policies, activities and provision of technological support and technical know-how to PetroSolar.

Subsidiaries are consolidated when control is transferred to the Group and cease to be consolidated when control is transferred out of the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls a subsidiary if and only if the Group 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 c) The ability to use its power over the investee to affect its returns When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

- 13 a) The contractual arrangement with the other vote holders of the investee b) Rights arising from other contractual arrangements c) The Group‟s voting rights and potential voting rights The Group 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.

On February 14, 2014, the Group disposed its investment in PetroWind and its interest of 80% was reduced to 40% where it lost its control over PetroWind. As of and for the year ended December 31, 2014, PetroWind has been deconsolidated.

The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. All intercompany balances and transactions, intercompany profits and expenses and gains and losses are eliminated during consolidation. All intercompany balances, transactions, income and expenses and profit and losses are eliminated in full.

Noncontrolling 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 income, consolidated statement of comprehensive income and consolidated statement of changes in equity, and within equity in the consolidated statement of financial position.

Losses within a subsidiary are attributed to the noncontrolling interests even if that results in a deficit balance.

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 noncontrolling 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 income.

Reclassifies the parent‟s share of components previously recognized in OCI to the consolidated statement of income or retained earnings, as appropriate.

This policy is in accordance with PFRS 10, Consolidated Financial Statements.

3. Changes in Accounting Policies The Group adopted the following new and amended PFRS, Philippine Accounting Standards (PAS) and Philippine Interpretations that became effective beginning January 1, 2015 in the accompanying consolidated financial statements. Except as otherwise indicated, the adoption of the new and amended PFRS, PAS and Philippine Interpretations did not have any effect on the consolidated financial statements of the Group.

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- 14 PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture These amendments address an acknowledged inconsistency between the requirements in PFRS 10 and those in PAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. These amendments are effective from annual periods beginning on or after January 1, 2016. The amendment will have no significant impact on the Group‟s consolidated financial position or performance.



PAS 27, Separate Financial Statements - Equity Method in Separate Financial Statements (Amendments) The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying PFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively. For first-time adopters of PFRS electing to use the equity method in its separate financial statements, they will be required to apply this method from the date of transition to PFRS. These amendments are not expected to have any impact to the Group.



PFRS 11, Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations (Amendments) The amendments to PFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant PFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to PFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party.



The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact to the Group.

PAS 1, Presentation of Financial Statements - Disclosure Initiative (Amendments) The amendments are intended to assist entities in applying judgment when meeting the presentation and disclosure requirements in PFRS. They clarify the following:    

That entities shall not reduce the understandability of their financial statements by either obscuring material information with immaterial information; or aggregating material items that have different natures or functions.

That specific line items in the statement of income and Other Comprehensive Income (OCI) and the statement of financial position may be disaggregated.

That entities have flexibility as to the order in which they present the notes to financial statements.

That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

Early application is permitted and entities do not need to disclose that fact as the amendments are considered to be clarifications that do not affect an entity‟s accounting policies or

- 15 accounting estimates. The Group is currently assessing the impact of these amendments on its consolidated financial statements. 

PFRS 14, Regulatory Deferral Accounts PFRS 14 is an optional standard that allows an entity, whose activities are subject to rateregulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of PFRS. Entities that adopt PFRS 14 must present the regulatory deferral accounts as separate line items on the statement of consolidated financial position and present movements in these account balances as separate line items in the statement of profit or loss and other comprehensive income. The standard requires disclosures on the nature of, and risks associated with, the entity‟s rate-regulation and the effects of that rate-regulation on its financial statements. PFRS 14 is effective for annual periods beginning on or after January 1, 2016. Since the Group is an existing PFRS preparer, this standard would not apply.



PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification of Acceptable Methods of Depreciation and Amortization (Amendments) The amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The amendments are effective prospectively for annual periods beginning on or after January 1, 2016, with early adoption permitted. The amendment will have no significant impact on the Group‟s consolidated financial position or performance.



PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants (Amendments) The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of PAS 41. Instead, PAS 16 will apply. After initial recognition, bearer plants will be measured under PAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of PAS 41 measured at fair value less costs to sell. For government grants related to bearer plants, PAS 20, Accounting for Government Grants and Disclosure of Government Assistance, will apply. The amendments are retrospectively effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. The amendment will have no significant impact on the Group‟s consolidated financial position or performance.

Annual Improvements to PFRSs (2012-2014 cycle) The Annual Improvements to PFRSs (2012-2014 cycle) are effective for annual periods beginning on or after January 1, 2016 and are not expected to have a material impact on the Group. 

PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes in Methods of Disposal The amendment is applied prospectively and clarifies that changing from a disposal through sale to a disposal through distribution to owners and vice-versa should not be considered to be a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in PFRS 5. The amendment also clarifies that changing the disposal method does not change the date of classification. The amendment will have no significant impact on the Group‟s consolidated financial position or performance.



PFRS 7, Financial Instruments: Disclosures - Servicing Contracts

- 16 PFRS 7 requires an entity to provide disclosures for any continuing involvement in a transferred asset that is derecognized in its entirety. The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and arrangement against the guidance in PFRS 7 in order to assess whether the disclosures are required. The amendment is to be applied such that the assessment of which servicing contracts constitute continuing involvement will need to be done retrospectively. However, comparative disclosures are not required to be provided for any period beginning before the annual period in which the entity first applies the amendments. The amendment will have no significant impact on the Group‟s consolidated financial position or performance. 

PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements This amendment is applied retrospectively and clarifies that the disclosures on offsetting of financial assets and financial liabilities are not required in the condensed interim financial report unless they provide a significant update to the information reported in the most recent annual report. The amendment will have no significant impact on the Group‟s consolidated financial position or performance.



PAS 19, Employee Benefits - regional market issue regarding discount rate This amendment is applied prospectively and clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used.

The amendment will have no significant impact on the Group‟s consolidated financial position or performance.

Standards Issued but not yet Effective The standards and interpretations that are issued, but not yet effective, up to date of issuance of the Group‟s consolidated financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

Deferred Effectivity Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11 or involves rendering of services, in which case, revenue is recognized based on stage of completion.

Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The SEC and the Financial Reporting Standards Council have deferred the effectivity of this interpretation until the final Revenue standard is issued by the International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed.

Adoption of the interpretation when it becomes effective will not have any impact on the financial statements of the Group.

- 17 Effective January 1, 2018 

PFRS 9, Financial Instruments In July 2014, the final version of PFRS 9, Financial Instruments, was issued. 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.

PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. Early application of previous versions of PFRS 9 is permitted if the date of initial application is before February 1, 2015.

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

The following new standard issued by the IASB has not yet been adopted by the FRSC 

IFRS 15, Revenue from Contracts with Customers IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 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 IFRS 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 IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2018 with early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date once adopted locally.



IFRS 16, Leases On January 13, 2016, the IASB issued its new standard, IFRS 16, Leases, which replaces IAS 17, the current leases standard, and the related Interpretations.

Under the new standard, lessees will no longer classify their leases as either operating or finance leases in accordance with IAS 17. Rather, lessees will apply the single-asset model.

Under this model, lessees will recognize the assets and related liabilities for most leases on their balance sheets, and subsequently, will depreciate the lease assets and recognize interest on the lease liabilities in their profit or loss. Leases with a term of 12 months or less or for which the underlying asset is of low value are exempted from these requirements.

The accounting by lessors is substantially unchanged as the new standard carries forward the principles of lessor accounting under IAS 17. Lessors, however, will be required to disclose more information in their financial statements, particularly on the risk exposure to residual value.

The new standard is effective for annual periods beginning on or after January 1, 2019.

Entities may early adopt IFRS 16 but only if they have also adopted IFRS 15. When adopting IFRS 16, an entity is permitted to use either a full retrospective or a modified retrospective approach, with options to use certain transition reliefs. The Group is currently assessing the impact of IFRS 16 and plans to adopt the new standard on the required effective date once adopted locally.

- 18 4. Summary of Significant Accounting Policies 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. The specific recognition criteria described below must also be met before revenue is recognized.

Oil Revenue Revenue from oil wells is recognized as income at the time of production. Revenue is measured at the fair value of the consideration received.

Electricity Sales Sale of electricity using geothermal energy is consummated whenever the electricity generated by the Group is transmitted through the transmission line designated by the buyer, for a consideration.

Rent Income Rent income is accounted on a straight-line basis over the lease term.

Interest Income Interest income is recognized as the interest accrues taking into account the effective yield on the asset.

Gain on Sale of Investment in a Subsidiary The gain on sale of investment in a subsidiary is recognized when it meets the derecognition principle and any gain or loss on disposal is recognized in the consolidated statement of income.

Miscellaneous Income Miscellaneous income includes time writing charges, dividend income and gain on sale of transportation equipment. Revenue is recognized when the Group‟s right to receive the payment is established.

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.

Short-term Investments Short-term investments are short-term placements with maturities of more than three months but less than one year from the date of acquisition. These earn interest at the respective short-term investment rates.

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

- 19 established by regulation or convention in the marketplace are recognized on the settlement date.

Initial Recognition and Measurement Financial assets within the scope of PAS 39 are classified as either financial assets at FVPL, loans and receivables, held to maturity (HTM) investments or available-for-sale (AFS) financial assets, as appropriate. Financial liabilities are classified as either financial liabilities at FVPL or other financial liabilities. The classification depends on the purpose for which the investments are acquired and the Group determines the classification of the financial instruments at initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end.

All financial assets are initially recognized at fair value plus, in the case of financial assets not at FVPL, directly attributable transaction costs. All financial liabilities are initially recognized at fair value, less, in the case of financial liabilities not at FVPL, directly attributable transaction costs.

The Group‟s financial assets include financial assets at FVPL and loans and receivables and its financial liabilities are of the nature of other financial liabilities.

Subsequent Measurement The subsequent measurement bases for financial assets depend on the classification. Financial assets that are classified as loans and receivables are measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount, premium and transaction costs on acquisition, over the period to maturity. Amortization of discounts, premiums and transaction costs are taken directly to the consolidated statement of income.

Determination of Fair Value 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

- 20 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 re-assessing 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.

‘Day 1’ Difference Where the transaction price in a non-active market is different to the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a „Day 1‟ difference) in the consolidated statement of income unless it qualifies for recognition as some other type of asset or liability.

In cases where variables used is made of data which is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the Day 1 difference amount.

Loans and Receivables Loans and receivables are financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not designated as AFS financial assets or financial assets at FVPL. After initial measurement, loans and receivables are subsequently measured at amortized cost using the EIR method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. Classified under this category are the Group‟s cash and cash equivalents, short-term investments, receivables and restricted cash.

Financial Assets and Financial Liabilities at FVPL Financial assets and financial liabilities at FVPL include financial assets and financial liabilities 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 and financial liabilities 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 income. Interest earned or incurred is recorded in interest income or expense, respectively.

Dividend income is recognized according to the terms of the contract, or when the right of the payment has been established.

Classified as financial assets at FVPL are the Group‟s marketable equity securities held for trading purposes and investment in golf club shares (Note 7).

- 21 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 remeasured 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 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.

As of March 31, 2016 and December 31, 2015, the Group has a free-standing derivative arising from call and put options under the shareholders‟ agreement. The Group recognized a derivative liability amounting to $11.09 million and $10.86 million as of March 31, 2016 and December 31, 2015, respectively. The net unrealized loss on derivatives recognized in the consolidated statement of income amounted to $0.73 million and $10.76 million for the years ended December 31, 2015 and 2014, respectively.

Embedded Derivatives An embedded derivative is separated from the host financial or non-financial contract and accounted for as a derivative if all of the following conditions are met:   

the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristic of the host contract; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid or combined instrument is not recognized at FVPL.

The Group assesses whether embedded derivatives are required to be separated from host contracts when the Group first becomes a party to the contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

Embedded derivatives that are bifurcated from the host contracts are accounted for as financial assets or liabilities at FVPL. Changes in fair values are included in the Group‟s consolidated statement of income.

As of March 31, 2016 and December 31, 2015, the Group has no embedded derivatives requiring bifurcation.

AFS Financial Assets AFS financial assets are those which are designated as such and are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. AFS financial assets include equity securities.

After initial measurement, AFS financial assets are measured at fair value. The unrealized gains and losses arising from the fair valuation of AFS financial assets are excluded from reported earnings and are reported in the consolidated statement of financial position and consolidated statement of changes in equity.

When the security is disposed of, the cumulative gain or loss previously recognized in the consolidated statement of changes in equity is recognized in the consolidated statement of income.

Where the Group holds more than one investment in the same security, these are deemed to be disposed of on a first-in first-out basis. Dividends earned in AFS financial assets are recognized in the consolidated statement of income when the right to receive payment has been established. The losses arising from impairment of such investments are recognized in the consolidated statement of income.

- 22 As of March 31, 2016 and December 31, 2015, the Group has no AFS financial assets.

HTM investments HTM investments are quoted nonderivative financial assets with fixed or determinable payments and fixed maturities for which management has the positive intention and ability to hold to maturity. Where the Group sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS financial assets. After initial measurement, these investments are measured at amortized cost using the effective interest method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are integral parts of the EIR. The amortization is included in interest income in the consolidated statement of income. Gains and losses are recognized in the consolidated statement of income under “Other income” when the HTM investments are derecognized and impaired, as well as through the amortization process.

As of March 31, 2016 and December 31, 2015, the Group has no HTM investments.

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 income when the liabilities are derecognized or impaired, as well as through the amortization process.

Classified under this category are the Group‟s accounts payable and accrued expenses and loans payable.

Classification of Financial Instruments between Debt and Equity A financial instrument is classified as debt, if it provides for a contractual obligation to:   

deliver cash or another financial asset to another entity; or exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Group; or satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

If the Group does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability.

The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount, after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue.

The Group has no financial instruments that contain both liability and equity elements.

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

- 23 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.

Loans and Receivables 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 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 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.

AFS Financial Assets If an AFS financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in consolidated statement of income, is transferred from the consolidated statement of changes in equity to statement of income. Impairment reversals in respect of equity instruments classified as AFS financial assets are not recognized in the consolidated statement of income. Reversals of impairment losses on debt instruments are reversed through the consolidated statement of income, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in consolidated statement of income.

The amount of reversal is limited to the amount that brings the carrying value of the debt instrument to what it could have been had there been no impairment in the first place.

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 “pass-through” arrangement and neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

- 24 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 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 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.

Crude Oil Inventory Crude oil inventory is stated at fair market value.

Advances, Prepaid Expenses and Other Current Assets Advances, prepaid expenses and other current assets pertain to resources controlled by the Group as a result of past events and from which future economic benefits are expected to flow to the Group.

Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depletion, depreciation and amortization and 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 maintenance, are normally charged to the statement of 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 are depleted using the units-of-production method computed based on estimates of proved reserves. The depletion base includes the exploration and development cost of the producing oilfields.

- 25 Power plant, fuel collection and reinjection system (FCRS) and production wells in the geothermal plant are depreciated using the straight-line method over the useful lives of the assets. The useful life of these assets shall be determined once in the condition necessary for these assets to be capable of operating in the manner intended by management.

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. Land improvements are depreciated over 5 years.

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 Machineries and equipment Land improvements Transportation equipment Office improvements Office furniture and other equipment

Number of Years 25 15 5 - 10 5 4 3 2-3

Wells in progress pertain to those development costs relating to the Service Contract (SC) where oil in commercial quantities are discovered and are subsequently reclassified to “Wells, platforms and other facilities” shown under “Property, plant and equipment” account in the consolidated statement of financial position upon commercial production. Depletion of wells in progress commences upon transfer to property, plant and equipment and related main assets are in the condition necessary for it to be capable of operating in the manner intended by management.

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.

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.

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 reflected in the consolidated statement of income.

Deferred Oil Exploration Costs The Group 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.

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, plant and equipment” in the consolidated statement 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 Geothermal Costs All costs incurred in the geological and geophysical activities such as costs of topographical,

- 26 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 “Deferred geothermal costs” 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.

As of March 31, 2016 and December 31, 2015, deferred geothermal costs amounting $0.79 million and $0.71 million, respectively, were recognized under “Other noncurrent assets” in the consolidated statement of financial position.

Deferred Costs - Solar Power Project These are costs incurred in the development of the Solar Project. This include costs incurred for the construction of the asset and other directly attributable expenses during the construction of the solar farm.

As of December 31, 2015, deferred costs for the Solar Power Project amounting to $0.46 million, were recognized under “Other noncurrent assets” in the consolidated statement of financial position.

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.

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

- 27 income in the expense category consistent with the function of the intangible assets.

Amortization is computed using the straight-line method over the estimated useful lives (EUL) of one (1) to two (2) years.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. 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 statement of profit or loss when the asset is derecognized.

As of March 31, 2016 and December 31, 2015, intangible assets amounting $3.42 million and $3.28 million, respectively, were recognized under “Other noncurrent assets” in the consolidated statement of financial position.

Investment Properties Investment properties consist of land held for capital appreciation or rental to others. 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 has 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 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  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

- 28 the share of income that it earns from the sale of crude oil by the joint operations.

Investment in a Joint Venture A joint venture (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.

As discussed, the Group lost its control over PetroWind. Prior to becoming a joint venture in 2014, PetroWind was accounted for as a subsidiary in previous years. In accordance with PFRS, the Group measures and recognizes any retained investment at its fair value when there is loss of control over a subsidiary. Any difference between the carrying amount of the subsidiary upon loss of control and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss as unrealized gain on remeasurement of investment.

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, and deferred oil exploration and geothermal 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 pre-tax 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 income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.

Equity 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

- 29 reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects is included in equity.

Retained earnings represent accumulated earnings of the entities within the Group less dividends declared and with consideration of any changes in accounting policies and errors applied retroactively. The retained earnings of the Group and its subsidiaries are available for dividends only upon approval and declaration of each of their respective BOD. 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.

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: 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 Company); 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.

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 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

- 30 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.

Pension Cost 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 income. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries.

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 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 income in subsequent periods.

- 31 Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies. 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.

Costs and Expenses Oil production operating expenses are costs incurred to produce and sell crude oil inventory, including transportation, storage and loading, among others.

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.

General and administrative expenses constitute costs of administering the business. Costs and expenses are recognized as incurred.

Asset Retirement Obligation (ARO) Provision for asset retirement obligation is recognized when the recognition criteria for a provision are met. The Group recognizes the present value of these costs as ARO assets (included under “Property, plant and equipment”) and ARO liability.

The Group depreciates ARO assets on a straight-line basis over the estimated useful life (EUL) 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 effective interest method and recognizes accretion expense over the service contract term.

The Group regularly assesses the provision for ARO and adjusts the related liability.

Leases The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement at inception date, and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets, and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one (1) of the following applies: a. there is a change in contractual terms, other than a renewal or extension of the arrangement; a renewal option is exercised or an extension granted, unless that term of the renewal or extension was initially included in the lease term; b. there is a change in the determination of whether fulfillment is dependent on a specified asset; or c. there is a substantial change to the asset.

- 32 Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for any of the scenarios above, and at the date of renewal or extension period for the second scenario.

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 consolidated statement of income on a straight-line basis over the lease term. Minimum lease payments are recognized on a straight-line basis while the variable rent is recognized as an expense based on the terms of the leased contract.

Group as Lessor Leases where the Group retains substantially all the risk and benefits of ownership of the assets are classified as operating leases. Lease payments received are recognized as income in the consolidated statement of income on a straight-line basis over the lease term. Contingent rents are recognized as revenue in the period in which they are earned. Indirect costs incurred in negotiating an operating lease are added to the carrying value of the leased asset and recognized over the lease term on the same basis as the lease income.

Research and Development Costs Research costs are expensed as incurred. Development expenditures on an individual project are recognized as an intangible asset when the Group can demonstrate all of the following:     

the technical feasibility of completing the intangible asset so that it will be available for use or sale; its intention to complete and its ability to use or sell the asset; how the asset will generate future economic benefits; the availability of resources to complete the asset; and the ability to measure reliably the expenditure during development.

Borrowing Costs Interest and other related financing charges on borrowed funds used to finance the acquisition and construction of a qualifying asset (included under property, plant and equipment) are capitalized to the appropriate asset accounts. Capitalization of borrowing costs commences when the expenditures and borrowing costs are being incurred during the construction and related activities necessary to prepare the asset for its intended use are in progress. It is suspended during extended periods in which active development is interrupted and ceases when substantially all the activities necessary to prepare the asset for its intended use are complete. The capitalization is based on the weighted average borrowing cost.

The borrowing costs capitalized as part of property, plant and equipment are amortized using the straight-line method over the estimated useful lives of the assets.

Interest expense on loans and borrowings is recognized using the EIR method over the term of the loans and borrowings.

Contingencies Contingent liabilities are not recognized in the consolidated 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 consolidated financial statements but disclosed when an inflow of economic benefit is probable.

- 33 Foreign Currency-denominated Transactions and Translation The consolidated financial statements are presented in US Dollars, which is the Group‟s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the consolidated financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency closing rate at the reporting date.

All differences are taken to the consolidated statement of 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 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 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 income.

Earnings Per Share (EPS) Basic earnings per share are computed on the basis of the weighted average number of shares outstanding during the year after giving retroactive effect for any stock dividends declared in the current year.

Diluted earnings per share are 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.

Operating Segment 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 the notes to the consolidated financial statements.

Provisions 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 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.

- 34 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 consolidated financial statements, if any. Post year-end events that are not adjusting events are disclosed in the 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 and MGI is the Philippine Peso.

As of March 31, 2016 and December 31, 2015, the Group‟s cumulative translation adjustment amounted to $1.70 million and $2.55 million, respectively.

Impairment of Deferred Oil Exploration Costs The Group assesses impairment on deferred oil exploration costs when facts and circumstances suggest that the carrying amount of the asset may exceed its recoverable amount. The Group determines impairment of projects based on management‟s decision not to pursue any further commercial development of its exploration projects.

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.

- 35 As of March 31, 2016 and December 31, 2015, the carrying value of deferred oil exploration costs amounted to $16.569 million and $15.92 million, respectively. No impairment loss for deferred oil exploration costs was recognized as of March 31, 2016 and December 31, 2015.

Classification of Joint Arrangements The Group‟s investment in a joint venture 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.

Capitalization of Development Costs Development costs are capitalized in accordance with the accounting policy discussed in Note 4.

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 requirements for capitalization of development costs are not met, such costs are expensed.

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 below.

Estimating Impairment of Receivables The Group reviews its receivables to assess impairment at least on an annual basis. In determining whether an impairment loss should be recorded in the consolidated statements of income, the Group makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from its receivables. This evidence normally includes direct information about the financial condition and historical payments of the borrower.

No impairment losses were recognized as of March 31, 2016 and December 31, 2015, 2014.

As of March 31, 2016 and December 31, 2015, the carrying value of receivables amounted to $3.722 million and $3.59 million, respectively. Accumulated impairment losses amounted to $0.06 million as of March 31, 2016 and December 31, 2015.

Fair Values of Financial Assets and Financial Liabilities The Group carries certain financial assets, liabilities and free-standing derivatives at fair value, which requires extensive use of accounting estimates and judgment. While significant components of fair value measurement were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates), the amount of changes in fair value would differ if the Group utilized different valuation methodologies. Any changes in fair value of these financial assets, liabilities and free-standing derivatives would affect directly the consolidated statement of income.

Where the fair values of certain financial assets, liabilities and free-standing derivatives recorded in the consolidated statement of financial position cannot be derived from active markets, they are determined using valuation techniques using generally accepted market valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimates are used in establishing fair values.

Estimating 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

- 36 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.

MGI‟s simulation indicated a mean (P50) proven reserves of 27.8 MW for 25 years. In contrast, SKM calculated the P50 reserves at 44 MW. At 90% probability (P90), the reserves calculated are 28 MW and 12 MW by SKM and MGI, respectively. SKM concluded that the approach taken

by MGI is conservative as it limits reservoir thickness to depths where a maximum thickness of 280°C will be encountered although the measured temperature reached as high as 324°C. There is reasonable confidence that the 20 MW (gross) plant development is feasible as the P90 level appears also conservative as with MGI‟s approach. In addition, SKM identified indicated reserves, translating to 10 MW-26 MW in the area south of and outside the current area of development.

MGI commenced producing power commercially last February 8, 2014. To date, the current production wells are capable of producing 33.1 MW. These production wells including the complement reinjection wells are concentrated on the proven resource area.

An updated reserves estimation using the stored-heat calculation was made as a result of the 2014 drilling campaign. Using Monte Carlo simulation to estimate the reserves, the proven resource area has an 80% probability of delivering between 18.1 MW to 50.9 MW over a 25‐year operating period. This Monte Carlo simulation also showed that the expected mean reserve for the proven resource area is 30.4 MW for 25 years. Currently the existing production wells on this proven resource area can produce around 33.1 MW, more than enough to meet the steam requirement of the existing 20 MW power plant plus the at least 12 MW expansion power plant.

Also, there is a likely geothermal potential south of the proven area where two old wells were drilled and encountered high fluid temperatures (T ~ 300°C). MGI identified the southern block as a probable reserve area. SKM in 2011 suggested that the southern block can be classified as Indicated Resource based on the Australian Code as high temperatures have been intersected by the two wells. SKM estimated that the stored heat in the Southern Block has a resource potential equivalent to 12 MW for a project life of 25 years.

Estimating Proved Group Oil Reserves The Group assesses its estimate of proved reserves on an annual basis based on the report from an independent party hired by the consortium operator to estimate the oil reserves. The independent party estimates the reserves of oil 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.

Estimating 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.

As of March 31, 2016 and December 31, 2015, the Group‟s property, plant and equipment amounted to $145.62 million and $140.72 million, respectively.

- 37 Estimating Impairment of Nonfinancial Assets The Group assesses impairment on its nonfinancial assets (e.g., property, plant and equipment, investment properties and intangible assets) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

For property, plant and equipment and investment properties, an impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of an asset‟s net selling price and value in use. The net selling price 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 and 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 property, plant and equipment and investment properties, the Group is required to make estimates and assumptions that can materially affect the consolidated financial statements.

Production activities in the West Linapacan Oilfield (WLO) remained on suspension mode for the last seventeen (17) years. The investment in WLO included in “Wells, Platforms and Other Facilities” account under property, plant and equipment in the consolidated statements of financial position amounted to $6.66 million as of March 31, 2016 and December 31, 2015. Management assessed that the said investment is fully recoverable as SC 14-C has not yet expired, with the 15year extension of the SC as approved by the Department of Energy (DOE), from December 18, 2010 to December 18, 2025 and in the view of the existing redevelopment activities led by Pitkin Petroleum Ltd. (Pitkin). Thus, no impairment was recognized as of March 31, 2016 and December 31, 2015.

The related balances of the Group‟s nonfinancial assets follow:

Property and equipment Intangible assets Investment properties

31-Mar-16 $145,619,679 3,423,369 31,417 $149,074,465

31-Dec-15 =140,724,197 P 3,283,286 31,417 $144,038,900

Retirement Obligation The determination of obligation and cost of pension is dependent on the selection of certain assumptions used in calculating such amounts.

Those assumptions include, among others, discount rates and salary increase rates. Actual results that differ from the Group‟s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods.

While the Group believes that the assumptions are reasonable and appropriate, significant differences in the actual experience or significant changes in the assumptions may materially affect the pension obligations. The accrued retirement liability as of March 31, 2016 and December 31, 2015 amounted to $0.067 million and $0.066 million, respectively.

Asset Retirement Obligation - Oil Production Plug and abandonment costs are based on estimates made by the service contract operator. The timing and amount of future expenditures are reviewed annually. Liability and capitalized costs included in property, plant and equipment is equal to the present value of the Group‟s proportionate share in the total plug and abandonment costs of the consortium on initial recognition.

The amount of asset retirement obligation in the consolidated statement of financial position is

- 38 increased by the accretion expense charged to operations using EIR method over the estimated remaining term of the obligation.

As of March 31, 2016 and December 31, 2015, asset retirement obligation amounted to $0.9 million and $0.85 million, respectively.

Asset Retirement Obligation - Geothermal Energy Project 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. As of March 31, 2016 and December 31, 2015, asset retirement obligation amounted to $0.25 million and $0.24 million, respectively. The estimate represents costs of plugging and abandonment of the geothermal wells.

Deferred 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. The Group believes that it will generate sufficient future taxable profit to allow all of the deferred tax assets to be utilized.

As of March 31, 2016 and December 31, 2015, the Group did not recognize deferred tax assets on NOLCO amounting to $0.25 million, and MCIT amounting $0.04 million. 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.

6. Cash and Cash Equivalents and Short-term Investments 7.

Cash on hand Cash in banks Short-term investments

Unaudited 31-Mar-2016 $4,470 9,819,689 1,915,920 $11,740,079

Audited 31-Dec-2015 $4,376 14,710,421 17,821,808 $32,536,605

Cash in banks earn interest at the prevailing bank deposit rates. Short-term deposits 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.

Interest income earned on cash in banks and short-term investments amounted to $0.04 million and $0.11 million as of March 31, 2016 and December 31, 2015, respectively.

8. Financial Assets at Fair Value Through Profit or Loss

Marketable equity securities Investment in golf club shares

Unaudited 31-Mar-2016 $162,637 12,371 $175,008

Audited 31-Dec-2015 $144,118 12,113 $156,231

Net gain on fair value changes on financial assets at FVPL included in the consolidated statements of income amounted to $15,436 and $1,392 as of March 31, 2016 and December 31, 2015, respectively.

- 39 9. Receivables

Accounts receivable from: Consortium operator Electricity sales to Trans-Asia Electricity sales to WESM FiT price differential from TransCo Affiliate (Note 28) Others Interest receivable Less allowance for impairment losses

Unaudited 31-Mar-2016

Audited 31-Dec-2015

$505,530 623,917 510,067 1,222,216 909,011 3,588 6,345 $3,780,674 58,226 $3,722,448

$1,032,511 1,726,101 879,782 3,752 6,727 3,648,873 57,000 $3,591,873

The Group‟s receivables are mainly due from consortium operator and from the sale of electricity.

These are due within one year. The carrying values as of March 31, 2016 and December 31, 2015 approximate their fair values.

The receivable from affiliate represents advances made by the Group to PetroWind. This is unsecured and noninterest bearing and collectible within one year.

The table below shows the disclosure of reconciliation of allowance for impairment losses for receivables from a consortium operator: Unaudited 31-Mar-2016 $57,000 1,226 $58,226

Balance at beginning of year Effect of foreign currency translation Balances at end of year

Audited 31-Dec-2015 $59,983 (2,983) $57,000

Aging of Accounts Receivable as of March 31, 2016 (Unaudited) Total Consortium operator Trans Asia - Electricity Sales WESM - Electricity Sales TransCo - FIT Differential Receivable from affiliate Interest receivable Others Sub-total Less: Impairment loss Total

0-30 days

31-Mar-16 31-60 days

61-90 days

505,530 623,917 510,067 1,222,216 909,011 6,345 3,588 3,780,674

447,304 623,917 510,067 909,011 6,345 367 2,497,011

-

1,222,216 1,222,216

Past due Accounts 58,226 3,221 61,447

58,226 3,722,448

2,497,011

-

1,222,216

58,226 3,221

Nature/ Description Lifting No. 171 Billing for Electricity Sales

Loans extented to an affiliate Interest from investments

- 40 10. Prepaid Expenses and Other Current Assets

Restricted cash Downpayments to contractors Prepaid expenses Prepaid taxes Others

Unaudited 31-Mar-2016 $7,917,419 1,928,643 581,692 168,338 386,280 $10,982,372

Audited 31-Dec-2015 $3,815,197 1,508,774 658,518 145,515 189,188 $6,317,192

Restricted cash mainly pertains to the amount of fund that the group is required to comply with the Debt Service Payment Account (DSPA) and Debt Service Reserve Account (DSRA) MGI and PetroSolar, respectively. This also includes unused portion of the Stock Rights proceeds, which was held under escrow account.

Downpayments pertain to advances made to various contractors for the construction of power plants such as the MGPP and Solar Power Project. The downpayments will be applied against future billings in the course of construction. The current portions are estimated to be applied against progress billings within one year from reporting date and are classified under “Advances, prepaid expenses and other current assets”.

Prepaid expenses include prepaid insurance and professional fees.

Prepaid taxes pertains creditable withholding taxes and overpayment of income tax.

Others pertain to supplies and advances.

- 41 11. Property, Plant and Equipment

Cost Balance at beginning of year Additions Disposals Change in ARO estimate Reclassification/adjustments Effect of foreign translation Balance at end of year Accumulated depletion and depreciation Balance at beginning of year Depletion and depreciation Depreciation capitalized Disposals Reclassification/adjustments Effect of foreign exchange translation Balance at end of year Net book value

Power plant

FCRS and production wells geothermal

31-Mar-2015 (Unaudited) Office Wells, Land and condominium platforms and land units and Transportation other facilities improvements improvements equipment

Office furniture and other equipment

Construction in progress

Total

$45,627,676 1,869,027 ‒ ‒ 60,172,681 980,495 108,649,879

$19,884,969 208,324 ‒ ‒ 2,586,631 427,309 23,107,233

$33,755,627 311,560 ‒ 13,470 ‒ ‒ 34,080,657

$1,681,732 35,340 ‒ ‒ ‒ 36,139 1,753,211

$796,456 ‒ ‒ ‒ ‒ ‒ 796,456

$727,663 ‒ ‒ ‒ ‒ 9,182 736,845

$1,449,811 193,031 ‒ ‒ ‒ 25,784 1,668,626

$60,016,083 1,035,057 ‒ ‒ (62,363,869) 1,334,409 21,680

$163,940,017 3,652,339 ‒ 13,470 395,443 2,813,318 170,814,587

3,458,045 877,207 ‒ ‒ ‒ 72,768 4,408,020 $104,241,859

1,243,027 214,101 ‒ ‒ ‒ 26,336 1,483,464 $21,623,769

16,405,246 636,822 ‒ ‒ ‒ ‒ 17,042,068 $17,038,589

158,649 27,514 ‒ ‒ ‒ 3,361 189,524 $1,563,687

790,352 6,104 ‒ ‒ ‒ ‒ 796,456 $‒

419,503 29,552 ‒ ‒ ‒ 7,692 456,747 $280,098

740,998 74,064 ‒ ‒ ‒ 3,568 818,630 $849,996

− ‒ ‒ ‒ ‒ ‒ − $21,680

23,215,820 1,865,364 ‒ ‒ ‒ 113,724 25,194,908 $145,619,679

- 42 -

Power plant Cost Balance at beginning of year Additions Change in estimate of ARO (Note 19) Transfers from deferred exploration costs (Note 11) Reclassification/adjustments Effect of foreign currency translation Balance at end of year Accumulated depletion and depreciation Balance at beginning of year Depletion and depreciation (Notes 26) Depreciation capitalized Reclassification/adjustments Effect of foreign currency translation Balance at end of year Net book values

$48,248,324 109,758 ‒ − (331,318) (2,399,088) 45,627,676

1,768,095 1,838,890 ‒ ‒ (148,940) 3,458,045 $42,169,631

FCRS and Wells, production platforms Land and wells - and other land geothermal facilities improvements $20,166,970 760,018 ‒ − (39,241) (1,002,778) 19,884,969

607,264 688,818 ‒ − (53,055) 1,243,027 $18,641,942

$23,226,088 1,362,361 357,770 8,809,408 − ‒ 33,755,627

14,723,628 1,681,618 ‒ ‒ ‒ 16,405,246 $17,350,381

$1,411,932 47,610 ‒ − 292,397 (70,207) 1,681,732

79,869 85,592 ‒ ‒ (6,812) 158,649 $1,523,083

31-Dec-2015 (Audited) Office condominium units and Transportation improvements equipment $773,916 ‒ ‒

$687,212 61,737 ‒

Office furniture and other equipment

Construction in progress

Total

$1,182,847 316,391 ‒

$2,847,029 57,720,383 ‒

$98,544,318 60,378,258 357,770

− (409,764) (141,565) 60,016,083

8,809,408 (478,533) (3,671,204) 163,940,017

− 22,540 ‒ 796,456

− (2,136) (19,150) 727,663

− (11,011) (38,416) 1,449,811

757,257

301,391

522,448

30,723 ‒ 2,372 ‒ 790,352 $6,104

121,843 3,915 934 (8,580) 419,503 $308,160

247,075 1,559 (6,345) (23,739) 740,998 $708,813

‒ ‒ ‒ ‒ ‒ ‒ $60,016,083

18,759,952 4,694,559 5,474 (3,039) (241,126) 23,215,820 $140,724,197

The FCRS and Production Wells pertain to assets of MGI while Wells, Platforms and Other Facilities pertain to Gabon Oil Production Assets.

Power Plant includes MGI‟s geothermal power plant which were completed in 2013 and PetroSolar‟s photovoltaic plant which were completed in February 2016.

The Construction in progress pertains to the construction of Maibarara Phase-2.

Depletion of wells, platforms and other facilities is part of oil production under cost of sales in the consolidated statement of income.

Depletion and depreciation expense charged to profit or loss follows: 31-Mar-2016 Cost of electricity sales (Note 25) $1,167,782 Depletion 636,822 General and administrative expenses (Note 26) 60,760 $1,865,364

31-Dec-2015 $2,735,992 1,681,618 276,949 $4,694,559

- 43 12. Deferred Oil Exploration Costs

Balance at beginning of year Additions Transfers to wells and platforms Balance at end of year

Unaudited Audited 31-Mar-2016 31-Dec-2015 $15,919,839 $19,112,571 649,656 5,616,676 – (8,809,408) $15,919,839 $16,569,495

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.

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.

Additions pertain to development costs incurred for Etame expansion.

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.

13. Investment in a Joint Venture The investment in a joint venture represents PetroGreen‟s 40% interest in PetroWind. The joint venture is accounted for as a joint venture.

PetroWind was incorporated in the Philippines on March 6, 2013 as a wholly owned subsidiary of PetroGreen, primarily to carry on the general business of generating, transmitting and/or distributing power derived from renewable energy sources.

On July 15, 2013, EEIPC subscribed to a 20% equity share in PetroWind.

On November 21, 2013, PetroGreen and CapAsia entered into a Share Purchase Agreement (SPA) as to the sale of PetroGreen‟s 40% equity share in PetroWind.

As of December 31, 2013, PetroGreen still holds 80% equity share in PetroWind and accounted as a subsidiary in the 2013 consolidated financial statements.

On February 14, 2014, PetroGreen received the payment from sale of the shares, and the Deed of Assignment, covering the transfer of shares from PetroGreen to CapAsia, was executed upon satisfactory completion of all the conditions precedent under the SPA. PetroGreen lost its control in PetroWind after the consummation of the SPA. Accordingly, PetroWind ceased as a subsidiary of PetroGreen.

Thereafter, PetroWind became a joint venture between PetroGreen, CapAsia and EEIPC by virtue of the SA signed between the three parties governing the manner of managing PetroWind .

- 44 As a result of the loss of control, PetroWind was deconsolidated in the 2014 consolidated financial statements. a) The Group derecognized the assets, liabilities, the carrying amount of the noncontrolling interest and cumulative translation differences recorded in equity as of February 14, 2014.

Details are as follows: Cash and cash equivalents Receivables Advances Prepaid expenses and other current assets Property and equipment Other noncurrent assets Accounts and other payables Due to related parties Loans payable Noncontrolling interest Cumulative translation adjustment

$12,891,213 370 17,412,582 2,853,821 1,160,191 9,611 (120,090) (239,242) (22,143,288) (2,358,585) (46,353) $9,420,230

b) The Group recognized the fair value of the consideration received, the fair value of any investment retained and any surplus or deficit in the 2014 consolidated statement of income.

Details are as follows: Fair value of the considerations received on the sale of 40% interest Fair value of 40% retained noncontrolling interest Carrying amount of 20% noncontrolling interest upon loss of control Carrying amount of PetroWind‟s net assets upon loss of control Excess of fair value and proceeds over carrying amount Realized gain on sale of 40% retained interest Unrealized gain on remeasurement of 40% retained interest Share in deconsolidated retained earnings of a subsidiary Excess of fair value and proceeds over carrying amount

$8,014,928 22,570,048 2,383,169 32,968,145 (11,915,846) $21,052,299 $2,665,174 17,220,295 1,166,830 $21,052,299

- 45 The computation of remeasurement gain follows: Remeasured fair value of 40% retained noncontrolling interest upon loss of control Carrying amount of retained interest on investment in a joint venture Unrealized gain on remeasurement of 40% retained interest on investment

$22,570,048 5,349,753 $17,220,295

The realized gain on the sale follows: Proceeds from sale Carrying amount of the disposed 40% interest Realized gain on sale

$8,014,928 5,349,754 $2,665,174

The movements in the carrying value of the Group‟s investment in joint venture in PetroWind as of March 31, 2016 and December 31, 2015 follows:

Balance at beginning of year Additional investment during the year Share in net income (loss) of a joint venture Translation adjustment Balance at end of year

31-Mar-2016 $27,166,952 1,046,823 583,815 $28,797,590

31-Dec-2015 $27,630,596 680,833 241,481 (1,385,958) $27,166,952

Selected financial information of PetroWind as of March 31, 2016 and December 31, 2015 follows:

Current assets Noncurrent assets Current liabilities Noncurrent liabilities Equity

Unaudited 31-Mar-2016 $16,641,547 93,022,090 (11,453,634) (69,096,782) 29,113,221

Audited 31-Dec-2015 $10,139,351 90,876,669 (20,344,934) (58,660,986) $22,010,100

Summary of statement of income of PetroWind for the quarter ended March 31, 2016 and for the year ended December 31, 2015 follows:

Revenue Cost and expenses Income (loss) before tax Tax expense Net income (loss) Group‟s share of the net income (loss)

31-Mar-2016

31-Dec-2015

$5,766,403 3,149,345 2,617,058 2,617,058 1,046,823

$6,899,580 6,295,877 603,703 − $603,703 $241,481

2014 (Nine Months) $41,815 (648,219) (606,404) − ($606,404) ($242,562)

- 46 14. Investment Properties As of March 31, 2016 and December 31, 2015, this account consists of land and parking lot space (located in Tektite) 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, 2016 and December 31, 2015. The Group did not obtain the services of an appraiser and 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, 2016 and December 31, 2015, 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, 2016 and December 31 2015.

15. Investment in Navy Road Development Corporation (NRDC) As of March 31, 2016 and December 31, 2015 , this account consists of: Acquisition cost Advances

$260,388 54,032 314,420 314,420 $–

Less accumulated impairment loss

Investment in NRDC represents investment in subsidiary due to the Group‟s 100% holdings in NRDC‟s capital stock.

Below is NRDC‟s financial position as of March 31, 2016 and December 31, 2015: Current assets Noncurrent assets Allowance for impairment Total Assets

$− 366,193 (366,193) –

As of March 31, 2016 and December 31, 2015 , NRDC has not commenced commercial operations and has not incurred any expenses in in March 31, 2016 and December 31, 2015.

Management intends to liquidate NRDC and has provided for full impairment loss on this investment.

- 47 16. Other Noncurrent Assets

Intangible assets Input VAT Prepaid rent - noncurrent portion Deferred development costs Restricted cash Others

Unaudited 31-Mar-2015 $3,352,553 3,274,478 2,081,673 793,191 490,544 223,631 $10,216,070

Audited 31-Dec-2015 $3,283,286 3,110,688 2,037,881 1,142,094 490,544 218,330 $10,282,823

Intangible assets As of March 31, 2016 and December 31, 2015, bulk of this account pertains to the acquired easement of right of way by PetroSolar amounting to $3.23 million. This also includes software used for the geological modeling of MGI field. Details follow: 31-Mar-2016 Unaudited Land Rights Software Total Cost Balances at beginning of year $3,232,673 Additions − Effect of foreign currency translation 69,470 Balances at end of year 3,302,143 Accumulated Amortization Balances at beginning of year − Amortization − Effect of foreign currency translation − Balances at end of year − Net Book Values $3,302,143

$240,889 −

$3,473,562 −

2,843 243,732

72,313 3,545,875

190,276 946

190,276 946

2,100 193,322 $50,410

2,000 193,322 $3,352,553

31-Dec-2015 Audited Land Rights Software Cost Balances at beginning of year $− Additions 3,232,673 Effect of foreign currency translation − Balances at end of year 3,232,673 Accumulated Amortization Balances at beginning of year − Amortization − Effect of foreign currency translation − Balances at end of year − Net Book Values $3,232,673

$240,066 7,788

Total

$240,066 3,240,461

(6,965) 240,889

(6,965) 3,473,562

185,673 9,551

185,673 9,551

(4,948) 190,276 $50,613

(4,948) 190,276 $3,283,286

- 48 Land rights 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.

Amortization expense charged to profit or loss follows:

General and administrative expenses (Note 26) Cost of electricity sales (Note 25)

Unaudited 31-Mar-2016 $946 – $946

Audited 31-Dec-2015 $6,124 3,427 $9,551

Input VAT The input VAT refers to the Group‟s cumulative input VAT carryovers which will be utilized in future periods. Majority of the input VAT pertains to MGI. MGI is undergoing a VAT refund process covering the years 2011, 2012 and 2013 with a total amount of $2.26 million or P106.53 million. These claims have now been elevated to the Court of tax Appeals of the Philippines.

Prepaid rent - noncurrent portion On April 23, 2012, MGI entered into a Land Lease Agreement (LLA or the Agreement) with the National Power Corporation (NPC) and the Power Sector Assets and Liabilities Management Corporation (PSALM) over the MGPP‟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-noncurrent portion pertains to the advance rental payment paid for the lease agreement. The current portion due in one year is shown as part of “Prepaid expenses and other current assets” in the consolidated statements of financial position.

Deferred development costs Deferred development costs pertain to the costs incurred for the 10MW Phase 2 project of MGI amounting $0.79 million and $0.71 million March 31, 2016 and December 31, 2015, respectively, and development cost for the 50 MW Tarlac Solar Power Project amounting to $0.46 million in December 31, 2015.

Restricted cash Restricted cash pertains to the Group‟s share in the escrow fund 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 Groups‟ obligation for the FPSO was deducted from the Group‟s 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. As of March 31, 2016 and December 31, 2015, the Group contributed its share in the abandonment of the Etame Marine Permit to the escrow fund amounting to $0.29 million.

Others This consists of prepaid expenses and security deposit.

- 49 17. Accounts Payable and Accrued Expenses

Accounts payable Accrued interest payable Accrued expenses Dividends payable Withholding taxes payable Others

Unaudited 31-Mar-2016 $3,402,696 3,187,894 379,154 225,731 73,604 59,817 $7,328,896

Audited 31-Dec-2015 $16,462,406 1240,442 461,540 221,151 351,555 58,627 $18,795,721

Accounts payable consist of payable to suppliers and contractors that are currently involved in the development and construction of energy projects.

Accrued interest payable pertains to accrual of interest on loans.

Accrued expenses are as follows:

Government share Sick/vacation leaves Utilities Professional fees Professional fees - related parties Others

Unaudited 31-Mar-2016 $38,262 192,031 75,051 62,143 – 11,667 $379,154

Audited 31-Dec-2015 $19,953 217,297 90,849 82,527 3,570 47,344 $461,540

Dividends payable pertain to unclaimed checks as of March 31, 2016 and December 31, 2015.

Other payables mainly pertain to accrued security services, utilities and condominium dues.

The Group‟s accounts payable and accrued expenses are due within one year. Carrying values approximate their fair values as of March 31, 2016 and December 31, 2015.

18. Short-term and Long-term Loans Payable The Group‟s loans payable pertains to loans availed by the Group. Below are the details of the loans entered:

Short-term loans payable Less unamortized deferred financing cost Long-term loans payable Less unamortized deferred financing cost Total

Unaudited 31-Mar-2016 $14,457,108 26,689 14,430,419 103,327,087 2,046,929 101,280,158 $115,710,577

Audited 31-Dec-2015 $16,646,026 106,952 16,539,074 101,205,990 2,034,622 99,171,368 $115,710,442

- 50 PetroEnergy’s short-term and long-term loans payable PetroEnergy entered into unsecured loan agreements with various lenders specifically to finance equity infusion to PetroWind.

On July 19, 2013, PetroEnergy entered into a $3.5 million loan agreement with various lenders with annual interest rate for the first interest period (i.e. six months from issue date) of 3.898%, subject to re-pricing every six months based on a benchmark rate plus a pre-agreed spread. The tenor of the loan is 2 years, maturity July 19, 2015.

On November 21, 2013, PetroEnergy entered into additional loan amounting to $4.5 million (P =200 million) with various lenders with an interest rate of 5.45% per annum. Interest rate on the note shall be calculated on a 30/360 day count basis and will be paid every 3 months in arrears in the last day of each three-month period. The tenor of the loan is two (2) years, maturity is on November 21, 2015.

On April 27, 2015, PetroEnergy entered into an Omnibus Credit Line Agreement with the Development bank of the Philippines which provides a credit facility in the principal amount not exceeding $9.3 million (P=420 million) with annual interest rate for the first period of 5.1509%, subject to re-pricing every quarter. On May 12, 2015, $1.3 million (P=60 million) was granted as first drawdown and on October 15, 2015, additional $1.91 million (P=90 million) was drawn from the credit facility.

On July 20, 2015, PetroEnergy entered into an additional loan amounting to $2.5 million loan with various lenders with an interest rate of 3.9647% per annum. The loan is payable in two (2) years with maturity on July 19, 2017.

On November 21, 2015, PetroEnergy entered into a $3.27 million (₱154 million) loan agreement with various lenders with an interest rate of 5.45% per annum. Interest rate on the note shall be calculated on a 30/360 day count basis and will be paid 3 months in the last day of each threemonth period. The tenor of the loan is two (2) years, maturity is on November 21, 2017.

PetroGreen’s short-term and long-term loans payable PetroGreen availed of a one-year unsecured credit line facility amounting to $2.64 million (P =124.5 million) on December 19, 2014 with various lenders at 5% annual interest payable every quarter. On December 19, 2015, $1.1 million (P =49 million) of the total facility was granted, and the remaining balance was realeased in January 2015. All of these loans were settled as of December 31, 2015.

In November 2015, PetroGreen entered into a 5-year credit line facility with Chinabank in the amount of $10.62 million (P =500 million) with an anual interest rate of 5.24% subject to repricing and payable every October and April. As of March 31, 2016, $8.6 million (P =400 million) out of the total loan facility were granted.

MGI’s long-term loans payable On September 26, 2011, MGI together with PNOC Renewables Corporation and Trans-Asia entered into a P =2.4 billion (or $54 million) Omnibus Loan and Security Agreement with RCBC and BPI specifically to partially finance the design, development, procurement, construction, operation and maintenance of its geothermal power plant project.

As of March 31, 2016 and December 31, 2015 MGI has outstanding drawdowns of $45.25 million (or P =2.06 billion) and $43.7 million (or P =2.06 billion), respectively.

- 51 The loan is payable semi-annually within ten (10) years from and after the date of initial drawdown immediately following the signing date, payments to be made in fourteen (14) semiannual principal installment commencing on the end of 6th semester from the date of the initial drawdown, inclusive of a grace period of thirty-six (36) months. The semi-annual principal payment will start in April 2015. Thus, the corresponding amount on the first two semi-annual payment is duly classified as current portion of the long term loan.

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. As of March 31, 2016 and December 31, 2015, the portion pertaining to the drawn amount of the loan amounting to $2.07 million and $2.14 million 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. Details of the Groups‟ unamortized deferred financing costs follows:

Balance at beginning of year Deferred financing costs on loan drawn during the year Less amortization during the year Balance at end of year

Unaudited 31-Mar-2016 $2,141,574

Audited 31-Dec-2015 $1,086,176

178 2,141,752 68,134 $2,073,618

1,521,444 2,607,620 466,446 $2,141,174

The amortization is recognized under “Interest expense” in the consolidated statements of income.

Below are the accumulated borrowing costs of the Group as of March 31, 2016 and Dec 31, 2015:

Interest on loans payable Balance at beginning of year Interest incurred during the year Balance at end of year Deferred financing cost Balance at beginning of year Amortization during the year Balance at end of year

Unaudited 31-Mar-2016

Audited 31-Dec-2015

$15,282,536 1,246,382 16,528,918

$10,347,856 4,934,680 15,282,536

1,136,223 68,134 1,204,357 $17,733,275

648,712 487,511 1,136,223 $16,418,759

The loan covenants covering the outstanding debt of MGI include, among others, maintenance of certain level of debt-to-equity and debt-service coverage ratios. As of March 31, 2016 and December 31, 2015, MGI is in compliance with the said loan covenants.

PetroSolar’s loans payable Omnibus Loan and Security Agreement with PNB and DBP On November 12, 2015, the Company, together with PGEC and EEIPC, as third party mortgagors and pledgors, entered into a P =2.6 billion (or $55.25 million) Omnibus Loan and Security Agreement (OLSA) with PNB and DBP specifically to partially finance the design, development, procurement, construction, operation and maintenance of its Tarlac solar power project.

- 52 As of March 31, 2016 and December 31, 2016, the Company has outstanding drawdowns of P =2.49 billion (or $54.05 million) and P =2.49 billion (or $52.91 million), respectively.

Total outstanding loan Less unamortized deferred financing cost Total Less current portion Noncurrent portion

Unaudited 31-Mar-2016 $54,048,188 1,366,261 52,681,927 2,405,054 $50,276,873

Audited 31-Dec-2015 $52,911,177 1,385,703 51,525,474 2,405,054 $49,120,420

PSC 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 immediately following the Loan Signing date, the payments to be made in every twenty-two (22) semi-annual principal installments commencing on the date the first anniversary of the initial drawdown ( the "Principal Amortization Date"), inclusive, for the avoidance of doubt, of a grace period of twelve (12) months from the initial drawdown Date. Thus the corresponding amount on the first semi-annual payment is duly classified as current portion of the long-term 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 fee and other out-of-pocket expenses.

As of March 31, 2016 and December 31, 2015, the portion pertaining to the drawn amount of the loan amounted to P =65.21 million (or $1.37 million) and P =66.06 million (or $1.39 million), respectively are presented as deduction to the loans payable account and will be amortized over the life of the loan using effective interest method.

Amortization of deferred costs will be capitalized until all activities necessary to prepare the power plant for its intended use are substantially complete.

Details of unamortized deferred financing costs follows:

Balance at the beginning of the year Deferred financing costs on loan drawn during the year Less amortization during the year Translation adjustment Balance at end of year

Unaudited 31-Mar-2016 $1,385,703

Audited 31-Dec-2015 $–

– 49,220 29,778

1,403,771 18,068 –

1,366,261

$1,385,703

Capitalized borrowing cost relating to finance charges incurred in the construction of the power plant amounted to$0.34 million (P16.20) million in 2015.

PSC pledged all of its property and equipment as collateral in connection with the loan.

- 53 19. Asset Retirement Obligation Deposits for future stock subscriptions pertains to total consideration received from the noncontrolling interests in excess of the authorized capital of the entities within the Group, with the purpose of applying the same as payment for future issuance of shares. Details follow:

No. of shares PetroGreen EEIPC MGI Trans-Asia PNOC-RC PetroSolar EEIPC

Subscription amount

25,583,147

$555,310

450,000 180,000

976,774 390,710

2,200,000 28,413,147

4,775,342 $6,698,136

As of March 31, 2016, the increase in authorized capital was not yet approved by the Philippine SEC, thus, the deposits were not classified as equity, in accordance with Philippine SEC Financial Reporting Bulletin No. 006 issued in January 2013.

20. 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 and Geothermal field located in Sto. Tomas Batangas.

Movements in this account follow:

Balance at beginning of year Accretion expense Addition Translation adjustment Balance at end of year

Unaudited 31-Mar-2016 $1,094,672 35,679 13,470 5,229 $1,149,050

Audited 31-Dec-2015 $608,542 140,635 357,770 (12,275) $1,094,672

The provision for the oilfields in Etame maintained the original discount rate at 15.50% for both years.

In 2015, the movement is attributable to change in estimate which resulted to adjustment of carrying amount of the obligation. The estimate was provided by a third party expert, as engaged by the consortium operator of the oilfields in Gabon, West Africa. This also resulted to a decrease in the book value of “Wells, platforms and other facilities” account under “Property, plant and equipment” in the consolidated statements of financial position (see Note 10).

The provisions for the abandonment costs for Etame are expected to be settled in 2020, while for Avouma and Ebouri in 2022.

- 54 21. Derivative Liability On November 21, 2013, PetroGreen and CapAsia Asean Holdings Cooperatief U.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 PetroWind held by PetroGreen, which is equivalent to 40% of the total issued and outstanding shares of PetroWind.

Simultaneously on November 21, 2013, PetroGreen, EEIPC and CapAsia entered into a Shareholders‟ Agreement (SA). The SA will govern their relationship as the shareholders of PetroWind as well as containing their respective rights and obligations in relation to PetroWind.

Further, the SA contains provisions regarding voting requirements for relevant activities that require unanimous consent of all the parties.

CapAsia was given full voting and economic rights as a 40% shareholder. On February 14, 2014, the Closing Date, PetroGreen lost its control on PetroWind as a result of its sale of the half of its 80% interest in PetroWind.

The SA further provides call and put options.

CapAsia Investor‟s Put Option In the absence of a Liquidity Event by the sixth anniversary of the Closing Date, CapAsia Investor may at any point thereafter, by written notice (the “Put Notice”), requires PetroGreen or its designee to purchase all of its shares in PetroWind at a value that shall ensure CapAsia Investor an IRR of fifteen percent (15%) for its investment.

PetroGreen‟s Call Option In the absence of a Liquidity Event by the seventh anniversary of the Closing Date, PetroGreen may at any point thereafter, by written notice (the “Call Notice”), call upon CapAsia Investor to sell all of its common shares in PetroWind to PetroGreen or its designee at a value that shall ensure CapAsia Investor an IRR of twenty percent (20%) for its investment.

Payoff Structure Upon exit of CapAsia Investor through a Liquidity Event, CapAsia Investor shall share the profit of the Investment with PetroGreen following the schedule below: (a) After CapAsia Investor has received an IRR of twenty percent (20%) on its Investment, PetroGreen shall receive twenty five percent (25%) of the profits from the Investment over an IRR of twenty percent (20%) and up to an IRR to CapAsia Investor of twenty five percent (25%). (b) After CapAsia Investor has received an IRR of twenty-five percent (25%) on its Investment, PetroGreen shall receive fifty percent (50%) of the profits from the Investment over an IRR of twenty-five percent (25%) and up to an IRR to CapAsia Investor of thirty percent (30%). (c) After CapAsia Investor has received an equity IRR of thirty percent (30%) on its Investment, PetroGreen shall receive seventy-five percent (75%) of the profits from the Investment over an IRR of thirty percent (30%).

- 55 Movements in this account follow:

Balance at beginning of year Unrealized loss on derivatives during the year Translation adjustment Balance at end of year

Unaudited 31-Mar-2016 $10,855,986 – 233,285 $11,089,271

Audited 31-Dec-2015 $10,677,196 734,060 (555,270) $10,855,986

22. 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 Company to own and hold any mining, petroleum or renewable energy contract area. As of March 31, 2016 and December 31, 2015, the total issued and subscribed capital stock of the Group is 99.76% Filipino and 0.24% non-Filipino as compared to December 31, 2014 wherein the total issued and subscribed capital stock of the Group is 99.68% Filipino and 0.32% non-Filipino.

As of December 31, 2014, the Parent Company‟s capital stock consists of 330,000,000 authorized and 273,824,220 issued and outstanding common shares with par value of P =1 ($0.0224) per share.

Total capital stock and additional paid-in capital amounted to $6.32 million and $25.24 million, respectively.

On June 3, 2015, Securities and Exchange Commission approved the increase in authorized capital from 330,000,000 shares to 700,000,000 shares at P =1 par value per share. Out of the entire increase in the authorized capital stock, 136,912,110 common shares have been subscribed through the SRO on May 11 to 15, 2015. The subscription of 136,912,110 common shares amounted to $13.44 million, out of which additional paid-in capital amounted to $10.38 million.

As of March 31, 2016 and December 31, 2015, the Parent Company‟s capital stock consists of 700,000,000 authorized and 410,736,330 issued and outstanding common shares with par value of =1 ($0.0214) per share. Total capital stock and additional paid-in capital amounted to $9.391 P million and $35.62 million, respectively.

Capital Stock Balances at beginning of year Stock rights offering Balances at end of year

Shares 273,824,220 136,912,110 410,736,330

Additional paid-in capital Balances at beginning of year Stock rights offering Balances at end of year

$25,244,737 10,375,851 $35,620,588

Amount $6,321,533 3,069,779 $9,391,312

- 56 The Group‟s track records of capital stock are as 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 Add: Movement March 31, 2016

Number of shares registered

Issue/offer price

Date of SEC approval

84,253,606

=3/share P

August 4, 2004

21,063,402 31,595,102 136,912,110 273,824,220 − 273,824,220 − 273,824,220 − 273,824,220

P1/share = =1/share P =5/share P

September 6, 2005 September 8, 2006 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

Number of holders as of year-end

=4.38/share P

May 11, 2016

(15) 2,028 1 2,029

Dividends The BOD approved the declaration of cash dividends as follows: July 4, 2013, 5% or $.001 per share cash dividends to all stockholders of record as of July 25, 2013 amounting to $315,248 The dividends were paid on August 20, 2013.

2015

2014

2013

$−

$−

$315,248

Unappropriated Retained Earnings Under the Tax Code of the Philippines, publicly listed companies are allowed to accumulate retained earnings in excess of capital stock and are exempt from improperly accumulated earnings tax. Nonetheless, retained earnings available for dividend declaration, after reconciling items, for the quarter ending March 31, 2016 and for the year ended December 31, 2015 amounted to $ $13.09 million, $12.55 million and $13.03 million, respectively, which is below the paid-up capital of $45.01 million as of March 31, 2016 and December 31, 2015. The paid-up capital includes capital stock and additional paid-in capital.

The accumulated earnings of a joint venture not declared as dividends are not available for dividend declaration of the Parent Company, unless these are declared.

Appropriated Retained Earnings On January 15, 2008, the BOD approved the appropriation of $0.49 million for the development of the Ebouri oil field in Gabon, in addition to the $0.56 million originally appropriated amount. Participation in the development of the Ebouri field by the Group has been approved by the BOD on the same date.

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.

- 57 On February 19, 2013, the BOD approved additional appropriated retained earnings amounting to $1.09 million to cover for the Group‟s share in the cost of the committed wells in the Etame oilfield in Gabon, West Africa.

Total appropriations for the development of the oilfields in Gabon, West Africa as of March 31, 2016 and December 31, 2015 amounted to $3.15 million. Further expansion of the said oilfield is on-going. There are no appropriations in March 31, 2016 and December 31, 2015.

Equity Reserv As discussed in Note 1, 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 during the year is summarized as follows: 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

At PetroEnergy‟s separate financial statements, the gain from sale recognized in the statement of income amounted to $2.12 million in 2015.

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, 2016 and December 31, 2015, the Group monitors capital using a debt-to-equity ratio, which is total liabilities divided by total equity.

As of March 31, 2016 and December 31, 2015, the Group‟s sources of capital are as follows:

Loans payable Capital stock Additional paid-in capital Retained earnings Equity reserve

Unaudited 31-Mar-2016 $115,710,577 9,391,311 35,620,588 22,567,299 1,859,173 $185,148,948

Audited 31-Dec-2015 $115,710,442 9,391,311 35,620,588 22,049,428 1,859,173 $184,630,942

- 58 The table below demonstrates the debt-to-equity ratio of the Group as of March 31, 2016 and December 31, 2015 Unaudited 31-Mar-2016 Total debt Loans payable Accounts payable and accrued expenses Deposit for future stock subscription Asset retirement obligation Accrued retirement liability Derivative liability Deferred tax liabilities Other noncurrent liability Total equity Debt-to-equity ratio

Audited 31-Dec-2015

$115,710,577

$115,710,442

7,328,896

18,795,721

6,698,136 1,149,050 67,438 11,089,271 1,659,404 72,404 $143,812,974 $84,506,346 1.70:1

6,557,228 1,094,672 66,019 10,855,986 1,624,496 48,406 $154,752,970 $82,377,570 1.88:1

Based on the Group‟s assessment, the capital management objectives were met as of March 31, 2016 and December 31, 2015.

23. 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.

Significant transactions with related parties are as follows: Transactions for the Period Related Party/Nature Affiliate HI Loans payable Interest expense Internal audit services Joint Venture PetroWind Due from PetroWind Interest income Management income Advances

31-Mar-2016

31-Dec-2015

Outstanding Balance Receivables (Payables) 31-Mar-2016 31-Dec-2015 − −

− −

Terms and Conditions

Note a Note a

-

700,000 3,267

3,647 3,647

14,770 718,037

12,047 16,296

849,979 29,803 189,532

868,244 40,767 −

849,979 29,803 −

Note c Note c Note d

28,343 $31,990

5,390 1,074,704 $1,792,741

− 909,011 $905,919

− 879,782 $876,212

Note e

(3,092) (3,092)

(3,570) (3,570)

Note b

a. PetroEnergy availed of a $0.60 million loan from House of Investments, Inc. (HI) on October 1, 2014, payable on December 22, 2014 at an annual interest rate of 0.98%. On July

- 59 19, 2015, PERC availed of a $0.70 million loan from HI, payable on December 9, 2015 at 1.12% interest. These loans have been fully paid as of December 31, 2015 and 2014. b. PetroEnergy has engaged HI to perform internal audit services on PetroEnergy. HI charges retainer fee of P56,000 ($1,189) per month totaling to P0.67 million or $14,770 per annum. c. In March 2015, PWEI availed of a P20 million (or $0.42 million) loan from PGEC at 5.6% annual interest payable in February 2017. On May 4, 2015, PWEI availed of an additional loan from PERC amounting P20 million (or $0.42 million) payable in May 2016 at annual interest rate of 6.104%. d. Management income refers to timewriting charges, management fees for accounting, legal, management and other support services rendered by PetroEnergy and PetroGreen to PetroWind. e. Advances are minimal reimbursement of costs and expenses.

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 quarter ended March 31, 2016 and for the years ended December 31, 2015.

24. Financial Instruments The Group‟s principal financial instruments include cash and cash equivalents, short term investments, 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 March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015 amounted to $115.71 compared to its carrying value of $115.71.

The methods and assumptions used by the Group in estimating the fair value of financial instruments are: Cash and cash equivalents and Receivables

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.

Debt securities and Golf club shares

Fair values are based on quoted market prices as at reporting date.

Fair values are based on the recent sales of similar properties in the same area.

Investment properties

Accounts payable and accrued expenses

Due to the short-term nature of the instruments, carrying amounts approximate fair values as at reporting date.

- 60 Loans payable

Fair values are based on the discounted value of expected future cash flows using the applicable interest rate for similar type of instruments. The fair value for March 31, 2016 and December 31, 2015 for the 5 year tenor loans is derived using the projected T-Bond coupon rate of 4.519%, plus 3.202% credit spread for the first five years and 4.303% for the second five years. The fair value of the 22 year tenor loan is derived using the projected T-Bond coupon rate of 4.640% plus 2.250 credit spread. For the two loans with 2-year tenor, March 31, 2016 and December 31, 2015 fair value is derived using the treasury rate of 3.892% plus a credit spreads of 0.073% and 1.648%, respectively.

Derivative liability

Fair value is estimated using a modified binomial options pricing model which consists of two parts: the price tree and the backwards induction tree.

The following tables show financial instruments recognized at fair value as of March 31, 2016 and December 31, 2015. 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).

Financial assets at FVPL Marketable equity securities Investment in golf club shares Investment properties Derivative liability

31-Mar-2016 Level 1 Level 2

Level 3

Fair Value

$− − − 40,278 −

$− − − − 11,089,271

$162,637 12,371 175,008 40,278 11,089,271

Level 3

Fair Value

$− − − − 10,855,986

$144,118 12,113 156,231 40,278 10,855,986

$162,637 12,371 $175,008 − −

31-Dec-2015 Audited Level 1 Level 2 Financial assets at FVPL Marketable equity securities Investment in golf club shares Investment properties Derivative liability

$144,118 12,113 $156,231 − −

$− − − 40,278 −

As of March 31, 2016 and December 31, 2015, there were no transfers of financial instruments among all levels.

Derivative Financial Instruments The combined fair value of the options is estimated using a modified binomial options pricing model which consists of two parts: the price tree and the backwards induction tree. Under a riskneutral assumption, the price tree is used to predict the potential upward and downward

- 61 movements of the company value as of valuation date. The backwards induction tree is used to compute the value of the options given the predicted values in the price tree. The backwards induction tree is modified to incorporate several assumptions that are based on management's judgment and expectations. These assumptions are as follows: (a) (b) (c) (d)

The projected offer price is the book value of PetroWind at 5th year (2020).

PetroWind share price volatility is assumed at 30%.

There will be no dividend declaration for the 6-year projection.

40% probability of liquidity event

Description of significant unobservable inputs to valuation The significant unobservable inputs used in the fair value measurement categorized within Level 3 of the fair value hierarchy together with a quantitative sensitivity analysis as at March 31, 2016 and December 31, 2015 are as shown below:

Derivative liability

Valuation technique Modified binomial model

Significant unobservable inputs Probability of liquidity event until 2020

Base assumption 40%

Sensitivity of the input to fair value If the probability is increased by 5%, the derivative liability will decline by 8.5%; if the probability is decreased by 5%, the derivative liability will be up by 8.5%

Projected spot price

The spot price is based on the projected discounted cash flow (DCF) of PetroWind

If the spot price is increased by 5%, the derivative liability will decline by 3.8%; if the spot price is decreased by 5%, the derivative liability will be up by 5.2%

Volatility

30%

If volatility is increased by 10%, the derivative liability will increase by 1.4%; if the volatility is decreased by 10%, the derivative liability will decrease by 1.6%

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

- 62 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 December 31, 2015 and 2014 based on contractual payments:

On demand Financial Assets Financial assets at FVPL Loans and receivables: Cash and cash equivalents Short-term investments Accounts receivable: Consortium operator Electricity sales to Trans-Asia WSEM TransCo Receivable from affiliate Others Interest receivable Restricted cash Financial Liabilities Loans payable Accounts payable Accrued expenses Accrued interest payable Dividends payable Others: Due to NRDC Others Net financial assets (liabilities)

Financial Liabilities Loans payable Accounts payable Accrued expenses Accrued interest payable Dividends payable Others: Due to NRDC Others Net financial assets (liabilities)

31-Mar-2016 Unaudited 6 months to More than 12 months 12 months

Total

$175,008

$−

$−

$−

$175,008

11,740,079 −

− −

− −

− −

11,740,079 −

447,304

−

−

−

447,304

623,917 510,067 1,222,216 − 3,588 6,345 − $14,728,524

−

−

−

− − − 7,917,419 $7,917,419

909,011 − − − $909,011

− − 490,544 $490,544

623,917 510,067 1,222,216 909,011 3,588 6,345 8,407,963 $24,045,498

$2,141,616 − − 225,731

$14,430,419 − 800,768 2,307,586 −

$− − − − −

$101,280,158 − − − −

$115,710,577 2,141,616 800,768 2,307,586 225,731

− − $101,280,158 ($100,789,614)

49,267 10,536 $121,246,081 ($97,200,583)

49,267 10,536 $2,427,150 $12,301,374

On demand Financial Assets Financial assets at FVPL Loans and receivables: Cash and cash equivalents Short-term investments Accounts receivable: Consortium operator Electricity sales to Trans-Asia Receivable from affiliate Others Interest receivable Restricted cash

Less than 6 months

− − $17,538,773 ($9,621,354)

Less than 6 months

− − $− $909,011

31-Dec-2015 Audited 6 months to More than 12 months 12 months

Total

$156,231

$−

$−

$−

$156,231

14,714,797 −

17,821,808 −

− −

− −

32,536,605 −

975,511

−

−

−

975,511

1,726,101 − 3,752 6,727 − $17,583,119

− − − − 3,815,197 $21,637,005

− 879,782 − − − $879,782

− − − 490,544 $490,544

1,726,101 879,782 3,752 6,727 4,305,741 $40,590,450

$16,462,406 − − 221,151

$16,539,074 − 461,540 1,240,442 −

$− − − − −

$99,171,368 − − − −

$115,710,442 16,462,406 461,540 1,240,442 221,151

48,231 10,396 $16,742,184 $840,935

− − $18,241,056 $3,395,949

− − $− $879,782

− − $99,171,368 ($98,680,824)

48,231 10,396 $134,154,608 ($93,564,158)

The bulk of the loans payable will be settled from the proceeds from electricity sales.

- 63 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.

Equity Price Risk The Group closely monitors the prices of its securities on a daily basis, as well as macroeconomic and entity-specific factors which could directly or indirectly affect the prices of these instruments. In case of an expected decline in its portfolio of equity securities, the Group readily disposes or trades the securities for replacement with more viable and less risky investments.

Such investment securities are subject to price risk due to changes in market values of instruments arising either from factors specific to individual instruments or their issuers, or factors affecting all instruments traded in the market.

The analysis below is performed for reasonably possible movements in the PSE index (PSEi) with all other variables held constant, showing the impact on income before tax (due to changes in fair value of equity securities and golf shares whose fair values are recorded in the consolidated statements of income). The Group used the daily average of movements in PSEi price indices, plus adjusted betas for equity securities.

Equity securities Golf club shares

Equity securities Golf club shares

31-Mar-2016 Unaudited Impact on income before tax % Increase 7.80% $12,659 9.42% 1,188 $13,847

Decrease ($12,659) (1,188) ($13,847)

31-Dec-2015 Audited Impact on income before tax % Increase 7.87% $11,685 9.42% 1,201 $12,886

Decrease ($11,685) (1,201) ($12,886)

There is no other impact on the Group‟s equity other than those already affecting income before tax.

Foreign Exchange Risk Exposure to currency risk arises from general and administrative expenses, assets and liabilities in currencies other than the Group‟s functional currency which is very minimal since the Group‟s oil revenues and costs and expenses are denominated in US Dollar.

Currency risk is monitored and analyzed systematically and is managed by the Group.

The analysis below demonstrates the sensitivity to a reasonably possible change in the Philippine Peso exchange rate which is the only source of the Group‟s foreign exchange risk, with all other variables held constant, showing the impact on income before tax (due to changes in fair value of currency sensitive to financial assets and liabilities). The Group used the year-average forecast from the Business Monitor International in the analysis.

- 64 31-Mar-2016 (Unaudited) Increase/decrease Impact on income in Php rate before tax +3.26% $382,773 -3.26% (382,773) 31-Dec-2015 (Audited) Increase/decrease in Php rate +1.08% -1.08%

Impact on income before tax $97,218 (97,218)

There is no other impact on the Group‟s equity other than those already affecting income before tax.

Interest Rate Risk The Group‟s exposure to market risk for changes in interest rates relates primarily to the Group‟s loans payable and derivative liability. Interest rate of loans payable is fixed for the first five (5) years and will be repriced thereafter.

The table below demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group‟s net income. The Group used the forecasted one-year Treasury Bill rate in performing the analysis below.

Loans payable 31-Mar-2016 (Unaudited) Increase/decrease in interest rate (in basis points) +46 -46

Increase/decrease in interest rate (in basis points) +46 -46

Impact on income before tax ($1,738,094) 1,738,094 31-Dec-2015 (Audited) Impact on income before tax ($1,700,722) 1,700,722

Derivative liability 31-Dec-2015 Audited Increase/decrease in interest rate (in basis points) +5 -5

Impact on income before tax $21,792 (21,747)

There is no other impact on the Group‟s equity other than those already affecting income before income tax.

- 65 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 immaterial. The gross maximum exposure of the Group‟s credit risk is equal to the carrying amounts of the financial assets.

The table below shows the summary of maximum credit risk exposure on financial instruments as of March 31, 2016 and December 31, 2015: Unaudited 31-Mar-2016 Financial assets at FVPL: Marketable equity securities Golf club shares Loans and receivables: Short-term investments Cash in bank Accounts receivable: Consortium operator Electricity sales to Trans-Asia Electricity sales – WESM Fit price differential – TransCo Receivable from affiliate Others Interest receivable Restricted cash

Audited 31-Dec-2015

$162,637 12,371

$144,118 12,113

1,915,920 9,819,689

17,821,808 14,710,421

505,530 623,917 510,067 1,222,216 909,011 3,588 6,345 8,407,963 $24,099,554

1,032,511 1,726,101

879,782 3,752 6,727 4,305,741 $40,643,074

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. Both are neither past due nor impaired.

The tables below shows 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, 2016 and December 31, 2015:

- 66 -

Cash in banks Short-term investments Accounts receivable: Consortium operator Electricity sales to Trans-Asia WESM Fit price differential – TransCo Others Interest receivable Restricted cash

Cash in banks Short-term investments Accounts receivable: Consortium operator Electricity sales to Trans-Asia Receivable from affiliate Others Interest receivable Restricted cash

31-Mar-2016 Unaudited Neither past due nor impaired Past due High grade Standard grade and impaired $9,819,689 $‒ $‒ 1,915,920 ‒ ‒

Total $9,819,689 1,915,920

447,304

‒

58,226

505,530

623,917 510,067

‒ ‒

‒ ‒

623,917 510,067

1,222,216 3,588 6,345 8,407,963 $22,957,009

‒ ‒ ‒ ‒ $‒

‒ ‒ ‒ ‒ $58,226

1,222,216 3,588 6,345 8,407,963 $23,015,235

31-Dec-2015 Audited Neither past due nor impaired Past due High grade Standard grade and impaired $14,710,421 $− $− 17,821,808 − −

Total $14,710,421 17,821,808

975,511

−

57,000

1,032,511

1,726,101

−

−

1,726,101

879,782 3,752 6,727 4,305,741 $40,429,843

− − − − $−

− − − − $57,000

879,782 3,752 6,727 4,305,741 $40,486,843

The tables below show the aging analysis of the Group‟s receivables as of December 31, 2015. (For March 31, 2016 aging, please refer to notes to Accounts Receivable)

Accounts receivable Consortium operator Trans-Asia Receivable from affiliate Others Interest receivable

2015 1 to 90 days

Over 90 days

Total

$975,511 1,726,101 879,782 3,752 6,727 $3,591,873

$57,000 − − − − $57,000

$1,032,511 1,726,101 879,782 3,752 6,727 $3,648,873

As of March 31, 2016 and December 31, 2015, the Group has no past due receivables that are not impaired.

Past due and impaired receivable pertains to a long-outstanding receivable from a consortium member which is fully provided with allowance.

- 67 25. Segment Information For management purposes, the Group is organized into business units based on their products and has five 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 wind energy segment carries out the general business of generating, transmitting, and/or distributing power derived from wind energy sources. Starting 2015, this was not presented as operating segment as this became a joint venture in 2014. The Group take up its share in net earnings of PetroWind and presents it the consolidated statements of income under “Share in net income (loss) of a joint venture”.

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.

Segment revenue Net income (loss) Other comprehensive income Other Information: Segment assets except deferred tax assets Deferred tax assets - net Segment liabilities except deferred tax liabilities Deferred tax liabilities - net Provision for income tax Capital expenditures Deferred oil exploration costs Depletion, depreciation and amortization

Oil Geothermal Production Energy $1,053,659 $3,395,403 (737,910) 245,441 − −

31-Mar-2016 Unaudited Solar Other Energy Activities Elimination $1,960,753 $− $− 603,478 (137,928) 1,035,607 − − 843,740

Consolidated $6,409,815 1,008,688 843,740

$72,094,741 $306,909

$83,112,114 $−

$64,802,657 $−

$57,116,619 ($75,891,880) $201,234,251 $− $− $306,909

$11,166,347 $− $− $28,414 $16,569,495

$54,219,821 $− $− $871,290 $−

$66,096,506 $− $37,865 $2,121,541 $−

$25,450,841 ($14,779,945) $142,153,570 $1,659,404 $− $1,659,404 $−1,474 $− $39,339 $21,425 $− $3,042,670 $− $− $16,569,495

$666,074

$28,144

$−

$4,390

($81)

$698,527

- 68 -

Segment revenue Net income (loss) Other comprehensive income (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 income tax Capital expenditures Deferred oil exploration costs Depletion, depreciation and amortization

Oil Production $6,574,675 227,167 2,179

Geothermal Energy $16,967,907 4,563,174 −

$72,774,800 $306,910

$77,849,572 $−

$11,108,496 $49,804,941 $− $− ($83,941) $837 $1,390,775 $1,443,891 ($15,919,839) $− ($17,643,116)

($5,506,847)

31-Dec-2015 Audited Solar Other Energy Activities $− $− (402,956) 2,268,310 − −

Elimination Consolidated $− $23,542,582 (2,046,625) 4,609,070 (2,284,665) (2,282,486)

$88,192,978 $−

$59,760,285 $−

($61,754,005) $236,823,630 $− $306,910

$81,609,721 $− $− $57,541,841 $−

$28,625,871 ($18,020,555) $153,128,474 $1,624,496 $− $1,624,496 ($3,349,831) $− ($3,432,935) $22,252 ($20,501) $60,378,258 $− $− ($15,919,839) ($56,720)

($5,292)

($3,844) ($23,215,820)

Intercompany investments, revenues and expenses are eliminated during consolidation.

26. Basic/Diluted Earnings Per Share The computation of the Group’s earnings per share follows:

Net income attributable to equity holders of the Parent Company Weighted average number of shares Basic/diluted earnings per share

Unaudited 31-Mar-2016

Unaudited 31-Mar-2015

Audited 31-Dec-2015

$517,871 410,736,330 $0.0013

$104,605 273,824,220 $0.0004

$2,280,207 353,589,617 $0.00758

27. Noncontrolling Interests As of March 31, 2016 and December 31, 2015, noncontrolling interest (NCI) pertains to the 10% shareholdings of EEI-PC in PetroGreen, 35% shareholdings of Trans-Asia and PNOC in MGI and 44% shareholdings of EEI-PC in PetroSolar.

MGI, PetroSolar and PetroWind are entities incorporated and are operating in the Philippines.

As of March 31, 2016 and December 31, 2015, the accumulated balances of and net loss attributable to noncontrolling interests are as follows:

Accumulated balances of noncontrolling interests: MGI PetroGreen PetroSolar PetroWind

Unaudited 31-Mar-2016

Audited 31-Dec-2015

$10,117,896 3,451,439 3,239,955 $16,809,290

$9,861,430 3,312,057 2,868,638 − $16,042,125

- 69 Net income (loss) attributable to noncontrolling interests: MGI PetroGreen PetroSolar PetroWind

$85,904 139,382 265,531 490,817

$1,597,111 509,053 (177,301) − $1,928,863

As of December 31, 2015 the increase in noncontrolling interests from stock issuances follows:  As of December 31, 2015 PetroSolar issued 3,300,000 common shares with P100 par value.

The issuances increased the noncontrolling interest by P =163.68 million, PetroGreen also issued 55,250,000 shares which increased the noncontrolling interest by P =5.53 million.

28. Others a. The Interim Financial Report (March 31, 2016) 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, 2016 Consolidated Audited Financial Statements. c. No unusual item or items affected the assets, liabilities, equity and cash flows of the March 31, 2015 Financial Statements. d. Earnings per share is presented in the face of the unaudited statements of income for the period ended March 31, 2016 and December 31, 2015. e. No significant events happened during the quarter that will affect the March 31, 2016 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.

- 70 Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 1.

Consolidated Financial Condition (March 31, 2016 and March 31, 2015) As of March 31 (Unaudited) 2016

ASSETS Cash and cash equivalents

2015

% Change

% to Total Assets

$11,740,079

$4,400,677

166.78%

5.14%

175,008 3,722,448 158,253

171,212 3,871,738 382,455

2.22% -3.86% -58.62%

0.08% 1.63% 0.07%

10,982,372 145,619,679 16,569,495 28,797,590 31,417 306,909 10,216,070

6,745,572 79,355,165 19,546,768 28,291,776 31,417 166,241 6,416,811

62.81% 83.50% -15.23% 1.79% 0.00% 84.62% 59.21%

4.81% 63.78% 7.26% 12.61% 0.01% 0.13% 4.47%

TOTAl ASSETS LIABILITIES AND EQUITY

$228,319,320

$149,379,832

52.84%

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 Derivative liability Accrued retirement liability Deferred tax liabilities Other noncurrent liability TOTAL LIABILITIES

7,328,896 14,430,419 37,798 6,698,136 101,280,158 1,149,050 11,089,271 67,438 1,659,404 72,404 143,812,974

4,815,544 22,891,103 692 45,055,015 623,342 10,681,974 69,405 5,130,789 89,267,864

52.19% -36.96% 5362.14% 100.00% 124.79% 84.34% 3.81% -2.83% -67.66% 100.00% 61.10%

3.21% 6.32% 0.02% 2.93% 44.36% 0.50% 4.86% 0.03% 0.73% 0.03% 62.99%

67,697,056 16,809,290

50,337,686 9,774,282

34.49% 71.97%

29.65% 7.36%

$84,506,346 $228,319,320

$60,111,968 $149,379,832

40.58% 52.84%

37.01% 100.00%

Financial assets at fair value through profit or loss (FVPL) Receivables Crude oil inventory 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 $228.319 million and $149.380 million as of March 31, 2016 and March 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 166.78% net increase from US$4.401 million as of March 31, 2015 to US$11.740million as of March 31, 2016 is mainly due to:  remaining unused proceeds from the Stock Rights Offering (SRO), and remaining proceeds from the loan of PetroSolar to finance the Tarlac Solar Project.

- 71 Financial assets at fair value through profit and loss (FVPL) amounted to US$0.175 million and US$0.171 million as of March 31, 2016 and 2015, respectively. The 2.22% 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 amounted to US$3.722 million and $3.872 million as of March 31, 2016 and March 31, 2015, respectively. The 3.86% net decline is mainly due to lower outstanding receivables from crude oil lifting resulting from the low crude oil price.

Crude oil inventory pertains to PERC‟s share in the Etame Marine Permit (Gabon) ending inventory as of the first quarter. This amounted to US$0.158 million and US$0.382 million at the end of March 31, 2016 and 2015, respectively. The 58.62% decrease is due to lower number of barrels left unsold during the quarter and at a lower crude oil price.

Prepaid expenses and other current assets consist of advances to contractor, deferred financing costs, prepaid insurance, supplies inventory, refundable deposits, restricted cash and other prepayments. This account amounted to US$10.982 million and US$6.746 million as of March 31, 2016 and 2015, respectively. The bulk of the 68.81% net increase is mainly due to the following:  Set-up of MGI and PetroSolar‟s Debt Service Payment Account (DSPA);  Unused portion of proceeds from Stock Rights Offering held under escrow; and  Down payment to its contractor for the Solar Power Project.

Property, plant and equipment (PPE) is up by 83.50% from US$79.355 million as of March 31, 2015 to US$145.620 million as of March 31, 2016 mainly due to the development of the Solar Power Project and transfer of completed Etame Wells from deferred exploration costs to PPE-wells.

Deferred oil exploration cost amounted to US$16.569 million and US$19.547 million as of March 31, 2016 and 2015, respectively. The 15.23% decrease is due to the reclassification of completed wells from deferred costs to PPE wells.

Investment in a joint venture refers to the remaining 40% shareholdings in PWEI, the company that develops the Nabas Wind Power Project (NWPP). This account amounted to US$27.991 million and $28.798 million as of March 31, 2016 and as of March 31, 2015, respectively. The 1.79% net increase accounts for share in net income and translation adjustment from Peso to USD. Investment properties remained unchanged as of March 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$0.307million and US$0.166 million as of March 31, 2016 and 2015, respectively. The bulk of the 84.62% increase is relative to the movements of the accretion expense and crude oil inventory.

The group also recorded a $1.659 million and $5.131 million DTL as of March 31, 2016 and 2015, respectively, relative to PetroGreen‟s unrealized gain on re-measurement of investment. The 67.66% decrease pertains to the adjustment of the initial recognition of DTL for the unrealized re-measurement gain of PWEI shares. In December 31, 2015, the initial recognition of 30% tax rate for the unrealized gain on re-measurement in 2014 was corrected to 10% tax rate, because this pertains to future sale of shares not traded in the PSE. The change in tax rate decreased the DTL of the group.

- 72 Other non-current assets amounted to US$10.216 million and $6.417 million as of March 31, 2016 and March 31, 2015, respectively. This account consists of the non-current portion of advance rent, input vat carry overs, and restricted cash. The 59.21% increase is mainly due to the additional input taxes within the period and development costs for the Solar Power Project.

Accounts payable and accrued expenses amounted to US$7.329 million and US$4.816 million as of March 31, 2016 and 2015, respectively. The bulk of the 52.19% increase represents progress billings from suppliers/ contractors for the Solar Power Project and for the Maibarara Phase 2.

Majority of the current portion of loans payable as of March 31, 2016 and March 31, 2015 refers to loans payable of maturity not more than one (1) year; and the reclassification of non-current loans payable that are due within 1 year to current portion. The 36.96% net decline pertains to payment of loans.

The group’s income tax payable as of March 31, 2016 mainly refers to the PetroSolar‟s tax payable during the quarter (under PEZA rules). There are no taxes recorded for PERC because of negative income resulting from low crude oil price, for MGI, under its registration with the Board of Investments (BOI), it is subject to the 7 year income tax holiday. While as of March 31, 2015, income tax payable pertains to the Minimum Corporate Income Tax (MCIT) set-up due to low taxable income.

The deposit for future stock subscription as of March 31,2016 pertains to total consideration received from non-cotrolling 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.

The bulk of the 124.79% increase in loans payable – noncurrent pertains to the loan facility availed

by PetroSolar from PNB and DBP to finance the construction of the 50 MW Solar Power Project.

Asset Retirement Obligation amounted to US$1.149 million and US$0.623 million as of March 31, 2016 and March 31, 2015, respectively. The 84.34% increase in this account resulted from the additional abandonment costs estimate for the Etame Expansion.

The Group‟s derivative liability pertains to the payoff structure and put and call options over PetroWind shares. The 3.81% increase pertains to the additional set-up of derivative liability in December 31, 2015, as a result of the year-end audit.

Accrued retirement liability amounted to US$0.067 million and US$0.069 million as of March 31, 2016 and 2015, respectively. The 2.83% net decrease is due to additional funds deposited to the retirement fund.

Equity attributable to equity holders of the Parent Company amounted to US$67.697 million or 0.165 book value per share as of March 31, 2016 as compared to US$50.338 million or book value per share of US$0.184 as of March 31, 2015.

Non-controlling interest (NCI) as of March 31, 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 PetroSolar; While as of March 31, 2015, this pertains to the 25% share of Trans-Asia and the 10% share of PNOC-RC in Maibarara.

2.

- 73 Consolidated Results of Operations (For the quarter ending March 31, 2016 and March 31, 2015) % Change

% to Total Revenues

Unaudited 31-Mar-16 OIL REVENUES Oil Revenues Electricity Sales COST OF SALES Costs of Oil Revenues Oil production operating expenses Depletion Costs of Electricity Sales GROSS INCOME

$1,053,659 5,356,156 6,409,815

$1,543,554 4,264,770 5,808,324

-31.74% 25.59% 10.36%

13.91% 70.73% 84.64%

814,860 636,822 1,451,682 3,119,060 4,570,742 1,839,073

1,058,435 343,211 1,401,646 1,613,863 3,015,509 2,792,815

-23.01% 85.55% 3.57% 93.27% 51.57% -34.15%

10.76% 8.41% 19.17% 41.19% 60.36% 24.28%

619,625

913,511

-32.17%

8.18%

52,971 (52,453)

11,987 (29,352)

341.90% 78.70%

0.70% -0.69%

15,437 (1,246,382) (35,679) 47,863 1,046,823 (171,420)

8,162 (1,306,956) (14,697) 52,643 (68,070) (1,346,283)

89.13% -4.63% 142.76% -9.08% 1637.86% -87.27%

0.20% -16.46% -0.47% 0.63% 13.82% -2.26%

GENERAL AND ADMINISTRATIVE EXPENSES 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 loss of an Associate

31-Mar-15

INCOME BEFORE INCOME TAX

1,048,028

533,021

96.62%

13.84%

PROVISION FOR INCOME TAX

39,340

3,053

1188.57%

0.52%

$1,008,688

$529,968

90.33%

13.32%

$517,871 490,817

$104,605 425,363

395.07% 15.39%

6.84% 6.48%

$1,008,688

$529,968

90.33%

13.32%

$0.0013

$0.0004

230.05%

NET INCOME NET INCOME (LOSS) ATTRIBUTABLE TO: Equity Holders of the Parent Company Noncontrolling interest NET INCOME EARNINGS PER SHARE(EPS) FOR NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF T H E P A R E N T C O M P A N Y- B A S IC A N D D ILUT E D

Note: Differences in amounts are due to rounding off.

The Group generated net income (loss) attributable to equity holders of the Parent Company amounting to US$0.518 million or 0.0013 earnings per share and US$0.105 million or US$0.0004 EPS for the 1st quarter ended March 31, 2016 and 2015, respectively.

- 74 Revenues: Oil revenues declined by 31.74% from US$1.544 million for the 1st quarter of 2015 to US$1.054 million for the same quarter 2016. The decrease is mainly due to lower average crude oil price from an average of $49.44/ barrel to $29.69/barrel.

Electricity sales refer to the electricity power generated by MGPP and PetroSolar. The 25.59% increase is mainly due to start of commercial operations of PetroSolar on February 10, 2016.

Costs and Expenses: Oil production expenses (OPEX) decreased by 23.01% from $1.058 million as of March 31, 2015 to $0.815 million as of March 31, 2016 because of lower royalty (Gabon) expenses brought about by the decline in average crude oil price.

The 85.55% increase in depletion is due to reclassification of the costs of completed wells from deferred oil exploration costs to PPE-wells subject to depletion.

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 93.27% increase is mainly due to the following operating maintenance of the Solar project which started its commercial operations on February 10, 2016.

General and administrative expenses (G&A) decreased by 32.17% from US$0.914 million as of March 31, 2015 to US$0.619 million as of March 31, 2016. Higher G&A in 2015 resulted from the DST incurred by the Parent Company for the sale of 10% stake in PGEC to EEI PC, none in 2016.

Other income (charges) amounted to (US$0.171) million and (US$1.346) for the 1st quarter 2016 and 2015, respectively. Below is the itemized discussion of the changes in other income (charges) account.  341.91% net increase in interest income from US$0.0119 million as of March 31, 2015 to US$0.043 million as of March 31, 2016 due to higher Group‟s fund as a result of the SRO and additional loan drawdowns.  change in net realized loss on forex changes from US$0.029 million as of March 31, 2015 to US$0.052 million loss for the same period in 2016 due to fluctuations of Peso vs. US Dollar;  89.13% increase in net unrealized gain in changes in market values of investments in stocks traded at the PSE from US$0.008 million as of March 31, 2015 to US$0.015 million as of March 31, 2016 is due to positive market value movements of investments;  Interest expense amounted to US$1.246 million as of March 31, 2016 and US$1.307 million as of March 31, 2015. Interest during the period is 4.63% lower than last year due to partial payment of principal loans;  142.76% increase in accretion expense from US$0.015 million as of March 31, 2015 to US$0.036 million as of March 31, 2016 is mainly due to increase in the abandonment estimate.as adjusted in the 2015 year end audit;  9.08% decrease in miscellaneous income from US$0.053 million to US$0.048 million is due to the revised time-writing charges; and  share in net income of an associate amounted to US$1.047 million and (US$0.068) million for

- 75 the 1st quarter 2016 and 2015, respectively. The 450.97% upturn accounts to PWEI‟s recorded income during the quarter.

Provision for income tax for the 1st quarter 2016 represents PetroSolar‟s income tax under the 5% PEZA rules. While as of March 31, 2015, PERC and PGEC records only Minimum Corporate Income Tax (MCIT) since income from operations is only minimal. (Please refer to discussion of the Income Tax Payable) Non-controlling interest (NCI) as of March 31, 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 PetroSolar; While as of March 31, 2015, this pertains to the 25% share of Trans-Asia and the 10% share of PNOC-RC in Maibarara.

- 76 3. Financial Condition (March 31, 2016 and December 31, 2015) Unaudite

Audited % Change

% to Total Assets

31-Mar-16

31-Dec-15

$11,740,079

$32,536,605

-63.92%

5.14%

175,008 3,722,448 158,253

156,231 3,591,873 96,501

12.02% 3.64% 63.99%

0.08% 1.63% 0.07%

10,982,372 145,619,679 16,569,495 28,797,590 31,417 306,909 10,216,070

6,317,192 140,724,197 15,919,839 27,166,952 31,417 306,910 10,282,823

73.85% 3.48% 4.08% 6.00% 0.00% 0.00% -0.65%

4.81% 63.78% 7.26% 12.61% 0.01% 0.13% 4.47%

TOTAl ASSETS LIABILITIES AND EQUITY

$228,319,320

$237,130,540

-3.72%

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 Derivative liability Accrued retirement liability Deferred tax liabilities Other noncurrent liabilities TOTAL LIABILITIES

7,328,896 14,430,419 37,798 6,698,136 101,280,158 1,149,050 11,089,271 67,438 1,659,404 72,404 143,812,974

18,795,721 16,539,074 6,557,228 99,171,368 1,094,672 10,855,986 66,019 1,624,496 48,406 $154,752,970

-61.01% -12.75% 100.00% 2.15% 2.13% 4.97% 2.15% 2.15% 2.15% 49.58% -7.07%

3.21% 6.32% 0.02% 2.93% 44.36% 0.50% 4.86% 0.03% 0.73% 0.03% 62.99%

67,697,056 16,809,290

66,335,445 16,042,125

2.05% 4.78%

29.65% 7.36%

$84,506,346 $228,319,320

$82,377,570 $237,130,540

2.58% -3.72%

37.01% 100.00%

ASSETS Cash and cash equivalents Financial assets at fair value through profit or loss (FVPL) Receivables Crude oil inventory 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: Difference in amounts is due to rounding off.

Total assets amounted to $228.319 million and December 31, 2015, respectively.

$237.131 million as of March 31, 2016 and

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 63.92% net decrease from US$32.54 million as of December 31, 2015 to US$11.738 million as of March 31, 2016 is mainly due to payment of progress billings.

Financial assets at fair value through profit and loss (FVPL) amounted to US$0.175 million and US$0.156 million as of March 31, 2016 and December 31, 2015, respectively. The 12.02% net increase in this account is due to the positive changes in the market prices of the Company‟s investments in stocks.

- 77 The Receivables account mainly consists of receivables from lifting/sales of crude oil revenue and electricity sales. This account increased by 3.64% from US$3.592 as of December 31, 2015 to US$3.722 million as of March 31, 2016 due to higher outstanding receivable from electricity sales.

Crude oil inventory pertains to PERC‟s share in the Etame Marine Permit (Gabon) ending inventory.

This amounted to US$0.158 million and US$0.096 million at the end of March 31, 2016 and December 31, 2015, respectively. The 63.99% net increase is due to higher number of barrels left unsold as of March 31, 2016.

Prepaid expenses and other current assets consist of advances to contractor, deferred financing costs, prepaid insurance, supplies inventory, refundable deposits, restricted cash and other prepayments. This account amounted to US$10.982 million and US$6.317 million as of March 31, 2016 and December 31, 2015, respectively. The 73.85% net increase is mainly due to advances made for the contractors of the Tarlac Solar Power Project.

Property, plant and equipment (PPE) amounted to US$145.620 million and US$140.724 million as of March 31, 2016 and December 31, 2015, respectively. The 3.48% net increase is due to the construction of the Tarlac Solar Power Project.

Deferred oil exploration cost amounted to US$16.569 million and $15.920 as of March 31, 2016 and December 31, 2015, respectively. The 4.08% net increase is due to various expenses for the Etame Expansion activities in Gabon West Africa.

Investment in a joint venture refers to the remaining 40% shareholdings in PWEI. This amounted to US$27.991 million and to US$28.798 million as of March 31, 2016 and December 31, 2015, respectively. The 6% net increase mainly pertains to income generated within the quarter.

Investment properties remained unchanged as of March 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$0.307million as of March 31, 2016 and December 31, 2015.

The group also recorded a US$1.659 million and $1.624 million DTL as of March 31, 2016 and December 31, 2015, respectively, relative to PetroGreen‟s unrealized gain on re-measurement of investment. The 2.15% increase pertains to translation adjustment.

Other non-current assets amounted to US$10.216 and US$10.283 million as of March 31, 2016 and December 31, 2015, respectively.

Accounts payable and accrued expenses amounted to US$7.328 million and US$18.796 million as of March 31, 2016 and December 31, 2015, respectively. The 61.01% decrease mainly pertains to payment of outstanding payables/ progress billings during the quarter.

Current portion of loan payable posted as of March 31 2016 amounted to $14.430 million and $16.539 million as of December 31, 2015. The 12.75% decrease accounts for payment of loans.

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

The deposit for future stock subscription as of March 31,2016 and December 31, 2015 pertains to

- 78 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.

The 2.15% increase pertains to translation adjustment.

The 2.13% increase loans payable – noncurrent pertains to translation adjustment.

Asset Retirement Obligation amounted to US$1.149 million and US$1.095 million as of March 31, 2016 and as of December 31, 2015, respectively. The 4.97% increase in this account resulted from the amortization of the net present value of abandonment costs estimate.

As of March 31, 2016 and December 31, 2015, the Group‟s derivative liability amounted to US$11.089 million and US$10.856 million, respectively. The 2.15% increase is due to translation adjustment.

The minimal 2.15% increase in accrued retirement liability is due to translation adjustment.

Other non-current liabilities amounted to US$0.072 million and US$0.048 million as of March 31, 2016 and December 31, 2015, respectively.

Non-controlling interest (NCI) as of March 31, 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 PetroSolar; While as of March 31, 2015, this pertains to the 25% share of Trans-Asia and the 10% share of PNOC-RC in Maibarara.

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 will be 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-16 31-Dec-15 31-Mar-15 Current ratio Debt-to-equity ratio Asset-to-equity ratio Operating profit margin Asset turnover

0.94:1 1.7:1 2.7:1 28.69% 3.32%

1.02:1 1.88:1 2.88:1 44.64% 10.17%

0.56:1 1.49:1 2.49:1 48.08% 3.94%

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 a decrease in the group‟s current ratio as of March 31, 2016 compared to December 31, 2015 due to 37.28% decrease in current assets.

- 79 There is a decrease in the group‟s debt-to-equity ratio as of March 31, 2016 compared to December 31, 2015 mainly due to lower liabilities during the 1st quarter of 2016.

The asset-to-equity ratio indicates the group‟s leverage. This decreased because of the on-going expansion of the Group‟s projects.

There is lower operating profit margin as of March 31, 2016 compared to March 31, 2015 and December 31, 2015, mainly because of lower crude oil revenues brought about by decline in crude prices.

Lower asset turn-over within the quarter is mainly due to low crude oil revenues due to decline in crude oil prices.

5.

Discussion of indicators of the Company’s level of performance.

Productivity Program 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.

For the electricity sales, expansion of the Maibarara Geothermal Power Project will increase the power generation from 20 MW to 32 MW. Receivable Management The group‟s receivables are mainly due from sale of crude oil in Etame Gabon, through the consortium operator and sale of electricity to Trans-Asia (for the MGPP) and to Wholesale Electricity Spot Market (for the TSPP) . These are being recorded once sale is made. Payment is received every 30-45 days following each sale.

For the crude oil, for the thirteen (13) 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.

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 six (136) employees with multi-task assignments.

- 80 The Company‟s general and administrative expense is equivalent to 8.18% 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.

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 22.

- 81 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 2016 ranged from zero to 22,918 barrels of oil per day (BOPD). The fluctuations in the daily production were caused by the following: a) shutdown of Avouma due to rig operations, b) generator maintenance at Etame, and c) short power trips and process shutdowns at Avouma. From February 1521, 2016, all fields were shut-down for annual maintenance activities on all platforms and the FPSO. All fields resumed operations on February 21, 2016, with production levels reaching ~22,700 BOPD on higher choke sizes. Production rates stabilized to ~20,500 BOPD by the end of March.

Nonetheless, the Consortium managed to lift three (3) cargoes during the 1 st quarter of 2016 with volumes ranging from 350,000 – 605,000 bbls, under the new Crude Oil Sale Purchase and Services Agreement.

The drilling program for the Etame Expansion Project, which started in October 2014, concluded in late-January 2016 with two (2) workover programs at the Avouma platform. The EAVOM-3H workover was suspended on January 05, 2016 when the downhole ESP assembly became stuck in the hole and could not be recovered. Unsuccessful retrieval operations prompted VAALCO to temporarily plug the wellbore and skid to EAVOM-2H for its workover operations. Well EAVOM-2H was subject to replacement of two (2) effective ESPs in mid-January 2016, and was put back on-line on January 19, 2016 with ~3,000 BOPD. The Constellation II rig moved back to EAVOM-3H for abandonment operations on January 17, 2016, with the well cement-plugged on January 25, 2016.

The Etame Marin consortium, through a majority Vote by Notice signed by VAALCO and SASOL on January 25, 2016, decided not to drill the ET-9P well due to fear of potential over-expenditures associated with the current low oil price market. This early rig termination meant that the consortium would incur stacking costs to Transocean. On January 25, 2016, the rig demobilized from Avouma Platform towards Port Gentil. The rig arrived in Port Gentil on January 28, 2016, hence concluding the Etame Expansion drilling program.

Philippine Operations SC 6A – Octon, Northwest Palawan As part of the 2016 Work Program, interpretation of 1997 TQ3D lines to map the southern portion of the block is being done by Philodrill. Meanwhile, seismic reprocessing by DownUnder Geosolutions (DUG) is ~60% complete. Upon completion of seismic reprocessing, DUG will commence the Quantitative Interpretation (QI) work. QI work will increase the certainty in predicting the lithology and fluid content away from the wells. QI work is scheduled to be completed by end June 2016.

SC 14C2 – West Linapacan, Northwest Palawan On January 15, 2016, Operator The Philodrill Corporation sought Partners‟ approval of their proposed 2016 Work Program & Budget (WP&B) for SC 14C2, consisting of an ROV (remotely operated vehicle) downhole survey of the old West Linapacan wells in preparation for abandonment procedures.

- 82 The JV Partners agreed to instead reclassify the ROV survey as Contingent work program; while the on-going technical and commercial audit and other contractual and G&A works being the Firm scope for 2016. In doing so, the Consortium will then request DOE for a six-month suspension of the Service Contract.

SC 51 – East Visayan Basin On February 15, 2016, a meeting was held among the SC 51 JV Partners to discuss the current situation of the Service Contract after former Operator Otto Energy officially expressed its intention to leave the block. Trans-Asia informed the partners that the DOE is amenable to give clearance to Otto once the remaining partners assume all the rights and obligations under SC 51. In lieu of drilling a well, the partners would proposed a revised Work Program which will help determine if there are still other drillable prospects aside from the Duhat structure.

On March 30, 2016, interim Operator Trans-Asia presented to the DOE the revised Work Program for Subphase 5, which includes a firm scope of 1) a Pore Pressure study and 2) the conduct of a gravity survey, with a contingent drilling program. This revised Work Program has a 37-month duration.

During the meeting, the DOE expressed their agreement in granting a 42-month Force Majeure period to give the remaining Partners adequate time to implement the revised Work Program until November 2019.

The DOE will draft a letter to formalize the approval of the revised Work Program and the 42-month Service Contract extension. Trans-Asia will prepare the Deed of Assignment between Otto and JV Partners for DOE‟s approval.

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 47 – Offshore Mindoro 2015 SC 51 – East Visayan Basin 2015 SC 75 – Offshore Northwest Palawan 2020 Contract No.

Participating Interest % 2.525%

16.667% 4.137% 2.000% 4.012% 15.000%

Location Gabon Offshore

Northwest Palawan Northwest Palawan Offshore Mindoro 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.

- 83 B. RENEWABLE ENERGY PROJECTS Maibarara Geothermal Power Project The total net output exported to the grid to date since start of commercial operations on February 08, 2014 is at 312,981 MWh. On the Steamfield operations, both production wells, Mai-6D and MB-12D, were utilized at fully-open to maximize power plant performance. To manage the field‟s reinjection, MB-14RD, designed to accept the power plant condensates, was intermittently used as additional brine reinjection since January 11, 2016. To date, the production wells, Mai-6D and MB-12D, are maintained at fully-open condition.

On February 08, 2016, Thermochem submitted the official results of the December 2015 Tracer Flow Tests (TFT) to MGI. Based on the results, the combined steam flow of Mai-6D and MB-12D at their fully opened condition is equivalent to about 30 MW. Such increase on the total steam flow likely due to the increase in the mass flow of MB-12D. The MGPP had its first scheduled Preventive Maintenance Shutdown (PMS) from March 07–28, 2016 - the first major PMS since the plant‟s commercial operations in February 2014. In the Power Plant, major activities included: 1) overhauling/cleaning of the turbine and generator with Fuji Electric supervision, 2) cleaning of oil system including control oil pumps, 3) cooling water system cleaning from the condenser, pumps and cooling tower, 4) inspection and repairs on auxiliary equipment, 5) inspection and cleaning of switchyard, transformers and transmission lines.

In the steamfield, maintenance activities include: 1) inspection and thorough cleaning of the separator and reinjection pipeline with high-pressure water to remove silica scales, 2) replacement of master valve and wing valves of production well Mai6D, and 3) downhole survey of wells MB-15D, Mai-6D and MB-12D conducted by a third-party contractor, Scientific Drilling Inc. (SDI).

The MGI team completed all shutdown activities as programmed. The power plant was synchronized to the grid on March 29, 2016 at 5:16 AM and resumed normal full load 20MW gross output by 7:15 AM, about 12 hours ahead of the original schedule.

Nabas Wind Power Project From January 01 to March 31, 2016, the total net energy exported to the grid is 35.04 GWh for the Project‟s Phase 1, with revenue of PhP 259.22 MM based on the FiT price of PhP 7.40/kWh. The remaining signal integrity test for the completion of Variable Renewable Energy (VRE) test required by NGCP was completed on February 23, 2016. The remaining final verification of the reactive power capability test (MVAR) reading, which was originally scheduled by first week of March 2016, was moved to first week of April 2016 by the National Grid Corporation of the Philippines (NGCP).

For the Operations and Maintenance (O&M), repair of WTG 12 bolts was completed on February 03, 2016. Gamesa proceeded with the remaining task in the 3-month (3M) maintenance. As of end-March, Gamesa finished 2 out of 18 WTGs for the 3M. The remaining 16 WTGs are expected to be finished by third week of April.

- 84 Tarlac Solar Power Project Phesco Inc, the onshore construction contractor, has completed all works on the solar farm on January 11, 2016, while Media Construction finished the TSPP Control Building on March 02, 2016.

On January 19, 2016, energization activities for the TSPP commenced when NGCP and TARELCO shut its 69-kV Tarlac City line to allow PetroSolar to tap into the 69-kV line. The TSPP was registered to the Wholesale Energy Spot Market (WESM) on January 21, 2016. From January 20-21, 2016, the TSPP Switching Station and Switchyard transformers were energized, soaking the transformer system with feedback power for ~12 hours. Energization of the telecommunication system, remote terminal unit (RTU), SCADA, Power Plant Controller, Switchgear and Solar Inverters started on January 27, 2016. On the same day, PetroSolar secured the NGCP Provisional Approval to Connect. This prompted PetroSolar and NGCP to successfully synchronize the TSPP to the Luzon grid at 4:10 PM of January 27, 2016.

After the TSPP‟s successful synchronization to the grid, the DOE and Energy Regulatory Commission (ERC) conducted their site validations of the plant‟s successful commissioning on February 02-03 and February 11-12, respectively. On March 07, 2016, the DOE issued the Certificate of Endorsement for FiT Eligibility (COE-FiT) for the TSPP, confirming the TSPP‟s start of Commercial Operations on February 10, 2016. The DOE‟s COE-FiT was endorsed to the ERC, with the ERC issuing a Provisional Authority to Operate – FiT (PAO-FiT) to the TSPP on March 30, 2016. ERC will issue the TSPP‟s Certificate of Compliance - FiT (COC-FiT) once it issues its approval of TSPP‟s Dedicated Point-to-Point Limited Transmission Facility.

From the TSPP‟s Commercial Operations date of February 10, 2016 until March 31, 2016, the total net energy exported to the grid is 10,376.65 MWh, with total revenue of PhP 90.173 MM based on the FiT price of PhP 8.69/kWh.

Plan of operations for the next 12 months: 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 resume the technical and commercial audit of RMA's past works, alongside soliciting tenders and firming up the operations for the ROV survey to be carried out in the West Linapacan block.

SC 47 - Offshore Mindoro and Panay The consortium is still awaiting the DOE's approval of the relinquishment of the block. After which, the block will be opened up for bidding should it be included in a future license bid round.

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.

Gabon, West Africa Crude production will continue from the existing wells.

- 85 Maibarara Geothermal Power Project Production will continue. Expansion activities will be carried on this year (i.e. pad preparation, drilling of RI well MB-17RD, T/G manufacturing, civil works, etc.).

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. Preparations for Tarlac Phase-2 are ongoing.

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).

- 86 -

PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION AND DISCLOSURES REQUIRED ON SRC RULE 68 AS AMENDED MARCH 31, 2016 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 Company. 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 $0.175 million do not constitute 5% or more of the total current assets of the group as at March 31, 2016.

Schedule B. Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related Parties) As of March 31, 2016 there are no amounts receivable from directors, officers, employees, related parties and principal stockholders that aggregates each to more than ₱100,000 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, 2016:

Name and Designation of debtor PetroGreen Energy Corporation Maibarara Geothermal, Inc. PetroSolar NRDC*

Balance at beginning of period ($10) 722,482 6,873 (48,231) $681,114

Additions $5,109 62,691 28,734 − $96,534

Amounts collected $5,099 28,679 35,492 − $69,270

Amounts written off $− − − − $−

Balance at Not Current end of period $− $− − 804,118 − 115 − (49,267) $− $123,119

*Difference is due to foreign exchange differences.

Transactions with other related parties outside the Group.

Please refer to Note 21.

Schedule D. Intangible Asset The Group has an insignificant amount of intangible assets as of December 31, 2015 amounting to $3,376,399. Bulk of the intangible asset pertains to the land rights acquisition of PetroSolar.

- 87 Schedule E. Long-term Debt Please refer to the Consolidated Audited Financial Statement, Note 17 for details of the loans.

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, 2016.

Schedule G. Guarantees of Securities of Other Issuers The Group does not have guarantees of securities of other issuers as of March 31, 2016.

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 410,736,330

Number of Shares reserved for options, warrants, conversion and other rights −

Number of shares held by related parties 92,029,566

Directors, Officers and Employees Others 3,483,839 315,222,925

- 88 -

PETROENERGY RESOURCES CORPORATION AND SUBSIDIARIES SCHEDULE OF FINANCIAL SOUNDNESS INDICATORS AS OF MARCH 31, 2016 Financial Soundness Indicators Below are the financial ratios that are relevant to the Group for the year ended March, 31, 2016, March 31, 2015 and December 31, 2015:

Financial ratios Current ratio

Total current assets Total current liabilities

Unaudited 31-Mar-16

31-Mar-15

Audited 31-Dec-15

0.94:1

0.56:1

1.02:1

0.02:1

0.01:1

0.06:1

1.7:1

1.49:1

1.88:1

2.7:1

2.49:1

2.88:1

1.84:1

1.41:1

1.24:1

$0.0013

$0.0004

$0.01

After tax net profit + depletion Solvency ratio

and depreciation Long-term + liabilities

Debt-to-Equity Ratio

short-term

Total Liabilities Total Stockholder's equity

Asset-to-Equity Ratio

Total Assets Total Stockholder's equity

Interest rate coverage ratios

Earnings before interest and taxes (EBIT) Interest expense Net income Attributed to Parent Company Weighted average no. of shares

Earnings per share

Price Earnings Ratio

Closing price Earnings per share

P62.11

P339.66

P9.79

Return on revenue

Net income Total revenue

13.32%

9.01%

19.12%

1.36:1

1.02:1

1.37:1

6.69

0.99

2.14

Long term equity ratio

debt-to-

Long term debt Equity

EBITDA to interest paid

total

EBITDA* Total interest paid

*Earnings before interest, taxes, depreciation and amortization (EBITDA)

- 89 -

PETROENERGY RESOURCES CORPORATION RECONCILIATION OF RETAINED EARNINGS DIVIDEND DECLARATION MARCH 31, 2016

Unappropriated Retained Earnings, Beginning Prior year adjustments: Unrealized foreign exchange gain - net Unrealized actuarial gains Unrealized MTM gain on FVPL Movement in deferred tax assets Unappropriated Retained Earnings, as adjusted January 1, 2016 Net loss based on the face of unaudited financial statements Less: Non-actual/unrealized income net of tax Equity in net income of an associate/JV Unrealized foreign exchange loss - net (except those attributable to cash and cash equivalents) Unrealized actuarial gain Fair value adjustment (marked-to-market gains) Fair value adjustment of investment properties resulting to gain Adjustment due to deviation from PFRS/GAAP - gain Other unrealized gains or adjustments to the retained earnings as a result of certain transactions accounted for under PFRS Add: Non-actual/unrealized losses net of tax Depreciation on revaluation increment Adjustment due to deviation from PFRS/GAAP - loss Loss on fair value adjustment of investment properties Movement in deferred tax assets Net income actual/realized Less: Dividend declarations during the quarter Appropriations during the quarter Total Parent Company Unappropriated Retained Earnings Available For Dividend Distribution, March 31, 2016

AVAILABLE

FOR

$13,827,619 (251,494) (5,779) (75,498) (402,799) 13,092,049 (737,910) − − 215,678 − (15,437) − − − − − − − − 537,669 − − $12,554,380

- 90 -

PETROENERGY RESOURCES CORPORATION REPORT ON SRO PROCEEDS MARCH 31, 2016 On December 05, 2014, the BOD approved a 2:1 Stock Rights Offering (SRO). The SRO was undertaken during the period May 11 to 15, 2015. The proceeds of the SRO amounted to Php 599.675 million or US$12.83 million.

As disclosed in the Prospectus the Company expects to raise gross proceeds of approximately PhP599.675 million or US$12.83 million and after deducting listing, registration fees related to the offer of PhP592.459 million or US$ 12.676 million.

The proceeds from the SRO will be used to partially fund the expansion, construction and developmeny of PERC‟s renewable enery projects: the 10 MW Phase 2 of the MGPP (Maibarara 2) and Solar Power Project, as well as the expansion of the Etame Project in Gabon, West Africa.

The table below shows the gross and net proceeds; each expenditure item where the proceeds were used.

Proceeds from the Stock Rights Offering Gross Proceeds Less: Listing and Registration Fees

PhP599,675,043 5,072,677

Net Proceeds

PhP594,602,366 2015

Less: Expenditures A. Etame Expansion - Drilling of Wells B. Maibarara Geothermal Project - Phase 2 Well Cost Power Plant Fluid Collection & Reinjection System Insurance G&A and Other Costs Financing Costs

142,202,469

96,716,946 29,567,463 470,065 1,480,774 5,165,882 58,500 133,459,630

C. Tarlac Solar Power Project Various Previously Reported Expenses 174,673,326 Total Expenses Allocated to Proceeds

450,335,425

Remaining proceeds as of March 31, 2016 Remaining proceeds as of March 31, 2016 in USD

2016 1st Quarter -

164,890 9,904,959 472,954 1,679,013 117,000 12,338,816

12,338,816

Total

142,202,469

96,881,836 39,472,422 943,019 1,480,774 6,844,895 175,500 145,798,446

174,673,326 462,674,241 PhP131,928,125 $2,863,645

- 91 -

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, 2016: PETROENERGY RESOURCES CORPORATION GROUP STRUCTURE PetroEnergy Resources Corporation

90% PetroGreen Energy Corporation

65% Maibarara Geothermal, Inc.

56% PetroSolar Corporation

40%* PetroWind Energy, Inc.

SIGNATURES

Pursuant to the requirements ofthe Securities Regulation Code, the registrant has duly caused this feport to be signed on behalfofthe undersigned thereunto duly authorized.

PETROf, NERGY RESOURCES COUONATION

Registrant

Signature and

Tille

Milagr

Signature and Title

coao,o?.'i\') -.l.rirtant vice President

Date

MAf

\.I

D.,

-o11,

ror liinance