May 31, 2019 PHILIPPINE STOCK EXCHANGE, INC ...

May 31, 2019

PHILIPPINE STOCK EXCHANGE, INC. Disclosure Department 6th Floor, PSE Tower 28th Street corner 5th Avenue BGC, Taguig City

Attention: Ms. Janet A. Encarnacion Head, Disclosure Department PHILIPPINE DEALING & EXCHANGE CORP. 37th Floor, Tower 1, The Enterprise Center 6766 Ayala Avenue cor. Paseo de Roxas Makati City Attention: Atty. Joseph B. Evangelista Head - Issuer Compliance and Disclosure Department Gentlemen:

Further to our earlier disclosures dated May 30, 2019 and May 31, 2019 relating to the public offering of the perpetual preferred shares Series 3 of Petron Corporation, please find enclosed the Final Prospectus therefor dated May 30, 2019.

Very truly yours,

JOEL ANGELO C. CRUZ VP - General Counsel & Corporate Secretary

PETRON CORPORATION (a company incorporated under the laws of the Republic of the Philippines)

Offer in the Philippines of

15,000,000 Perpetual Preferred Shares Series 3 with Oversubscription Option of up to

5,000,000 Perpetual Preferred Shares Series 3 consisting of

Series 3A Preferred Shares (PRF3A): 6.8713% p.a. Series 3B Preferred Shares (PRF3B): 7.1383% p.a. at an Offer Price of ₱1,000.00 per Preferred Share

to be listed and traded on the Main Board of The Philippine Stock Exchange, Inc.

JOINT ISSUE MANAGERS, JOINT LEAD UNDERWRITERS AND JOINT BOOKRUNNERS1

CO-LEAD UNDERWRITER

SELLING AGENTS Trading Participants of The Philippine Stock Exchange, Inc.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE AND SHOULD BE REPORTED IMMEDIATELY TO THE SECURITIES AND EXCHANGE COMMISSION.

This Final Prospectus is dated 30 May 2019.

1 BPI Capital Corporation, one of the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, is the wholly-owned investment banking subsidiary of Bank of the Philippine Islands which is the bank which the Issuer intends to repay using a portion of the proceeds of the Offer.

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Petron Corporation SMC Head Office Complex 40 San Miguel Avenue Mandaluyong City, Philippines Telephone number: (632) 884-9200 Corporate website: www.petron.com

This Final Prospectus relates to the offer and sale of up to 20,000,000 cumulative, non-voting, non-participating, non-convertible peso-denominated Perpetual Preferred Shares Series 3 with a par value of ₱1.00 per share (the “Preferred Shares” or “Offer Shares”) of Petron Corporation (“Petron”, the “Company” or the “Issuer”), a corporation duly organized and existing under Philippine law. The offer and sale of the Preferred Shares will be by way of an offer of 15,000,000 Preferred Shares (the “Offer”). In the event of an oversubscription, the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, in consultation with the Company, reserve the right, but do not have the obligation, to increase the Offer size up to an additional 5,000,000 Preferred Shares, subject to the registration requirements of the Securities and Exchange Commission (“SEC”) (the ”Oversubscription Option”). The Preferred Shares are to be issued in one or more subseries: Series 3A Preferred Shares and Series 3B Preferred Shares, at a subscription price of ₱1,000.00 per share (the “Offer Price”). As of March 31, 2019, the Company has issued 10,000,000 preferred shares consisting of (a) 7,122,320 outstanding Preferred Series 2A (the “Series 2A Preferred Shares”), (b) 2,877,680 outstanding Preferred Series 2B (the “Series 2B Preferred Shares”, and together with Series 2A Preferred Shares, the “Outstanding Preferred Shares”) and (b) 100,000,000 treasury shares. The Preferred Shares will be issued out of the treasury shares of the Company. The Preferred Shares are being offered for sale solely in the Philippines through BDO Capital & Investment Corporation (“BDO Capital”), BPI Capital Corporation (“BPI Capital”), China Bank Capital Corporation (“China Bank Capital”), and PNB Capital and Investment Corporation (“PNB Capital” and together with BDO Capital, BPI Capital, and China Bank Capital, the “Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners”), and Co-Lead Underwriter, and selling agents named herein. In the event that Oversubscription Option is exercised, the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, in consultation with the Issuer, have the discretion to allocate the Oversubscription Option of up to 5,000,000 Preferred Shares in either Series 3A Preferred Shares or Series 3B Preferred Shares at the end of the Offer Period. The Preferred Shares will be listed on the Main Board of The Philippine Stock Exchange, Inc. (“PSE”) on 25 June 2019 (“Listing Date”) under the trading symbol “PRF3A” for the Series 3A Preferred Shares and “PRF3B” for the Series 3B Preferred Shares. Following the Offer, the Company will have (a) 9,375,104,497 common shares and (b) 25,000,000 preferred shares issued and outstanding, and (c) 85,000,000 treasury preferred shares, if the Oversubscription Option is not exercised. On the other hand, if the Oversubscription Option is exercised in full, the Company will have (a) 9,375,104,497 common shares and (b) 30,000,000 preferred shares issued and outstanding, and (c) 80,000,000 treasury preferred shares. Furthermore, following the redemption of the Series 2A Preferred Shares and assuming that the Oversubscription Option is not exercised, the Company will have (a) 9,375,104,497 issued and outstanding common shares and (b) 17,877,680 issued and outstanding preferred shares, exclusive of 92,122,320 treasury shares. On the other hand, if the Oversubscription Option is exercised in full and after the redemption of the Series 2A Preferred Shares, the Company will have (a) 9,375,104,497 issued and outstanding common shares and (b) 22,877,680 issued and outstanding preferred shares, exclusive of 87,122,320 treasury shares. The holders of the Preferred Shares do not have identical rights and privileges with holders of the existing common shares and existing preferred shares of the Company. Any and all preferred shares of the Corporation shall have preference over common shares in dividend distribution and in case of liquidation or dissolution. For further discussion on the rights and privileges of the Preferred Shares, please refer to the section on “Description of the Preferred Shares”. The declaration and payment of cash dividends on the Preferred Shares on each Dividend Payment Date (as defined below) will be subject to the sole and absolute discretion of the Issuer’s Board of

http://www.petron.com/

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Directors (the “Board”) to the extent permitted by law, and subject to the covenants (financial or otherwise) in the agreements to which the Company is a party. The declaration and payment of dividends (except stock dividends) do not require any further approval from the shareholders. Some of the Company’s existing loan agreements contain covenants that restrict the declaration or payments of dividends under certain circumstances, such as the occurrence of an event of default under such loan agreements or if such payment would cause an event of default to occur, if certain financial ratios are not met or payment would cause them not to be met. See “Description of the Preferred Shares”. As and if declared by the Board, dividends on the Series 3A Preferred Shares shall be at a fixed rate of 6.8713% per annum, and 7.1383% per annum for Series 3B Preferred Shares, in all cases calculated in respect of each share by reference to the Offer Price thereof for each Dividend Period (as defined below) (each, the “Initial Dividend Rate” for the relevant subseries). Subject to the limitations described in this Prospectus, cash dividends on the Preferred Shares will be payable quarterly in arrears on March 25, June 25, September 25 and December 25 of each year (each a “Dividend Payment Date”) being the last day of each 3-month period (a “Dividend Period”) following the relevant Listing Date. Unless the Preferred Shares are redeemed by the Issuer on, in respect of the Series 3A Preferred Shares, the 5.5th anniversary of the Listing Date (the “Series 3A First Optional Redemption Date”) and in respect of Series 3B Preferred Shares, the 7th anniversary of the Listing Date (the “Series 3B First Optional Redemption Date”) or on the next Business Day in case each of the First Optional Redemption Date falls on a non-Business Day, the dividends on each subseries will be adjusted as follows: (a) For the Series 3A First Optional Redemption Date, the higher of the (a) applicable Initial

Dividend Rate; or (b) the simple average of the closing per annum rates of the 7-year BVAL (or if the 7-year BVAL is not available or cannot be determined, any such successor rate as determined by the Bankers Association of the Philippines (“BAP”) or the Bangko Sentral ng Pilipinas (“BSP”)), as shown on the PDEX page (or such successor page) of Bloomberg (or such successor electronic service provider) for three consecutive days ending on (and including) the 5.5th anniversary from Listing Date, plus 3.25% (the “PRF3A Step Up Rate”); and

(b) For the Series 3B First Optional Redemption Date, the higher of the (a) applicable Initial

Dividend Rate; or (b) the simple average of the closing per annum rate of the 10-year BVAL (or if the 10-year BVAL is not available or cannot be determined, any such successor rate as determined by the BAP or the BSP, as shown on the PDEX page (or such successor page) of Bloomberg (or such successor electronic service provider) for three consecutive days ending on (and including) the 7th anniversary from Listing Date, plus 3.25% (the “PRF3B Step Up Rate”).

Provided, that in the event the relevant Series 3A or Series 3B First Optional Redemption Date falls on day that is not a Business Day. (a) the rate setting will be done on the immediately succeeding Business Day using the average of

the relevant BVAL rates for the three (3) consecutive Business Days preceding and inclusive of the said rate setting date; and

(b) the higher of the applicable initial Dividend Rate and the applicable Step-Up Rate will be applied commencing on the Step-Up Date (which is the 5.5th anniversary date of the Series 3A Preferred Shares, and the 7th anniversary of the Series 3B Preferred Shares).

(each of the PRF3A Step Up Rate and the PRF3B Step Up Rate being a “Step Up Rate”) See “Summary of the Offering”. Dividends on the Preferred Shares will be cumulative. If for any reason the Issuer’s Board does not declare dividends on the Preferred Shares for a Dividend Period, the Issuer will not pay dividends on the Dividend Payment Date for the Dividend Period. However, on any future Dividend Payment Date on which dividends are declared, holders of the Preferred Shares must receive the dividends due them on such Dividend Payment Date as well as all dividends accrued and unpaid to the holders of the Preferred Shares prior to such Dividend Payment Date. See “Description of the Preferred Shares”.

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As and if approved by the Board (or the Executive Committee), the Issuer may redeem the Preferred Shares as follows: (a) in whole (not in part) the Series 3A Preferred Shares on the Series 3A First Optional

Redemption Date or on any Dividend Payment Date thereafter (each of the Series 3A First Optional Redemption Date and the Dividend Payment Dates thereafter, a “Series 3A Optional Redemption Date”); and

(b) in whole (not in part), the Series 3B Preferred Shares on the Series 3B First Optional Redemption Date or on any Dividend Payment Date thereafter (each of the Series 3B First Optional Redemption Date and the Dividend Payment Dates thereafter, a “Series 3B Optional Redemption Date”)

(each Series 3A Optional Redemption Date and Series 3B Optional Redemption Date, an “Optional Redemption Date”), after giving not less than 30 nor more than 60 days’ prior written notice to the intended date of redemption, at a redemption price (the “Redemption Price”) equal to the relevant Offer Price of the Preferred Shares plus all dividends due them on such Optional Redemption Date as well as all Arrears of Dividends after deduction of transfer costs customarily chargeable to stockholders, as applicable, to effect the redemption. Such notice to redeem shall be deemed irrevocable upon issuance thereof. For the avoidance of doubt, on the applicable Optional Redemption Date, the Issuer has the option to redeem, in whole but not in part, any or both of the subseries. In the event an Optional Redemption Date which the Issuer has chosen as the date to redeem any or both of the subseries falls on a day that is not a Business Day, the redemption shall be made on the next succeeding day that is a Business Day, without adjustment as to the Redemption Price and the amount of dividends to be paid. The Issuer may also redeem the Preferred Shares, in whole but not in part, at any time prior to any Optional Redemption Date if an Accounting Event or a Tax Event (each as defined below) has occurred and is continuing, having given not more than 60 nor less than 30 days’ notice prior to the intended date of redemption. The redemption due to an Accounting Event or a Tax Event shall be made by the Issuer at the Redemption Price which shall be paid within five (5) Business Days of the exercise of the right to redeem the Preferred Shares. Each Preferred Share has a liquidation right equal to the Offer Price of the Preferred Share plus an amount equal to any dividends declared but unpaid in respect of the previous dividend period and any accrued and unpaid dividends for the then current dividend period to (and including) the date of commencement of the Company’s winding up or the date of any such other return of capital, as the case may be (the “Liquidation Right”). Upon listing on the PSE, the Issuer reserves the right to purchase the Preferred Shares at any time in the open market or by public tender or by private contract at any price through PSE without any obligation to purchase or redeem the other Preferred Shares. The Preferred Shares so purchased may either be redeemed (pursuant to their terms and conditions as set out in this Prospectus) and cancelled or kept as treasury shares, as applicable. All payments in respect of the Preferred Shares are to be made free and clear of any deductions or withholding for or on account of any present or future taxes or duties imposed by or on behalf of the Government of the Republic of the Philippines (the “Government”), including, but not limited to, stamp, issue, registration, documentary, value added or any similar tax or other taxes and duties, including interest and penalties. If such taxes or duties are imposed, the Issuer will pay additional amounts so that the holders of Preferred Shares will receive the full amount of the relevant payment which otherwise would have been due and payable, provided, however, that the Issuer shall not be liable for (a) any withholding tax applicable on dividends earned or on any amounts payable to the holders of the Preferred Shares, including any additional tax on such dividends imposed by changes in law, rule, or regulation; (b) any income tax (whether or not subject to withholding); percentage tax (such as stock

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transaction tax), documentary stamp tax or other applicable taxes on the redemption (or receipt of the redemption price) of the Preferred Shares or on the liquidating distributions as may be received by a holder of the Preferred Shares; (c) any expanded value added tax which may be payable by any holder of the Preferred Shares on any amount to be received from the Issuer under the terms and conditions of the Preferred Shares; (d) any withholding tax, including any additional tax imposed by change in law, rules, or regulation, on any dividend payable to any holder of the Preferred Shares or any entity which is a non-resident foreign corporation; and (e) any applicable taxes on any subsequent sale or transfer of the Preferred Shares by any holder of the Preferred Shares which shall be for the account of the said holder (or the buyer in case such buyer shall have agreed to be responsible for the payment of such taxes). In the event payments in respect of the Preferred Shares become subject to additional withholding or any new tax as a result of certain changes in law, rule or regulation, or in the interpretation thereof, and such tax cannot be avoided by use of reasonable measures available to the Issuer, the Issuer, having given not more than 60 nor less than 30 days’ notice, may redeem any subseries of the Preferred Shares at any time in whole but not in part, at the Offer Price plus all accrued and unpaid dividends, if any (“Redemption by reason of Tax Event”). See “Summary of the Offering” and “Description of the Preferred Shares”. Documentary stamp tax for the issuance of the Preferred Shares and the documentation, if any, shall be for the account of the Issuer. In the event an opinion of a recognized accountancy firm authorized to perform auditing services in the Republic of the Philippines has been delivered to the Issuer stating that the Preferred Shares may no longer be recorded as equity in the audited consolidated financial statements of the Issuer prepared in accordance with Philippine Financial Reporting Standards (“PFRS”), or such other accounting standards which succeed PFRS as adopted by the Issuer for the preparation of its audited consolidated financial statements for the relevant financial year, and such event cannot be avoided by use of reasonable measures available to the Issuer, the Issuer having given not more than 60 nor less than 30 days’ notice, may redeem any subseries of the Preferred Shares in whole, but not in part at the Redemption Price (“Redemption by reason of an Accounting Event”). See “Summary of the Offering” and “Description of the Preferred Shares”. The Preferred Shares will constitute direct and unsecured subordinated obligations of the Issuer ranking at least pari passu in all respects and ratably without preference or priority among themselves. The Preferred Shares will be subordinated to the US$500 million Senior Perpetual Capital Securities of the Company issued in 2018 (“Capital Securities”) and any future Senior Capital Securities issued by the Company. See “Summary of the Offering” and “Description of the Preferred Shares”. The Preferred Shares will be issued in scripless form. Title to the Preferred Shares shall pass by endorsement and delivery to the transferee and registration in the registry of shareholders to be maintained by SMC Stock Transfer Service Corporation, the Registrar and Stock Transfer Agent. Settlement of the Preferred Shares in respect of such transfer or change of title of the Preferred Shares, including the settlement of documentary stamp taxes, if any, arising from subsequent transfers, shall be similar to the transfer of title and settlement procedures for listed securities in the PSE. See “Summary of the Offering”. The gross proceeds of the Offer shall be ₱15,000,000,000.00 or, should the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, in consultation with the Issuer, exercise in full its Oversubscription Option, ₱20,000,000,000.00. The net proceeds from the Offer, after deducting from the gross proceeds the total issue management, underwriting and selling fees, listing fees, taxes and other related fees and out-of-pocket expenses, is estimated to be ₱14.87 billion or, should the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, in consultation with the Issuer, exercise in full its Oversubscription Option, ₱19.84 billion, and will be used by the Company primarily for the redemption of the outstanding Series 2A Preferred Shares of the Company, repayment of outstanding short-term loans and for general corporate purposes. BDO Capital, BPI Capital, China Bank Capital, and PNB Capital, acting as Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, shall receive an estimated fee of 0.55% of the gross proceeds of the Offer, inclusive of amounts to be paid to the Co-Lead Underwriter and selling agents.

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No dealer, salesman or any other person has been authorized to give any information or to make any representation not contained in this Prospectus. If given or made, any such information or representation must not be relied upon as having been authorized by the Company, the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners or the Co-Lead Underwriter and selling agents. The Company owns land as identified in “Description of Property” on page 112. In connection with the ownership of private land, the 1987 Philippine Constitution states that no private land shall be transferred or conveyed except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least 60% of whose capital is owned by such citizens. Pursuant to regulations, for as long as the percentage of Filipino ownership of the Company’s capital stock is at least 60% of (i) the total shares outstanding and voting shares and (ii) the total number of outstanding shares, whether or not entitled to vote, the Company shall be considered as a Filipino-owned corporation qualified to own land. The distribution of this Prospectus and the offer and sale of the Preferred Shares may, in certain jurisdictions, be restricted by law. The Company and the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners require persons into whose possession this Prospectus comes, to inform themselves of and observe all such restrictions. This Prospectus does not constitute an offer of any securities, or any offer to sell, or a solicitation of any offer to buy any securities of the Company in any jurisdiction, to or from any person to whom it is unlawful to make such offer in such jurisdiction. Unless otherwise stated, the information contained in this Prospectus has been supplied by the Company. To the best of its knowledge and belief, the Company (which has taken all reasonable care to ensure that such is the case) confirms that the information contained in this Prospectus is correct, and that there is no material misstatement or omission of fact which would make any statement in this Prospectus misleading in any material respect. The Company hereby accepts full and sole responsibility for the accuracy of the information contained in this Prospectus and in the listing application and all documents submitted to the PSE. The Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners have exercised due diligence required by law in ascertaining that all material representations contained in the Prospectus, and any amendment or supplement thereto are true and correct and that no material information was omitted, which was necessary in order to make the statements contained in said documents not misleading. No representation, warranty or undertaking, express or implied, is made by any of the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, and no responsibility or liability is accepted by any thereof to the accuracy, adequacy, reasonableness or completeness of the information and materials contained herein (excluding any and all information pertaining to the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners) or any other information provided by the Company in connection with the Preferred Shares, their distribution or their future performance. Unless otherwise indicated, all information in the Prospectus is as of December 31, 2018. Neither the delivery of this Prospectus nor any sale made pursuant to this Prospectus shall, under any circumstances, create any implication that the information contained herein is correct as of any date subsequent to the date hereof or that there has been no change in the affairs of the Company and its subsidiaries since such date. Market data and certain industry forecasts used throughout this Prospectus were obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Similarly, internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified, and none of the Company or the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners makes any representation as to the accuracy of such information. THE SHARES ARE BEING OFFERED ON THE BASIS OF THIS PROSPECTUS ONLY. ANY DECISION TO PURCHASE THE SHARES MUST BE BASED ONLY ON THE INFORMATION CONTAINED HEREIN. Each person contemplating an investment in the Preferred Shares should make his own due diligence and analysis of the creditworthiness of Petron and his own determination of the suitability of any such

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investment. The risk disclosure herein does not purport to disclose all the risks and other significant aspects of investing in the Preferred Shares. A person contemplating an investment in the Preferred Shares should seek professional advice if he or she is uncertain of, or has not understood any aspect of the securities to invest in or the nature of risks involved in trading of securities, especially those high-risk securities. Investing in the Preferred Shares involves a higher degree of risk compared to debt instruments. For a discussion of certain factors to be considered in respect of an investment in the Preferred Shares, see “Risk Factors”. The Company filed an application with the SEC to register the Preferred Shares under the provisions of the Securities Regulation Code of the Philippines (Republic Act No. 8799 or the “SRC”) and its implementing regulations (the “SRC Rules”). The SEC is expected to issue an order rendering the Registration Statement filed by the Company effective and a corresponding permit to offer securities for sale covering the Preferred Shares. An application to list the Preferred Shares has been filed with the PSE and has been approved by the Board of Directors of the PSE on 29 May 2019. The PSE assumes no responsibility for the correctness of any statements made or opinions expressed in this Prospectus. The PSE makes no representation as to its completeness and expressly disclaims any liability whatsoever for any loss arising from reliance on the entire or any part of the Prospectus. Such approval for listing is permissive only and does not constitute a recommendation or endorsement of the Preferred Shares by the PSE.

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ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATION CONTAINED HEREIN ARE TRUE AND CURRENT. PETRON CORPORATION

By: RAMON S. ANG President SUBSCRIBED AND SWORN to before me on _______________ in Mandaluyong City, Philippines, affiant exhibiting to me his Passport with No. P4589066A issued on 2 October 2017 as competent evidence of identity. Doc. No. _____; Page No. _____; Book No. _____; Series of 2019.

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TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS ................................................................................................ 10

DEFINITION OF TERMS ...................................................................................................................... 11

EXECUTIVE SUMMARY ...................................................................................................................... 16

SUMMARY FINANCIAL INFORMATION ............................................................................................. 20

SUMMARY OF THE OFFERING .......................................................................................................... 26

DESCRIPTION OF THE PREFERRED SHARES ................................................................................ 43

RISK FACTORS ................................................................................................................................... 53

USE OF PROCEEDS ............................................................................................................................ 71

DETERMINATION OF THE OFFER PRICE ......................................................................................... 73

PLAN OF DISTRIBUTION .................................................................................................................... 74

DILUTION ............................................................................................................................................. 80

CAPITALIZATION ................................................................................................................................ 81

THE COMPANY .................................................................................................................................... 82

DESCRIPTION OF PROPERTY ......................................................................................................... 112

LEGAL PROCEEDINGS .................................................................................................................... 123

REGULATORY AND ENVIRONMENTAL MATTERS ....................................................................... 127

CORPORATE GOVERNANCE AND MANAGEMENT ...................................................................... 142

BOARD OF DIRECTORS AND MANAGEMENT OF THE COMPANY ............................................. 143

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..................................................... 156

MARKET PRICE OF AND DIVIDENDS ON THE ISSUER’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS .............................................................................................................. 157

INDUSTRY OVERVIEW ..................................................................................................................... 166

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS .................................................................................................................................... 171

INTEREST OF NAMED EXPERTS .................................................................................................... 181

TAXATION .......................................................................................................................................... 182

THE PHILIPPINE STOCK MARKET .................................................................................................. 188

ANNEXES ........................................................................................................................................... 194

PETRON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2016, 2017, AND 2018 ............................................... 195

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FORWARD-LOOKING STATEMENTS

All statements contained in this Prospectus that are not statements of historical facts constitute “forward- looking statements.” Some of these statements can be identified by forward-looking terms, such as “anticipate”, “believe”, “can”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “will” and “would” or similar words. However, these words are not the exclusive means of identifying forward-looking statements. All statements regarding the Company’s expected financial condition and results of operations, business, plans and prospects are forward-looking statements. These forward-looking statements include statements as to the Company’s business strategy, its revenue and profitability (including, without limitation, any financial or operating projections or forecasts), planned projects and other matters discussed in this Prospectus regarding matters that are not historical fact. These forward- looking statements and any other projections contained in this Prospectus involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual financial results, performance or achievements to be materially different from any future financial results, performance or achievements expressed or implied by such forward-looking statements or other projections. The factors that could cause the Company’s actual results to be materially different include, among others:

• changes in crude oil prices;

• general political and economic conditions in the Philippines, Malaysia and elsewhere in the Asia-Pacific region;

• changes in currency exchange rates;

• accidents, natural disasters or other adverse incidents in the operation of the Company’s facilities;

• terms on which the Company finances its working capital and capital expenditure requirements;

• the ability of the Company to successfully implement its strategies;

• changes in governmental regulations, including those pertaining to regulation of the oil industry, zoning, tax, subsidies, operational health, safety and environmental standards; and

• competition in the oil industry in the Philippines and Malaysia.

Additional factors that could cause the Company’s actual results, performance or achievements to differ materially include, but are not limited to, those discussed under “Risk Factors” starting on page 53. Should one or more of these uncertainties or risks, among others, materialize, actual results may vary materially from those estimated, anticipated or projected as well as from historical results. Specifically, but without limitation, revenues could decline, costs could increase, capital costs could increase, capital investments could be delayed and anticipated improvements in performance might not be realized fully or at all. Although the Company believes that the expectations of its management as reflected by such forward-looking statements are reasonable based on information currently available to it, no assurances can be given that such expectations will prove to have been correct. Accordingly, prospective investors are cautioned not to place undue reliance on the forward-looking statements herein. In any event, these statements speak only as of the date hereof or the respective dates indicated herein, and the Company undertakes no obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

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DEFINITION OF TERMS

In this Prospectus, unless the context otherwise requires, the following terms shall have the meanings set out below.

APM................................................. Malaysian automatic pricing mechanism

Applicant.......................................... A person, whether natural or juridical, who seeks to subscribe for the Offer of the Preferred Shares

BIR .................................................. Philippine Bureau of Internal Revenue

Black Products ................................ Fuel oil and asphalts

bpd .................................................. Barrels per day

BNM………………………………….. Bank Negara Malaysia

BSP ................................................. Bangko Sentral ng Pilipinas

Business Day .................................. A day, other than Saturday, Sunday or legal holiday, on which the facilities of the Philippine banking system are open and available for clearing, and banks are open for business in Metro Manila, Philippines.

BVAL ............................................... Bloomberg Valuation Service, the electronic financial information service provider, and when used in connection with the designated page of the Benchmark Rate, the display page so designated on BVAL (or such other page as may replace that page on that service), or such other service as may be nominated as the information vendor, for the purpose of displaying rates or prices to that Benchmark Rate

CBAs…………………………………. Collective bargaining agreements

Chevron ........................................... Chevron Philippines, Inc.

CODO.............................................. Company-owned-dealer-operated service stations

Company, Issuer or Petron ............. Petron Corporation

CSA ................................................. Malaysian Control of Supplies Act, 1961

CTA ................................................. Philippine Court of Tax Appeals

CTSG .............................................. Corporate Technical Services Group

DENR .............................................. Philippine Department of Environment and Natural Resources

DODO.............................................. Dealer-owned-dealer-operated service stations

DOE................................................. Philippine Department of Energy

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DOJ ................................................. Philippine Department of Justice

DTI ................................................... Philippine Department of Trade and Industry

ECC ................................................. Environmental Compliance Certificate

EIS ................................................... Environment Impact Statement

EMB................................................. Environmental Management Bureau

EMS…………………………………... Environmental Management System

EMEPMI……………………………… ExxonMobil Exploration and Production Malaysia Inc.

EPF ................................................. Malaysian employees’ provident fund

EQA ................................................. Malaysian Environmental Quality Act, 1974

ExxonMobil....................................... Sellers of shares in PMRMB, PFI Malaysia and POM

FIA ................................................... Philippine Foreign Investments Act of 1991 (as amended)

GDP................................................. Gross domestic product

IMS .................................................. Integrated Management System

Innospec .......................................... Innospec, Limited

ISO .................................................. International Organization for Standardization

KLIA................................................. Kuala Lumpur International Airport

Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners ……………

BDO Capital, BPI Capital, China Bank Capital, and PNB Capital

LGC ................................................. Philippine Local Government Code

LGU ................................................. Local Government Unit

Limay Refinery ................................ The Company’s refinery in Limay, Bataan, Philippines

Listing Date...................................... The date when the Preferred Shares are listed in the PSE

LPG ................................................. Liquefied petroleum gas

LSWR .............................................. Low-sulfur waxy residue

MARINA .......................................... Philippine Maritime Industry Authority

MBIA................................................ Malaysian Biofuel Industry Act, 2007

MDOE.............................................. Malaysian Department of Environment

MDTCC ........................................... Malaysian Ministry of Domestic Trade, Cooperative and Consumerism

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Mean of Platts Singapore or MOPS The daily average of all trading transactions between a buyer and a seller of petroleum products as assessed and summarized by Standard and Poor’s Platts, a Singapore-based market wire service

MERALCO ...................................... Manila Electric Company

MITI ................................................. Malaysian Ministry of International Trade and Industry

MNHPI ............................................. Manila North Harbour Port Inc.

Mogas 95 ........................................ Formulated unleaded gasoline fuel with an octane index of 95

MPP................................................. Multi-product pipeline

MT ................................................... Metric tonnes

NVRC .............................................. New Ventures Realty Corporation

Oil Deregulation Law ....................... Philippine Downstream Oil Industry Deregulation Act of 1998

Ovincor ............................................ Overseas Ventures Insurance Corporation Ltd.

PAHL ............................................... Petrochemical Asia (HK) Limited

PCERP ............................................ Petron Corporation Employees’ Retirement Plan

PDA ................................................. Malaysian Petroleum Development Act, 1974

PDB ................................................. Petronas Dagangan Berhad

PDTC............................................... Philippine Depository and Trust Corporation

PetroFCC ........................................ Petrofluidized catalytic cracking

Petrogen .......................................... Petrogen Insurance Corporation

Petronas .......................................... Petroliam Nasional Berhad

Petron Malaysia .............................. Collectively, PMRMB, POM and PFI Malaysia

Petrophil .......................................... Petrophil Corporation

PFC ................................................. Petron Freeport Corporation

PFI Malaysia ................................... Petron Fuel International Sdn. Bhd.

PFRS ............................................... Philippine Financial Reporting Standards

Philippines ....................................... Republic of the Philippines

Philippine Peso, Peso, PHP or ₱ .... Philippine Pesos, the legal currency of the Philippines

PMC ................................................ Petron Marketing Corporation

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PMRMB ........................................... Petron Malaysia Refining & Marketing Bhd.

PNOC .............................................. Philippine National Oil Company

PNS…………………………………... Philippine National Standards

POM ................................................ Petron Oil (M) Sdn. Bhd.

POME .............................................. Palm oil methyl ester

Port Dickson Refinery ..................... The Company’s refinery in Port Dickson, Negeri Sembilan, Malaysia

POS ................................................. Point of sale

PPI ................................................... Philippine Polypropylene Inc.

PSE ................................................. The Philippine Stock Exchange, Inc.

PSMA .............................................. Malaysian Petroleum (Safety Measures) Act, 1984

Qualified Institutional Buyers ……... Qualified buyers, as defined in Section 10.1 (l) of the Securities Regulation Code (Republic Act No. 8799).

R.A. 8762 ........................................ Philippine Retail Trade Liberalization Act of 2000

Registrar, Paying Agent or Stock Transfer Agent.................................................

SMC Stock Transfer Service Corporation

Registration Statement..................... The registration statement filed with the SEC in connection with the offer and sale to the public of the Preferred Shares

Revised Corporation Code…………. Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines

RIHL………………………………….. Robinsons International Holdings Limited

Ringgit Malaysia, Ringgit or RM ...... Ringgit Malaysia, the legal currency of Malaysia

RON………………………………….. Research Octane Number

RMP-2 ............................................. Phase 2 of the Refinery Master Plan

RTC ................................................. Regional Trial Court

Saudi Aramco .................................. Saudi Arabian Oil Company

SBM................................................. Single buoy mooring

SBMI................................................ Special Board of Marine Inquiry

SEA BV ........................................... SEA Refinery Holdings B.V.

SEA Refinery ……………………… SEA Refinery Corporation

SEC ................................................. Philippine Securities and Exchange Commission

Shell ................................................ Pilipinas Shell Petroleum Corporation

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Shell Malaysia ................................. Shell Malaysia Trading Sdn Bhd

SJS .................................................. Social Justice Society

SMC ................................................ San Miguel Corporation

SMS................................................. SSHE management system

SRC ................................................. Republic Act No. 8799 otherwise known as the Securities Regulation Code of the Philippines

SSHE............................................... Safety, security, health and the environment

Tax Code ......................................... Philippine National Internal Revenue Code of 1997 (as amended)

TCCs ............................................... Tax Credit Certificates

U.S. dollars, USD or US$ ................ U.S. Dollars, the legal currency of the United States of America

VAT ................................................. Value-Added Tax

White Products ................................ Diesel, gasoline, jet fuel, kerosene and LPG

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EXECUTIVE SUMMARY

The following summary is qualified in its entirety by, and is subject to, the more detailed information and the consolidated financial statements of the Company that appear elsewhere in this Prospectus. The meaning of terms not defined in this summary can be found elsewhere in this Prospectus. Prospective investors should read this entire Prospectus fully and carefully, including investment considerations and the Company’s audited financial statements and the related notes. In case of any inconsistency between this summary and the more detailed information in this Prospectus, then the more detailed portions, as the case may be, shall at all times prevail. Business Petron Corporation was incorporated under the Corporation Code of the Philippines and registered with the SEC on December 22, 1966. On September 13, 2013, the SEC approved the extension of the 50-year corporate term of the Company to 2066. As a general rule under the Revised Corporation Code, which took effect on February 23, 2019, corporations with certificates of incorporation prior to the effectivity of the Revised Corporation Code, and which continue to exist, shall have perpetual existence. By operation of law therefore, Petron shall now have perpetual existence. As at December 31, 2018, it has a market capitalization of ₱72.3 billion. Petron is the largest oil refining and marketing company in the Philippines and is a leading player in the Malaysian market. The Company has a combined refining capacity of 268,000 barrels per day (“bpd”). The Company refines crude oil and markets and distributes refined petroleum products in the Philippines and Malaysia. In the Philippines, the Company operates the largest and most modern refinery in Bataan, the Limay Refinery, which supplies approximately 30% of the country’s total fuel requirements and has a production capacity of 180,000 bpd. The Company had an overall market share of 28.5%2 of the Philippine oil market for the year ended December 31, 2018 in terms of sales volume based on Company estimates using its internal assumptions and calculations and industry data from the Department of Energy (“DOE”). The Limay Refinery processes crude oil into a range of petroleum products, including gasoline, diesel, LPG, jet fuel, kerosene, naphtha, and petrochemical feedstock such as benzene, toluene, mixed xylene and propylene. The completion of Phase 2 of the Refinery Master Plan (“RMP-2”), a US$2 billion project for the Limay Refinery, enabled the Company to produce more valuable White Products3, increase the Company’s production of petrochemicals, and made the Company the first oil company in the Philippines capable of producing Euro IV-standard fuels. In 2017, it launched the country’s cleanest and most advanced gasoline that meets Euro 6 standards, the most stringent fuel technology and emission benchmark in the world today. From the Limay Refinery, the Company moves its products, mainly by sea, to terminals and airport installations situated throughout the Philippines, representing the most extensive distribution network for petroleum products in the Philippines. The network comprises 12 terminals in Luzon, eight in the Visayas and eight in Mindanao, as well as two airport installations in Luzon and two in Mindanao. Through this nationwide network, the Company supplies its various petroleum products such as gasoline, diesel, and LPG to its customers. The Company also supplies jet fuel to international and domestic carriers at key airports in the Philippines.

2 Market share is derived from Company estimates based on Company information and data from the Philippine Department of Energy for FY 2018. Company estimates exclude direct imports of jet fuel by airlines, direct imports of naphtha as feedstock for petrochemical plants, direct imports of condensate as fuel for natural gas power plants, and lubes and greases. 3 White Products refer to diesel, gasoline, jet fuel, kerosene and LPG.

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Through its network of about 2,400 retail service stations in the Philippines as of March 31, 2019, representing approximately 27% of the country’s total service station count, the Company sells gasoline, diesel, and kerosene to motorists and to the public transport sector. Approximately 30% of service stations are CODOs and 70% are DODOs4. As of March 31, 2019, the Company’s LPG distribution network includes more than 1,100 branch stores as well as 34 car care centers, 11 lube centers, and 10 motorcycle centers. The Company also sells its LPG brands “Gasul” and “Fiesta Gas” to households and other consumers through its extensive dealership network. The Company actively pursues initiatives to improve customer service and promote customer loyalty. As of March 31, 2019, the extent of the Company’s programs includes about 413,800 fleet cards for the Philippines and 185,800 for Malaysia, about 6 million value cards, and approximately 9.4 million Petron Miles Privilege cards. The Company owns and operates a fuel additives blending plant in the Subic Bay Freeport Zone in the Philippines, which has a tolling agreement with Innospec, Limited (“Innospec”), a global fuel additives supplier. Regional customers of Innospec and the Company’s own requirements are served from the output of the Subic plant. The Company diversified into petrochemicals and in 2000 added a mixed xylene recovery unit to the Limay Refinery and a propylene recovery unit in 2008. Its benzene-toluene extraction unit became operational in May 2009. On July 1, 2014, the Company acquired and took over from Philippine Polypropylene Inc. (“PPI”), an indirect subsidiary of the Company, the operations of the polypropylene plant in order to enhance the overall efficiency of its petrochemical operations. The polypropylene plant is located in Mariveles, Bataan and is owned by Robinson International Holdings Limited (“RIHL”), an indirect subsidiary of the Company, which has the capacity to produce 160,000 metric tons of polypropylene resin annually. The Company entered the Malaysian market in March 2012 through the purchase of ExxonMobil’s downstream oil business in Malaysia. For the year ending 2018, the Company ranked third in the Malaysian retail market with a 20.9% market share based on Company estimates using its internal assumptions and calculations and industry data from The Concilium Group Sdn Bhd, a market research consultant appointed by Malaysian retail market participants to compile industry data. The Company also covers the industrial segment in Malaysia, selling diesel and gasoline to unbranded mini-stations and power plants, as well as to manufacturing, plantation, transportation and construction sectors. The Company owns and operates the Port Dickson Refinery, which has a crude oil distillation capacity of 88,000 barrels per day, and produces a range of petroleum products, including LPG, naphtha, gasoline, jet fuel, diesel and low-sulfur waxy residue (“LSWR”). As of March 31, 2019, the Company had 10 product terminals, a network of approximately 650 retail service stations, and about 275 convenience stores in Malaysia. The Company has presence in the aviation segment with a 20% ownership of a multi-product pipeline to Kuala Lumpur International Airport. The joint venture through which the Company owns its interest in the multi-product pipeline also owns a fuel terminal, the Klang Valley Distribution Terminal. The Company’s products are primarily sold to customers in the Philippines and Malaysia. The Company also exports various petroleum products and petrochemical feedstock, including low-sulfur waxy residue, naphtha, mixed xylene, benzene, toluene and propylene, to other customers in the Asia-Pacific region. The Company’s revenues from these export sales amounted to ₱37.4 billion, or 9% of total sales, in 2017, and ₱51.5 billion, or 9% of total sales, in 2018. In 2016, 2017 and 2018, the Company’s sales were ₱343.8 billion, ₱434.6 billion and ₱557.4 billion, respectively, and net income was ₱10.8 billion, ₱14.1 billion and ₱7.1 billion, respectively.

4 CODO represents company-owned-dealer-operated service stations and DODO represents dealer-owned-dealer-operated service stations.

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Strengths The Company believes that its principal competitive strengths include the following:

• Market leadership in the Philippine downstream oil sector;

• Established position in the Malaysian downstream oil sector;

• Operating a highly complex refinery;

• Operations in markets with favorable industry dynamics;

• Differentiated service experience driving retail volumes; and

• Experienced management team and employees and strong principal shareholder in San Miguel Corporation.

Areas of Strategic Focus The Company’s principal strategies are set out below:

• Maximize production of high margin refined petroleum products and petrochemicals;

• Further increase market share in the downstream oil markets in the Philippines and in Malaysia;

• Continue investments to improve operational efficiency and profitability and to increase market reach; and

• Pursue selective synergistic acquisitions. Risks Relating to the Offer Before making an investment decision, investors should carefully consider the risks associated with an investment in the Preferred Shares. These risks include the following, which are discussed in more detail under the section “Risk Factors” starting on page 53. Risks Relating to the Company’s Business and Operations

• Volatility of the price of crude oil and petroleum products may have a material adverse effect on the Company’s business, results of operations and financial condition;

• The Company relies primarily on a small number of suppliers for a significant portion of its crude oil requirements in each of the Philippines and Malaysia;

• The Company’s business, financial condition and results of operations may be adversely affected by intense competition and cyclicality in global and regional refining capacities;

• Any significant disruption in operations or casualty loss at the Company’s refineries could adversely affect its business and results of operations and result in potential liabilities;

• The fuel business in Malaysia is regulated by the Malaysian government, and the Company is affected by Malaysian government policies and regulations relating to the marketing of fuel products;

• Continued compliance with safety, health, environmental and zoning laws and regulations may adversely affect the Company’s results of operations and financial condition;

• Failure to respond quickly and effectively to product substitution or government-mandated product formulations may adversely affect the Company’s business and prospects;

• The Company’s business strategies require significant capital expenditures and financing, which are subject to a number of risks and uncertainties, and its financial condition and results of operations may be adversely affected by its debt levels;

• Changes in applicable taxes, duties and tariffs could increase the Company’s operating costs and adversely affect its business, results of operations and financial condition;

• The Company may be adversely impacted by the fluctuations in the value of the Philippine Peso and the Ringgit Malaysia against the U.S. dollar;

• The Company depends on experienced, skilled and qualified personnel and management team, and its business and growth prospects may be disrupted if it is unable to retain their services;

• The Company’s controlling shareholder may have interests that may not be the same as those of

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other shareholders;

• The Company may fail to integrate acquired businesses properly, which could adversely affect the Company’s results of operations and financial condition;

• If the number or severity of claims for which the Company is self-insured increases, or if it is required to accrue or pay additional amounts because the claims prove to be more severe than its recorded liabilities, the Company’s financial condition and results of operations may be materially adversely affected;

• Existing or future claims against the Company, its subsidiaries, associates or joint ventures, or directors or key management may have an unfavorable impact on the Company; and

• Changes in applicable accounting standards may impact the Company’s businesses, financial condition and results of operations.

Risks Relating to the Philippines and Malaysia

• The Company’s business and sales may be negatively affected by slow growth rates and economic instability in the Philippines and Malaysia, as well as globally;

• Political instability, acts of terrorism or military conflict or changes in laws or government policies in the Philippines or Malaysia could have a destabilizing effect and may have a negative effect on the Company;

• Territorial and other disputes with neighboring states may disrupt the Philippine economy and business environment;

• The occurrence of natural or man-made catastrophes or electricity blackouts may materially disrupt the Company’s operations;

• Investors may face difficulties enforcing judgments against the Company; and

• If foreign exchange controls were to be imposed, the Company’s ability to access foreign currency to purchase raw materials and equipment and to service foreign currency denominated debt obligations could be adversely affected.

Risks Relating to the Preferred Shares

• The Preferred Shares may not be a suitable investment for all investors;

• The Preferred Shares are perpetual securities and investors have no right to require redemption;

• The Preferred Shares are subordinated obligations;

• There may be insufficient distributions upon liquidation;

• Holders may not receive dividend payments if the Company elects to defer dividend payments;

• The ability of the Company to make payments under the Shares is limited by the terms of the Company’s other indebtedness;

• The market price of the Preferred Shares may be volatile, which may result in the decline in the value of investments of the investors;

• There may be a limited market for the Preferred Shares, so there may be low liquidity in the market;

• Holders of the Preferred Shares may not be able to reinvest at a similar return on investment; and

• The Preferred Shares have no voting rights. Corporate Information Petron Corporation was incorporated under the laws of the Philippines in 1966. The Company’s head office and principal place of business is located at the SMC Head Office Complex, 40 San Miguel Avenue, Mandaluyong City, Philippines. The Company’s telephone number at this location is (632) 884 - 9200. The Company’s primary website is www.petron.com. Information contained on the Company’s website does not constitute a part of this Prospectus. The Company’s common and Outstanding Series 2A and Series 2B Preferred Shares are listed and traded on PSE under the symbols “PCOR”, “PRF2A” and “PRF2B”, respectively. Upon listing, the Series 3A Preferred Shares and Series 3B Preferred Shares shall be traded under the symbols “PRF3A” and “PRF3B”, respectively.


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SUMMARY FINANCIAL INFORMATION

The following tables set forth summary financial information for the Company and should be read in conjunction with the auditors’ reports and the Company’s consolidated financial statements, including the notes thereto, and the section entitled “Management’s Discussion and Analysis of Financial Position and Results of Operations” found on page 171 of this Prospectus. The summary financial information presented below for the years ended December 31, 2016, 2017 and 2018 were derived from the consolidated financial statements of the Company, audited by R.G. Manabat and Co., a member firm of KPMG. The Company’s financial information included in this Prospectus has been prepared in accordance with PFRS. Summary Consolidated Statements of Income Data

For the years ended December 31

(Amounts in millions of P, except per share data) 2016 2017 2018

Sales ………………………………………………………………. 343,840 434,624 557,386 Cost of goods sold…………………………………………………

306,125 391,969 522,824

Gross profit………………………………………………………… 37,715 42,655 34,562

Selling and administrative expenses……………………………

(13,918) (15,017) (15,641)

Interest expense and other financing charges…………………

(7,557) (8,487) (9,689)

Interest income…………………………………………………….

507 535 706

Share in net income (losses) of associates…………………….

66 63 -

Other income (expenses) – net………………………………….

(2,435) (907) 517

Income before tax………………………………………………… 14,378 18,842 10,455 Income tax expense…………………………………………………………..

(3,556) (4,755) (3,386)

Net income………………………………………………………… 10,822 14,087 7,069

Attributable to:

Equity holders of the Parent Company………………………………………………………….

10,100 12,739 6,218

Non-controlling interests…………………………………………

722 1,348 851

10,822 14,087 7,069

Basic/diluted earnings per common share attributable to equity holders of the Parent Company…………………………..

0.60

0.86

0.28

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Summary Consolidated Statements of Comprehensive Income


(Amounts in millions of P) 2016 2017 2018

Net income………………………………………………………….. 10,822 14,087 7,069

Other comprehensive income (loss)

Items that will not be reclassified to profit or loss Equity reserve for retirement plan………………………………..

2,647 (1,142) (1,133)

Share in other comprehensive income of an associate and a joint venture………………………………………………………...

3 3 - Income tax benefit (expense) ……………………………………

(794) 346 339

1,856 (793) (794)

Items that may be reclassified to profit or loss

Hedging Reserve…………………………………………………… - - (110) Exchange differences on translation of foreign operations……. 523 3,303 1,372 Net gain on investments in debt securities……………………….

(2) (4) (10)

Share in other comprehensive loss of a joint venture…………..

- (1) -

Income tax benefit………………………………………………….. 1 1 36

522 3,299 1,288

Other comprehensive income – Net of tax……………………….

2,378 2,506 494

Total comprehensive income for the year – Net of tax………….

13,200 16,593 7,563

Attributable to:

Equity holders of the Parent Company…………………………... 12,742 14,772 6,570 Non-controlling interests…………………………………………..

458 1,821 993

13,200 16,593 7,563

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Summary Consolidated Statements of Financial Position Data As of

December 31


Current assets: Cash and cash equivalents………………………………..

17,332 17,014 17,405 Financial assets at fair value………………………………

221 336 1,126 Investments in debt securities…………………………….

71 199 40 Trade and other receivables – net………………………..

31,548 38,159 42,497 Inventories – net……………………………………………

44,147 56,604 63,873 Other current assets……………………………………….

32,499 33,178 37,081

Total current assets……………………………………….

125,818 145,490 162,022

Noncurrent assets:

Investments in debt securities…………………………….

408 332 338 Property, plant and equipment – net……………………..

176,604 177,690 163,984 Investments in associates…………………………………

1,883 - - Investment property – net………………………………….

91 75 16,536 Deferred tax assets – net………………………………….

194 207 257 Goodwill – net……………………………………………….

7,480 8,277 8,532 Other noncurrent assets – net…………………………….

6,415 5,959 6,485

Total noncurrent assets…………………………………..

193,075 192,540 196,132

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Total assets……………………………………………….

318,893 338,030 358,154

Current liabilities: Short-term loans……………………………………………

90,366

69,583 82,997 Liabilities for crude oil and petroleum products…………

29,966

36,920 25,991 Trade and other payables…………………………………

16,161 11,604 28,471 Derivative liabilities…………………………………………

778 1,791 614 Income tax payable………………………………………...

626 808 146 Current portion of long-term debt – net…………………..

20,911 3,789 17,799

Total current liabilities……………………………………...

158,808 124,495 156,018

As of December 31

2016 2017 2018 Noncurrent liabilities: Long-term debt – net of current portion……………………………………………………..

58,941 97,916 100,201 Retirement benefits liability……………………………………………………..

3,315 4,885 2,433 Deferred tax liabilities - net…………………………………………………………

5,726 7,397 8,450 Asset retirement obligation………………………………………………….

2,324 2,681 3,592 Other noncurrent liabilities…………………………………………………..

959 1,037 1,274 Total noncurrent liabilities…………………………………………………..

71,265 113,916 115,950

Total liabilities………………………………………………….

230,073 238,411 271,968

Equity attributable to equity holders of the Parent Company

9,485 9,485 9,485

24

Capital stock……………………………………………………….

Additional paid-in capital…………………………………………………….

19,653 19,653 19,653 Capital securities………………………………………………….

30,546 30,546 24,881 Retained earnings…………………………………………………

42,011 49,142 49,491 Equity reserves…………………………………………………

(7,204) (5,171) (14,031) Treasury stock……………………………………………………..

(10,000) (10,000) (10,000) Total equity attributable to equity holders of the Parent Company…………………………………………………

84,491 93,655 79,479 Non-controlling interests…………………………………………………..

4,329 5,964 6,707 Total equity……………………………………………………

88,820 99,619 86,186

Total liabilities and equity……………………………………………………..

318,893 338,030 358,154

25

Summary of Consolidated Cash Flows Data



Net cash flows provided by operating activities…………………………………………………..

29,269 15,753 5,047

Net cash flows used in investing activities………………………………………………….

(19,165) (11,211) (11,141) Net cash flows provided by (used in) financing activities…………………………………………………..

(12,025) (4,715) 5,949 Effect of exchange rate changes on cash and cash equivalents………………………………………………..

372

(145)

536

Net increase (decrease) in cash and cash equivalents………………………………………………..

(1,549)

(318)

391

Cash and cash equivalents at beginning of period…………………………………………………......

18,881

17,332

17,014

Cash and cash equivalents at end of period…………………………………………………….

17,332

17,014

17,405

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SUMMARY OF THE OFFERING

The following do not purport to be a complete listing of all the rights, obligations and privileges of the Preferred Shares. Some rights, obligations or privileges may be further limited or restricted by other documents and subject to final documentation. Prospective shareholders are enjoined to perform their own independent investigation and analysis of the Issuer and the Preferred Shares. Each prospective shareholder must rely on its own appraisal of the Issuer and the proposed financing and its own independent verification of the information contained herein and any other investigation it may deem appropriate for the purpose of determining whether to participate in the proposed financing and must not rely solely on any statement or the significance, adequacy or accuracy of any information contained herein. The information and data contained herein are not a substitute for the prospective shareholder’s independent evaluation and analysis. The following overview should be read as an introduction to, and is qualified in its entirety by reference to, the more detailed information appearing elsewhere in this Prospectus. This overview may not contain all of the information that prospective investors should consider before deciding to invest in the Preferred Shares. Accordingly, any decision by a prospective investor to invest in the Preferred Shares should be based on a consideration of this Prospectus as a whole. Should there be any inconsistency between the summary below and the final documentation, the final documentation shall prevail.

Issuer Petron Corporation

Instrument Cumulative, non-voting, non-participating, non-convertible peso-denominated perpetual preferred shares (“Preferred Shares”)

Offer Size 15,000,000 Preferred Shares (subject to the Oversubscription Option as provided below), to be issued in one or more subseries: Series 3A Preferred Shares and/or Series 3B Preferred Shares. The Preferred Shares will be issued out of the treasury shares of the Company. In the event that Oversubscription Option is exercised, the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, in consultation with the Issuer, have the discretion to allocate the Oversubscription Option of up to 5,000,000 Preferred Shares in either Series 3A Preferred Shares or Series 3B Preferred Shares at the end of the Offer Period.

Oversubscription Option In the event of an oversubscription, the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, in consultation with the Issuer, reserve the right, but do not have the obligation, to increase the Offer Size by up to 5,000,000 Preferred Shares, subject to the registration requirements of the SEC.

Registration and Listing To be registered with the SEC and listed on the PSE,

subject to compliance with SEC regulations and PSE listing rules. Upon listing, the Series 3A Preferred Shares and Series 3B Preferred Shares shall be traded under the symbols “PRF3A” and “PRF3B”, respectively.

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Use of Proceeds The net proceeds of the Offer shall be used primarily for the redemption of the Series 2A Preferred Shares of the Company, repayment of outstanding short-term loans and for general corporate purposes. For further discussion, please refer to the section on “Use of Proceeds” of this Prospectus.

Par Value The Preferred Shares shall have a par value of ₱1.00 per share.

Offer Price The Preferred Shares shall be offered at a price of ₱1,000.00 per share.

Offer Period The Offer Period shall commence at 9:00 a.m. on June 3, 2019 and end at 12:00 noon on June 18, 2019. The Issuer and the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners reserve the right to extend or terminate the Offer Period with the approval of the SEC and the PSE, as applicable.

Listing Date On June 25, 2019, or such other date when the Preferred Shares are listed in the PSE.

Dividend Rate As and if cash dividends are declared by the Board of Directors, cash dividends on the Preferred Shares shall be at the fixed rate of:

• Series 3A Preferred Shares: 6.8713% per annum;

• Series 3B Preferred Shares: 7.1383% per annum; in all cases calculated for each share by reference to the Offer Price thereof in respect of each Dividend Period (each, the “Initial Dividend Rate” for the relevant series). Dividend Rate means (a) from the Listing Date up to the Step Up Date, the Initial Dividend Rate, and (b) from the Step Up Date, until the date the Preferred Shares are redeemed, the higher of the Initial Dividend Rate and the Step Up Rate. (Please see below relevant definitions.)

Dividend Payment Dates Cash Dividends will be payable on March 25, June 25, September 25 and December 25 of each year, each a “Dividend Payment Date”, being the last day of each 3-month period (a “Dividend Period”) following the relevant Listing Date, as and if declared by the Board of Directors in accordance with the terms and conditions of the Preferred Shares. The dividends on the Preferred Shares will be calculated on a 30/360-day basis. If the Dividend Payment Date is not a Business Day, dividends will be paid on the next succeeding Business Day, without adjustment as to the amount of dividends to

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be paid.

Conditions on Declaration and Payment of Cash Dividends

The declaration and payment of cash dividends for each Dividend Period will be subject to the sole and absolute discretion of the Board of Directors of the Issuer, to the extent permitted by applicable laws and regulations, and the covenants (financial or otherwise) in the agreements to which the Issuer is a party. The Board of Directors will not declare and pay dividends for any Dividend Period where payment of such dividends would cause the Issuer to breach any of its covenants (financial or otherwise). If in the opinion of the Board of Directors, the Company will not be in a position to pay in full the dividends on the Preferred Shares and the dividends or distributions on any Parity Securities falling due within a six-month period from any Dividend Payment Date, after paying in full an amount equal to all dividends or distributions scheduled to be paid on or before that dividend or distribution payment date on any securities with a right to dividends or distributions ranking in priority to that of the Preferred Shares, the Company shall either (a) not declare the dividends on the Preferred Shares and defer the payment of such dividends or distributions on any Parity Securities, or (b) pay such dividends on the Preferred Shares and the dividends or distributions on any Parity Securities pro rata to the amount of the dividends or distributions scheduled to be paid to them within the said period. The amount scheduled to be paid will include the amount of any dividend or distribution due and payable within the said period and any arrears on past cumulative dividends or any deferred distributions.

Optional Redemption and Purchase As and if approved by the Board of Directors (or the Executive Committee), the Company may redeem in whole (but not in part), any subseries of the Preferred Shares as follows:

a. in respect of Series 3A Preferred Shares, on the

5.5th anniversary of the Listing Date (the “Series 3A First Optional Redemption Date”) or on any Dividend Payment Date thereafter (each of the Series 3A First Optional Redemption Date and the Dividend Payment Dates thereafter, a “Series 3A Optional Redemption Date”), and

b. in respect of Series 3B Preferred Shares, on the

7th anniversary of the Listing Date (the “Series 3B First Optional Redemption Date”) or on any Dividend Payment Date thereafter (each of the Series 3B First Optional Redemption Date and the Dividend Payment Dates thereafter, a “Series 3B Optional Redemption Date”)

(each Series 3A Optional Redemption Date and Series 3B Optional Redemption Date, an

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“Optional Redemption Date”), after giving not less than 30 nor more than 60 days written notice prior to the intended date of redemption, at a price (the “Redemption Price”) equal to the Offer Price of the Preferred Shares plus all dividends due them on the actual date of redemption as well as all accumulated dividends due and payable, or Arrears of Dividends after deduction of transfer costs customarily chargeable to stockholders, as applicable, to effect the redemption. Such notice to redeem shall be deemed irrevocable upon issuance thereof. For the avoidance of doubt, on the applicable Optional Redemption Date, the Issuer has the option to redeem, in whole but not in part, any or both of the subseries. In the event an Optional Redemption Date which the Issuer has chosen as the date to redeem any or both of the subseries falls on a day that is not a Business Day, the redemption shall be made on the next succeeding day that is a Business Day, without adjustment as to the Redemption Price and the amount of dividends to be paid. The Issuer shall likewise have the option to redeem, in whole but not in part, any or both of the subseries (a) in the event payments in respect of the Preferred Shares become subject to additional withholding or any new tax as a result of certain changes in law, rule or regulation, or in the interpretation thereof, and such tax cannot be avoided by use of reasonable measures available to the Issuer; or (b) in the event an opinion of a recognized accountancy firm authorized to perform auditing services in the Republic of the Philippines has been delivered to the Issuer stating that the Preferred Shares may no longer be recorded as equity in the audited consolidated financial statements of the Issuer prepared in accordance with Philippine Financial Reporting Standards (“PFRS”), or such other accounting standards which succeed PFRS as adopted by the Issuer for the preparation of its audited consolidated financial statements for the relevant financial year, and such event cannot be avoided by use of reasonable measures available to the Issuer.

Upon listing on the PSE, the Company reserves the right to purchase the Preferred Shares at any time in the open market or by public tender or by private contract at any price through the PSE without any obligation to purchase or redeem the other Preferred Shares. The Preferred Shares so purchased may either be redeemed (pursuant to their terms and conditions as set out in this Prospectus) and cancelled or kept as treasury shares, as applicable.

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Dividend Rate Step Up Unless the Preferred Shares shall have been redeemed by the Company on the Series 3A First Optional Redemption Date for the Series 3A Preferred Shares and on the Series 3B First Optional Redemption Date for the Series 3B Preferred Shares, the Initial Dividend Rate shall be adjusted as follows:

a. for Series 3A Preferred Shares, the higher of the

(a) applicable Initial Dividend Rate; or (b) the simple average of the closing per annum rate of the 7-year BVAL (or if the 7-year BVAL is not available or cannot be determined, any successor rate as determined by the Bankers Association of the Philippines (“BAP”) or the Bangko Sentral ng Pilipinas (“BSP”)), as shown on the PDEX page (or such successor page) of Bloomberg (or such successor electronic service provider) for the three (3) consecutive Business Days preceding and inclusive of the rate setting date, plus 3.25%; and

b. for Series 3B Preferred Shares, the higher of the (a) applicable Initial Dividend Rate; or (b) the simple average of the closing per annum rate of the 10-year BVAL (or if the 10-year BVAL is not available or cannot be determined, any successor rate as determined by the BAP or the BSP), as shown on the PDEX page (or such successor page) of Bloomberg (or such successor electronic service provider) for the three (3) consecutive Business Days preceding and inclusive of the rate setting date, plus 3.25%.

(The date of the listing of Series 3A Preferred Shares and the Series 3B Preferred Shares is referred to as the “Listing Date”. The 5.5th anniversary from the Listing Date referred to in (a) and the seventh anniversary from the Listing Date referred to in (b) are each referred to as a “Step Up Date”. The adjusted rates referred to in (a) and (b) are each referred to as a “Step Up Rate”.) However, if the Initial Dividend Rate is higher than the applicable Step Up Rate, there shall be no adjustment on the Dividend Rate, and the Initial Dividend Rate shall continue to be the Dividend Rate. In the event the relevant Step-up Date falls on a day that is not a Business Day,

a. the rate setting will be done on the immediately

succeeding Business Day using the average of the relevant BVAL rates for the three (3) consecutive Business Days preceding and inclusive of the said rate setting date, and

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b. the higher of the applicable Initial Dividend Rate and the applicable Step-Up Rate will be applied commencing on the Step-Up Date (which is the 5.5th anniversary date of the Series 3A Preferred Shares, and the 7th anniversary of the Series 3B Preferred Shares).

In the event that BVAL is replaced by a new benchmark rate as determined by the BAP or the BSP, such new benchmark rate shall be adopted for purposes of determining the Dividend Rate (the “New Benchmark Rate”). In the absence of such new replacement benchmark rate as determined by the BAP or the BSP and there is a mandatory directive by the BAP or the BSP to no longer use or apply BVAL, the Company and the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners shall negotiate to adopt an alternative rate that will serve as the New Benchmark Rate.

No Sinking Fund The Company is not legally required, has not established, and currently has no plans to establish, a sinking fund for the redemption of the Preferred Shares.

Taxation All payments in respect of the Preferred Shares are to be made free and clear of any deductions or withholding for or on account of any present or future taxes or duties imposed by or on behalf of the Philippine Government, including, but not limited to, stamp, issue, registration, documentary, value added or any similar tax or other taxes and duties, including interest and penalties. If such taxes or duties are imposed, the Company will pay additional amounts so that holders of the Preferred Shares will receive the full amount of the relevant payment which otherwise would have been due and payable. Provided, however, that the Company shall not be liable for, and the foregoing payment undertaking of the Company shall not apply to:

a. any withholding tax applicable on dividends earned by or on any amounts payable to the holders of the Preferred Shares, including any additional tax on such dividends imposed by changes in law, rule, or regulation;

b. any income tax (whether or not subject to

withholding), percentage tax (such as stock transaction tax), documentary stamp tax or other applicable taxes on the redemption of the Preferred Shares or on the liquidating distributions as may be received by a holder of Preferred Shares;

c. any expanded value added tax which may be

payable by any holder of the Preferred Shares on any amount to be received from the Company under the terms and conditions of the Preferred

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Shares;

d. any withholding tax, including any additional tax imposed by changes in law, rule, or regulation, on any dividends payable to any holder of Preferred Shares or any entity which is a non-resident foreign corporation; and

e. any applicable taxes on any subsequent sale or

transfer of the Preferred Shares by any holder of the Preferred Shares which shall be for the account of the said holder (or the buyer in case such buyer shall have agreed to be responsible for the payment of such taxes).

All sums payable by the Company to tax-exempt entities shall be paid in full without deductions for taxes, duties, assessments or governmental charges provided said entities present sufficient proof of such tax-exempt status from the tax authorities. Documentary stamp tax and all other costs and expenses for the issuance of the Preferred Shares and the documentation, if any, shall be for the account of the Company.

Redemption by reason of a Tax Event In the event payments in respect of the Preferred Shares become subject to additional withholding or any new tax as a result of certain changes in law, rule or regulation, or in the interpretation thereof, and such tax cannot be avoided by use of reasonable measures available to the Issuer, the Issuer having given not more than 60 nor less than 30 days’ notice, may redeem any subseries of the Preferred Shares at any time in whole but not in part, at the Redemption Price. See “Summary of the Offering” and “Description of the Preferred Shares” of this Prospectus.

Redemption by reason of an Accounting Event

In the event an opinion of a recognized accountancy firm authorized to perform auditing services in the Republic of the Philippines has been delivered to the Issuer stating that the Preferred Shares may no longer be recorded as equity in the audited consolidated financial statements of the Issuer prepared in accordance with PFRS, or such other accounting standards which succeed PFRS as adopted by the Issuer for the preparation of its audited consolidated financial statements for the relevant financial year, and such event cannot be avoided by use of reasonable measures available to the Issuer, the Issuer having given not more than 60 nor less than 30 days’ notice, may redeem any subseries of the Preferred Shares in whole, but not in part at the Redemption Price. See “Summary of the Offering” and “Description of the Preferred Shares” of this Prospectus.

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Form, Title and Registration of the Preferred Shares

The Preferred Shares will be issued in scripless form through the electronic book-entry system of SMC Stock Transfer Service Corporation as Registrar for the Offer, and lodged with Philippine Depository and Trust Corporation as Depository Agent on Listing Date through PSE Trading Participants nominated by the accepted Applicants. For this purpose, Applicants shall indicate in the proper space provided for in the Application to Purchase forms that will be issued and circulated in connection with the Offer (together with the required documents), the name of the PSE trading participants under whose name their shares will be registered. After Listing Date, holders of the Preferred Shares (the “Shareholders”) may request their nominated PSE Trading Participants to facilitate the conversion of their scripless Preferred Shares into stock certificates. Any expense that will be incurred in relation to such issuance of stock certificates shall be for the account of the requesting Shareholder. Legal title to the Preferred Shares will be shown in an electronic register of shareholders (the “Registry of Shareholders”) which shall be maintained by the Registrar. The Registrar shall send a transaction confirmation advice confirming every receipt or transfer of the Preferred Shares that is effected in the Registry of Shareholders (at the cost of the requesting shareholder). The Registrar shall send (at the cost of the Company) at least once every quarter a Statement of Account to all shareholders named in the Registry of Shareholders, except certificated shareholders and Depository Participants, confirming the number of Preferred Shares held by each Shareholder on record in the Registry of Shareholders. Such Statement of Account shall serve as evidence of ownership of the relevant Shareholder as of the given date thereof. Any request by a Shareholder for certifications, reports or other documents from the Registrar, except as provided herein, shall be for the account of the requesting Shareholder.

Selling and Transfer Restrictions Initial placement and subsequent transfers of interests in the Preferred Shares shall be subject to normal selling restrictions for listed securities as may prevail in the Philippines from time to time.

Governing Law The Preferred Shares will be issued pursuant to the laws of the Republic of the Philippines.

Features of the Preferred Shares

Status The Preferred Shares will constitute the direct and unsecured subordinated obligations of the Company ranking at least pari passu in all respects and ratably without preference or priority among themselves.

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The Preferred Shares will be subordinated to the US$500 million Senior Perpetual Capital Securities of the Company issued in 2018 (“Capital Securities”). The obligations of the Company in respect of the Preferred Shares will, in the event of the winding-up of the Company (subject to and to the extent permitted by applicable law), rank:

a. junior to all unsubordinated obligations of the Company (other than Parity Securities) and any obligation assumed by the Company under any guarantee of, or any indemnity in respect of, any obligation or commitment which rank or are expressed to rank senior to the Preferred Shares;

b. pari passu with each other and with any Parity

Securities of the Company; and

c. senior only to the Company’s Junior Securities. (as defined below).

“Parity Securities” means: (i) any instrument, security (including preferred shares) or obligation issued or entered into by the Company which ranks, or is expressed to rank, by its terms or by operation of law, pari passu with the Preferred Shares; (ii) any security guaranteed by, or subject to the benefit of an indemnity entered into by, the Company where the Company’s obligations under the relevant guarantee or indemnity rank, or are expressed to rank, pari passu with the Company’s obligations under the Preferred Shares; and (iii) the Outstanding Preferred Shares of the Company issued and outstanding as of the Listing Date. “Junior Securities” means (i) the common shares of the Company;(ii) any instrument, security or obligation issued or entered into by the Company which ranks, or is expressed to rank, junior to the Preferred Shares; and (iii) any security guaranteed by, or subject to the benefit of an indemnity entered into by, the Company where the Company’s obligations under the relevant guarantee or indemnity rank, or are expressed to rank, junior to the Company’s obligations under the Preferred Shares.

The Company is at liberty from time to time without the consent of the holders of the Series 3 Preferred Shares to create and issue additional preferred shares or securities either (a) ranking at least pari passu in all respects with the Series 3 Preferred Shares, or (b) upon such terms as to ranking, distributions, conversion, redemption and otherwise as the Company may determine at the time of the issue.

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Dividend Cumulative Dividends on the Preferred Shares will be cumulative. If for any reason the Board of Directors of the Company does not declare a dividend on the Preferred Shares for a Dividend Period, the Company will not pay a dividend on the Dividend Payment Date for that Dividend Period. However, on any future Dividend Payment Date on which dividends are declared, holders of the Preferred Shares must receive the dividends due them on such Dividend Payment Date as well as any dividends in which the declaration and/or payment have been deferred, in respect of prior Dividend Periods (the “Arrears of Dividends”).. Holders of the Preferred Shares shall not be entitled to participate in any other or further dividends beyond the dividends specifically payable on the Preferred Shares. The Company covenants that, in the event (for any reason):

a. any dividends due with respect to any Preferred Shares then outstanding for any period are not declared and paid in full when due;

b. where there remains Arrears of Dividends; or

c. any other amounts payable in respect of the

Preferred Shares are not paid in full when due, then the Company will not:

a. declare or pay any dividends or other distributions in respect of Parity Securities and Junior Securities (unless such declaration or payment of dividends or distributions in respect of Parity Securities shall be in accordance with “Conditions on Declaration and Payment of Cash Dividends”), or

b. repurchase or redeem any Parity Securities or

Junior Securities (or contribute any moneys to a sinking fund for the redemption of any Parity Securities or Junior Securities),

until any and all amounts described in (a), (b) and (c) have been paid to the holders of the Preferred Shares.

No Voting Rights Holders of the Preferred Shares shall not be entitled to vote at the Company’s stockholders’ meetings, except as otherwise provided by law.

Non-Participating Holders of the Preferred Shares shall not be entitled to participate in any other or future dividends beyond the dividends specifically payable on the Preferred Shares.

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Non-Convertible Holders of the Preferred Shares shall have no right to convert the Preferred Shares to any other preferred shares or common shares of the Company.

No Pre-emptive Rights Holders of the Preferred Shares shall have no pre-emptive rights to subscribe to any shares (including, without limitation, treasury shares) that will be issued or sold by the Company.

Liquidation Rights In the event of a return of capital in respect of the Company’s winding up or otherwise (whether voluntarily or involuntarily) but not on a redemption or purchase by the Company of any of its share capital, the holders of the Preferred Shares at the time outstanding will be entitled to receive, in Philippine Pesos out of the assets of the Company available for distribution to shareholders, together with the holders of any other securities of the Company ranking, as regards repayment of capital, pari passu with the Preferred Shares and before any distribution of assets is made to holders of any class of the securities of the Company ranking after the Preferred Shares as regards repayment of capital, liquidating distributions in an amount equal to the Offer Price of the Preferred Shares plus an amount equal to any dividends declared but unpaid in respect of the previous dividend period and any accrued and unpaid dividends for the then current dividend period to (and including) the date of commencement of the winding up of the Company or the date of any such other return of capital, as the case may be. If, upon any return of capital in the winding up of the Company, the amount payable with respect to the Preferred Shares and any other securities of the Company ranking as to any such distribution pari passu with the Preferred Shares is not paid in full, the holders of the Preferred Shares and of such other securities will share ratably in any such distribution of the assets of the Company in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of the Preferred Shares will have no right or claim to any of the remaining assets of the Company and will not be entitled to any further participation or return of capital in a winding up.

Other Terms of the Offer

Minimum Subscription to the Preferred Shares

Each Application shall be for a minimum of 50 Preferred Shares, and thereafter, in multiples of 10 Preferred Shares. No Application for multiples of any other number of Preferred Shares will be considered.

Eligible Investors Any natural person of legal age, or any corporation, association, partnership, trust account, fund or entity, regardless of nationality, subject to the Company’s right to reject an application or reduce the number of

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Preferred Shares applied for subscription or purchase if the same will cause the Company to be in breach of the Philippine ownership requirements under relevant Philippine laws. In addition, under certain circumstances, the Issuer may reject an application or reduce the number of Preferred Shares applied for subscription. Law may restrict subscription to the Preferred Shares in certain jurisdictions. Foreign investors interested in subscribing to or purchasing the Preferred Shares should inform themselves of the applicable legal requirements under the laws and regulations of the countries of their nationality, residence or domicile, and as to any relevant tax or foreign exchange control laws and regulations affecting them personally. Foreign investors, both corporate and individual, warrant that their purchase of the Preferred Shares will not violate the laws of their jurisdiction and that they are allowed to acquire, purchase and hold the Preferred Shares. For more information relating to restrictions on the ownership of the Preferred Shares, see “Regulatory and Environmental Matters”.

Procedure for Application Applications to Purchase may be obtained from any of the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, Co-Lead Underwriter or Selling Agents. All Applications shall be evidenced by the Application to Purchase, duly executed in each case by the Applicant or an authorized signatory of the Applicant and accompanied by two completed specimen signature cards, the corresponding payment for the Preferred Shares covered by the Application to Purchase and all other required documents including documents required for registry with the Registrar and Depository Agent (the “Application”). The duly executed Application to Purchase and required documents should be submitted to the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, Co-Lead Underwriter or Selling Agents on or prior to set deadlines for submission of Applications. If the Applicant is a corporation, partnership, or trust account, the Application must be accompanied by the following documents: a. a certified true copy of the Applicant’s latest

articles of incorporation and by-laws, general information sheet or equivalent constitutive documents, each as amended to date, duly certified by the corporate secretary (or equivalent officer);

b. a certified true copy of the Applicant’s SEC

certificate of registration, duly certified by the corporate secretary (or equivalent officer); and

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c. a duly notarized corporate secretary’s certificate setting forth the resolution of the Applicant’s board of directors or equivalent body authorizing (i) the purchase of the Preferred Shares indicated in the Application and (ii) the designated signatories authorized for the purpose, including their respective specimen signatures.

For individual Applicants, each must also submit a photocopy of any one of the following identification documents (“ID”): passport/driver’s license, company ID, Social Security System/Government Service and Insurance System ID and/or Senior Citizen’s ID or such other ID and documents as may be required in relevant documents or acceptable to the Issuer. An Applicant who is exempt from or is not subject to withholding tax or who claims reduced tax treaty rates must also submit the documents described on page 78 of this Prospectus.

Payment for the Preferred Shares The Preferred Shares must be paid for in full upon submission of the Application. The purchase price must be paid in full in Pesos upon the submission of the duly completed and signed Application to Purchase and specimen signature card together with the requisite attachments. Payment for the Preferred Shares shall be made by manager’s check/cashier’s check, corporate check or personal check drawn against any Bangko Sentral ng Pilipinas authorized bank or any branch thereof. All checks should be made payable to “Petron Preferred Shares Offer”, crossed “Payee’s Account Only,” and dated on or before the date as the Application. The Applications and the related payments will be received at any of the offices of the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, Co-Lead Underwriter or Selling Agents. Applicants submitting their Application to a Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner may also remit payment for their Preferred Shares through the Real Time Gross Settlement (“RTGS”) facility of the BSP to the Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner to whom such Application was submitted or via direct debit to their deposit account maintained with such Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner. Cash payments shall not be accepted. Should the Applicant elect to pay through RTGS, the Application should be accompanied by an instruction issued by the Applicant to effect payment through RTGS in an amount equal to the total Offer Price of the Shares applied for, to be effected and fully funded not later than 12:00 noon on June 18, 2019.

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Should the Applicant elect to pay by a debit memo or instruction, the Application should be accompanied by a debit memo or instruction issued by the Applicant in an amount equal to the total Offer Price applied for in favor of the Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner to whom the Application is submitted, to be effected no later than 12:00 noon on June 18, 2019.

Acceptance/Rejection of Applications The actual number of Preferred Shares that an Applicant will be allowed to subscribe for is subject to the confirmation of the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners. The Company, in consultation with the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, reserves the right to accept or reject, in whole or in part, or to reduce any Application due to any grounds specified in the Underwriting Agreement to be entered into by the Company and the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners. Applications which were unpaid or where payments were insufficient and those that do not comply with the terms of the Offer shall be rejected. Moreover, any acceptance or receipt of payment pursuant to the Application does not constitute approval or acceptance by the Company of the Application. An Application, when accepted, shall constitute an agreement between the Applicant and the Company for the subscription to the Preferred Shares at the time, in the manner and subject to terms and conditions set forth in the Application to Purchase and those described in the Prospectus. Notwithstanding the acceptance of any Application by the Company, the actual subscription by the Applicant for the Preferred Shares will become effective only upon listing of the Preferred Shares on the PSE and upon the obligations of the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners under the Underwriting Agreement becoming unconditional and not being suspended, terminated or cancelled, on or before the Listing Date, in accordance with the provision of the said agreement. If such conditions have not been fulfilled on or before the periods provided above, all Application payments will be returned to the Applicants without interest.

Refunds for Rejected Applications In the event that the number of Preferred Shares to be allotted to an Applicant, as confirmed by a Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner, Co-Lead Underwriter or Selling Agent, is less than the number covered by its Application, or if an Application is wholly or partially rejected by the Company, then the Company shall refund, without interest, within five Business Days from the end of the

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Offer Period, all or the portion of the payment corresponding to the number of Preferred Shares wholly or partially rejected. All refunds, without interest, shall be made through the Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner, Co-Lead Underwriter or Selling Agent with whom the Applicant has filed the Application within five (5) Business Days from the end of Offer Period. Should the refund be made via a check, an Applicant may retrieve such check refund at the office of the relevant Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner, Co-Lead Underwriter or Selling Agent with whom the Applicant has filed the Application. Refund checks that remain unclaimed after thirty (30) days from the date such checks are made available for pick-up shall be delivered through registered mail, at the Applicant’s risk, to the address specified by the Applicant in the Application.

Process of distributing TP allocation between the Series 3A Preferred Shares and the Series 3B Preferred Shares

Mechanics of Distribution

1. Upon preparation of the Firm Undertaking report, the assigned Joint Issue Manager shall, under the supervision of a representative from the PSE Listings Department, input the number of Offer Shares requested by each TP in a spreadsheet designed for the reservation and allocation of the Offer Shares.

2. The spreadsheet shall distribute the total number

of Offer Shares to be allocated to each Participating TP in accordance with the following process:

a) If the total number of Offer Shares

requested by a Participating TP, based on its Firm Undertaking, does not exceed the allocation per TP, the assigned Joint Issue Manager shall fully satisfy the request of such Participating TP. Each TP is assured of not less than the Allocation per TP. The balance, if any, shall be re-distributed among those who have signified a commitment to purchase more than the Allocation per TP in their Firm Undertaking until all the Offer Shares allotted for distribution are fully allocated.

b) If the total number of Offer Shares requested by a Participating TP exceeds the allocation per TP, Additional Shares may be sourced

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from the Offer Shares not taken up by the other TPs. The assigned Joint Issue Manager, under the observation of a representative of the PSE Listings Department, shall allocate the Offer Shares to Participating TPs by: (i) fully satisfying the orders of those TPs who have Firm Orders that are less than or equal to the allocation per TP; and (ii) distributing equitably the remaining TP Allocation to other TPs with orders for Additional Shares, but only up to their respective Firm Order.

c) The allocation will be done based on the total number of shares, regardless of the series.

d) In no case shall any Participating TP be awarded more than the shares indicated in its Firm Undertaking.

e) If the aggregate number of Offer Shares requested by all Participating TPs is less than the TP Allocation, the balance shall be returned to the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners.

3. Unless otherwise determined by the Issuer, the

final TP allocation shall be distributed between Series 3A and Series 3B in the same proportion as each Series bears to the TP’s aggregate Firm Undertaking, rounded to the prescribed board lot requirement as described in paragraph 10 below.

4. All deadlines indicated in these procedures shall

be strictly followed.

Local Small Investors There will be no allocation to Local Small Investors under the proposed offering.

Expected Timetable The timetable of the Offer is expected to be as follows:

SEC en Banc approval and issuance of Pre-effective letter

May 17, 2019

PSE Board Approval and issuance of Notice of Approval

May 29, 2019

Dividend Rate Setting May 30, 2019

Dividend Rate Announcement May 31, 2019

Issuance of Permit to Sell and Order of Registration

May 31, 2019

Offer Period June 3 to June 18, 2019

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PSE Trading Participants’ Submission of Firm Undertaking

June 11, 2019

PSE Trading Participants’ Allocation

June 13, 2019

Listing Date and commencement of trading on the PSE

June 25, 2019

Any change in the dates included above may be subject to approval of the SEC and PSE, as applicable, and other conditions.

Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners

BDO Capital & Investment Corporation, BPI Capital Corporation, China Bank Capital Corporation and PNB Capital and Investment Corporation. For more information on the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners and their underwriting commitments, please see “Plan of Distribution”.

Co-Lead Underwriter First Metro Investment Corporation

Selling Agents Trading Participants of The Philippine Stock Exchange, Inc.

Depository Agent Philippine Depository and Trust Corp.

Registrar/Stock Transfer Agent SMC Stock Transfer Service Corporation

Receiving Agent SMC Stock Transfer Service Corporation

Counsel to the Issuer Picazo Buyco Tan Fider & Santos

Counsel to Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners

SyCip Salazar Hernandez & Gatmaitan

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DESCRIPTION OF THE PREFERRED SHARES Set forth below is information relating to the Preferred Shares. This description is only a summary and is qualified by reference to Philippine law and Petron’s Articles of Incorporation and By-laws, copies of which are available at the SEC. Petron’s Share Capital A Philippine corporation may issue common or preferred shares, or such other classes of shares with such rights, privileges or restrictions as may be provided for in the articles of incorporation and the by- laws of the corporation. The Company is subject to foreign ownership restrictions on account of its ownership of land. Consequently, foreign ownership in the Company is limited to a maximum of 40% of both the total issued and outstanding capital stock entitled to vote and the total number of issued and outstanding capital stock, whether or not entitled to vote. As of December 31, 2018, the Company had an authorized capital stock consisting of:

a. 9,375,104,497 common shares with a par value of ₱1.00 per share, which are all issued and outstanding, and

b. 624,895,503 preferred shares with a par value of ₱1.00 per share, of which 10,000,000 preferred shares are issued and outstanding.

The Preferred Shares will be issued out of the treasury shares of the Company. In the event that Oversubscription Option is exercised, the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, in consultation with the Issuer, have the discretion to allocate the Oversubscription Option of up to 5,000,000 Preferred Shares in either Series 3A Preferred Shares or Series 3B Preferred Shares at the end of the Offer Period. The Preferred Shares General Features The Preferred Shares shall have the following features, rights and privileges:

• The Offer Price of the Preferred Shares shall be ₱1,000.00 per Preferred Share;

• The Initial Dividend Rate of the Preferred Shares shall be at a fixed rate of 6.8713% per annum for Series 3A Preferred Shares, and 7.1383%, per annum for Series 3B Preferred Shares, in all cases calculated in respect of each share by reference to the Offer Price thereof in respect of each Dividend Period;

• Cumulative in payment of current dividends as well as any unpaid back dividends;

• Non-convertible into common shares;

• Preference over holders of common stock in the distribution of corporate assets in the event of dissolution and liquidation of the Company and in the payment of the dividend at the rate specified above;

• Subordinated to the Capital Securities;

• Non-participating in any other or further dividends beyond the dividends specifically payable on the Preferred Shares;

• Non-voting except in those cases specifically provided by law;

• No pre-emptive rights to any subsequent issue of the Company’s shares (including, without limitation, treasury shares); and

• Redeemable at the option of the Company under such terms and conditions as specified in this Prospectus.

The holders of the Preferred Shares do not have identical rights and privileges with holders of the existing

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common shares and existing preferred shares of the Company. Features Specific or Particular to the Preferred Shares Following are certain features specific or particular to the Preferred Shares. In General: No Voting Rights The Preferred Shares shall have no voting rights except as specifically provided by the Revised Corporation Code. Thus, holders of the Preferred Shares shall not be eligible, for example, to vote for or elect the Company’s Directors or to vote for or against the issuance of a stock dividend. Holders of Preferred Shares, however, may vote on matters which the Revised Corporation Code considers significant corporate acts that may be implemented only with the approval of shareholders, including those holding shares denominated as non-voting in the articles of incorporation. These acts, which require the approval of shareholders representing at least two-thirds (2/3) of the issued and outstanding capital stock of the Company are as follows:

• Amendment of the Company’s Articles of Incorporation (the “Articles”) (including any increase or decrease of capital stock);

• Amendment of the Company’s By-laws (the “By-laws”);

• Sale, lease, exchange, mortgage, pledge or other disposition of all or a substantial part of the Company’s assets;

• Incurring, creating or increasing bonded indebtedness;

• Increase or decrease of capital stock;

• Merger or consolidation of the Company with another corporation or corporations;

• Investment of corporate funds in any other corporation or business or for any purpose other than the primary purpose for which the Company was organized; and

• Dissolution of the Company. Dividend Policy in Respect of the Preferred Shares As and if dividends are declared by the Board, dividends on the Shares shall be at a fixed rate of 6.8713% per annum for Series 3A Preferred Shares, and 7.1383% per annum for Series 3B Preferred Shares, in all cases calculated in respect of each share by reference to the Offer Price thereof in respect of each Dividend Period. Cash dividends on the Preferred Shares will be payable quarterly in arrears on March 25, June 25, September 25 and December 25 of each year (each a “Dividend Payment Date”), each being the last day of each 3-month period (a “Dividend Period”) following the relevant Listing Date. The dividends on the Shares will be calculated on a 30/360-day basis and will be paid quarterly in arrears on Dividend Payment Date, as and if declared by the Board. If the Dividend Payment Date is not a Business Day, dividends will be paid on the next succeeding Business Day, without adjustment as to the amount of dividends to be paid. The declaration and payment of cash dividends on each Dividend Period will be subject to the sole and absolute discretion of the Board to the extent permitted by applicable laws and regulations, and subject to the covenants (financial or otherwise) in the agreements to which the Company is a party. The Board of Directors will not declare and pay dividends for any Dividend Period where payment of such dividends would cause the Issuer to breach any of its covenants (financial or otherwise). The declaration and payment of cash dividends for each Dividend Period will be subject to the sole and absolute discretion of the Board of Directors of the Issuer, to the extent permitted by applicable laws and regulations, and the covenants (financial or otherwise) in the agreements to which the Issuer is a party. The Board of Directors will not declare and pay dividends for any Dividend Period where payment of such dividends would cause the Issuer to breach any of its covenants (financial or otherwise).

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If in the opinion of the Board of Directors, the Company will not be in a position to pay in full the dividends on the Preferred Shares and the dividends or distributions on any Parity Securities falling due within a six-month period from any Dividend Payment Date, after paying in full an amount equal to all dividends or distributions scheduled to be paid on or before that dividend or distribution payment date on any securities with a right to dividends or distributions ranking in priority to that of the Preferred Shares, the Company shall either (a) not declare the dividends on the Preferred Shares and defer the payment of such dividends or distributions on any Parity Securities, or (b) pay such dividends on the Preferred Shares and the dividends or distributions on any Parity Securities pro rata to the amount of the dividends or distributions scheduled to be paid to them within the said period. The amount scheduled to be paid will include the amount of any dividend or distribution due and payable within the said period and any arrears on past cumulative dividends or any deferred distributions. Dividends on the Preferred Shares will be cumulative. If for any reason the Board of Directors of the Company does not declare a dividend on the Preferred Shares for a Dividend Period, the Company will not pay a dividend on the Dividend Payment Date for that Dividend Period. However, on any future Dividend Payment Date on which dividends are declared, holders of the Preferred Shares must receive the dividends due them on such Dividend Payment Date as well as any dividends in which the declaration and/or payment have been deferred, in respect of prior Dividend Periods (the “Arrears of Dividends”).

Holders of the Preferred Shares shall not be entitled to participate in any other or further dividends beyond the dividends specifically payable on the Preferred Shares.

The Company covenants that, in the event (for any reason):

a. any dividends due with respect to any Preferred Shares then outstanding for any period are not declared and paid in full when due;

b. where there remains Arrears of Dividends; or

c. any other amounts payable in respect of the Preferred Shares are not paid in full when due,

then the Company will not:

a. declare or pay any dividends or other distributions in respect of Parity Securities and Junior Securities (unless such declaration or payment of dividends or distributions in respect of Parity Securities shall be in accordance with “Conditions on Declaration and Payment of Cash Dividends”), or

b. repurchase or redeem any Parity Securities or Junior Securities (or contribute any moneys to a

sinking fund for the redemption of any Parity Securities or Junior Securities),

until any and all amounts described in (a), (b) and (c) have been paid to the holders of the Preferred Shares. Optional Redemption of the Preferred Shares As and if approved by the Board of Directors (or the Executive Committee), the Company may redeem in whole (but not in part), any subseries of the Preferred Shares as follows:

a. in respect of Series 3A Preferred Shares, on the 5.5th anniversary of the Listing Date (the “Series 3A First Optional Redemption Date”) or on any Dividend Payment Date thereafter (each of the Series 3A First Optional Redemption Date and the Dividend Payment Dates thereafter, a “Series 3A Optional Redemption Date”), and

b. in respect of Series 3B Preferred Shares, on the 7th anniversary of the Listing Date (the “Series

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3B First Optional Redemption Date”) or on any Dividend Payment Date thereafter (each of the Series 3B First Optional Redemption Date and the Dividend Payment Dates thereafter, a “Series 3B Optional Redemption Date”)

(each Series 3A Optional Redemption Date and Series 3B Optional Redemption Date, an “Optional Redemption Date”),

after giving not less than 30 nor more than 60 days written notice prior to the intended date of redemption, at a price (the “Redemption Price”) equal to the Offer Price of the Preferred Shares plus all dividends due them on the actual date of redemption as well as all accumulated dividends due and payable, or Arrears of Dividends. Such notice to redeem shall be deemed irrevocable upon issuance thereof.

For the avoidance of doubt, on the applicable Optional Redemption Date, the Company has the option to redeem, in whole but not in part, any or both of the subseries. In the event an Optional Redemption Date which the Issuer has chosen as the date to redeem any or both of the subseries falls on a day that is not a Business Day, the redemption shall be made on the next succeeding day that is a Business Day, without adjustment as to the Redemption Price and the amount of dividends to be paid. The Issuer shall likewise have the option to redeem, in whole but not in part, any or both of the subseries (a) in the event payments in respect of the Preferred Shares become subject to additional withholding or any new tax as a result of certain changes in law, rule or regulation, or in the interpretation thereof, and such tax cannot be avoided by use of reasonable measures available to the Issuer; or (b) in the event an opinion of a recognized accountancy firm authorized to perform auditing services in the Republic of the Philippines has been delivered to the Issuer stating that the Preferred Shares may no longer be recorded as equity in the audited consolidated financial statements of the Issuer prepared in accordance with Philippine Financial Reporting Standards (“PFRS”), or such other accounting standards which succeed PFRS as adopted by the Issuer for the preparation of its audited consolidated financial statements for the relevant financial year, and such event cannot be avoided by use of reasonable measures available to the Issuer. Upon listing on the PSE, the Company reserves the right to purchase the Preferred Shares at any time in the open market or by public tender or by private contract at any price through the PSE without any obligation to purchase or redeem the other Preferred Shares. The Preferred Shares so purchased may either be redeemed (pursuant to their terms and conditions as set out in this Prospectus) and cancelled or kept as treasury shares, as applicable. Dividend Rate Step Up Unless the Preferred Shares shall have been redeemed by the Company on the Series 3A First Optional Redemption Date and on the Series 3B First Optional Redemption Date, the Initial Dividend Rate shall be adjusted as follows: (a) for Series 3A Preferred Shares, the higher of the (a) applicable Initial Dividend Rate; or (b) the

simple average of the closing per annum rate of the 7-year BVAL (or if the 7-year BVAL is not available or cannot be determined, any successor rate as determined by the Bankers Association of the Philippines (“BAP”) or the Bangko Sentral ng Pilipinas (“BSP”)), as shown on the PDEX page (or such successor page) of Bloomberg (or such successor electronic service provider) for the three (3) consecutive Business Days preceding and inclusive of the rate setting date, plus 3.25%; and

(b) for Series 3B Preferred Shares, the higher of the (a) applicable Initial Dividend Rate; or (b) the

simple average of the closing per annum rate of the 10-year BVAL (or if the 10-year BVAL is not available or cannot be determined, any successor rate as determined by the BAP or the BSP), as shown on the PDEX page (or such successor page) of Bloomberg (or such successor electronic

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service provider) for the three (3) consecutive Business Days preceding and inclusive of the rate setting date, plus 3.25%.

(The date of the listing of Series 3A Preferred Shares and the Series 3B Preferred Shares is referred to as the “Listing Date”. The 5.5th anniversary from the Listing Date referred to in (a) and the seventh anniversary from the Listing Date referred to in (b) are each referred to as a “Step Up Date”. The adjusted rates referred to in (a) and (b) are each referred to as a “Step Up Rate”.) However, if the Initial Dividend Rate is higher than the applicable Step Up Rate, there shall be no adjustment on the Dividend Rate, and the Initial Dividend Rate shall continue to be the Dividend Rate. In the event the relevant Step-up Date falls on a day that is not a Business Day,

(a) the rate setting will be done on the immediately succeeding Business Day using the average of the

relevant BVAL rates for the three (3) consecutive Business Days preceding and inclusive of the said rate setting date, and

(b) the higher of the applicable Initial Dividend Rate and the applicable Step-Up Rate will be applied

commencing on the Step-Up Date (which is the 5.5th anniversary date of the Series 3A Preferred Shares, and the 7th anniversary of the Series 3B Preferred Shares).

In the event that BVAL is replaced by a new benchmark rate as determined by the BAP or the BSP, such new benchmark rate shall be adopted for purposes of determining the Dividend Rate (the “New Benchmark Rate”). In the absence of such new replacement benchmark rate as determined by the BAP or the BSP and there is a mandatory directive by the BAP or the BSP to no longer use or apply BVAL, the Company and the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners shall negotiate to adopt an alternative rate that will serve as the New Benchmark Rate.

Payments on the Preferred Shares All payments in respect of the Preferred Shares are to be made free and clear of any deductions or withholding for or on account of any present or future taxes or duties imposed by or on behalf of the Republic of the Philippines, including but not limited to, stamp, issue, registration, documentary, value added or any similar tax or other taxes and duties, including interest and penalties. If such taxes or duties are imposed, the Company will pay additional amounts so that holders of the Preferred Shares will receive the full amount of the relevant payment which otherwise would have been due and payable; provided, however, that the Company shall not be liable for: (a) any withholding tax applicable on dividends earned by or on any amounts payable to the holders of the Preferred Shares, including any additional tax on such dividends imposed by changes in law, rule, or regulation; (b) any income tax (whether or not subject to withholding), percentage tax (such as stock transaction tax), documentary stamp tax or other applicable taxes on the redemption of the Preferred Shares or on the liquidating distributions as may be received by a holder of Preferred Shares; (c) any expanded value added tax which may be payable by any holder of the Preferred Shares on any amount to be received from the Company under the Preferred Shares; (d) any withholding tax, including any additional tax imposed by changes in law, rule, or regulation, on any dividend payable to any holder of the Share or any entity which is a non-resident foreign corporation; and (e) any applicable taxes on any subsequent sale or transfer of the Preferred Shares by any holder of the Preferred Shares which shall be for the account of the said holder (or the buyer in case such buyer shall have agreed to be responsible for the payment of such taxes). All sums payable by the Company to tax-exempt entities shall be paid in full without deductions for taxes, duties, assessments or governmental charges provided said entities present sufficient proof of such tax- exempt status from the tax authorities. See “Plan of Distribution—Application to Purchase” of this Prospectus for the list of documents required to be submitted as proof of tax-exempt status. Documentary stamp tax and all other costs and expenses for the issuance of the Preferred Shares and the

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documentation, if any, shall be for the account of the Company. Early Redemption by reason of a Tax Event In the event dividend payments become subject to additional or higher withholding or any new tax (including a higher rate of an existing tax) as a result of certain changes in law, rule or regulation, or in the interpretation thereof, and such tax cannot be avoided by use of reasonable measures available to the Company, the Company may redeem any subseries of the Preferred Shares at any time in whole, but not in part, having given not more than 60 nor less than 30 days’ notice prior to the intended date of redemption, at the Offer Price plus all accrued and Arrears of Dividends, if any. The Redemption Price shall be paid within five Business Days of the exercise of the right to redeem the Preferred Shares.

Early Redemption by reason of an Accounting Event In the event an opinion of a recognized accountancy firm authorized to perform auditing services in the Republic of the Philippines has been delivered to the Company stating that the Preferred Shares may no longer be recorded as equity in the audited consolidated financial statements of the Company prepared in accordance with PFRS, or such other accounting standards which succeed PFRS as adopted by the Company for the preparation of its audited consolidated financial statements for the relevant financial year, and such event cannot be avoided by use of reasonable measures available to the Company, the Company having given not more than 60 nor less than 30 days’ notice, may redeem any subseries of the Preferred Shares in whole, but not in part at the Redemption Price. Liquidation Rights in Respect of the Preferred Shares The Preferred Shares will constitute the direct and unsecured subordinated obligations of the Company ranking at least pari passu in all respects and ratably without preference or priority among themselves with all other Preferred Shares issued by the Company and any other Parity Securities issued by the Company. The Preferred Shares will be subordinated to the Capital Securities issued in 2018. In the event of a return of capital in respect of the Company’s winding up or otherwise (whether voluntarily or involuntarily) but not on a redemption or purchase by the Company of any of its share capital, the obligations of the Company in respect of the Preferred Shares will, subject to and to the extent permitted by applicable law, rank: (a) junior to all unsubordinated obligations of the Company (other than Parity Securities) and any obligation assumed by the Company under any guarantee of, or any indemnity in respect of, any obligation or commitment which rank or are expressed to rank senior to the Preferred Shares; (b) pari passu with each other and with any Parity Securities of the Company; and (c) senior only to the Company’s Junior Securities. The Company is at liberty from time to time without the consent of the holders of the Series 3 Preferred Shares to create and issue additional preferred shares or securities either (a) ranking at least pari passu in all respects with the Series 3 Preferred Shares, or (b) upon such terms as to ranking, distributions, conversion, redemption and otherwise as the Company may determine at the time of the issue. The holders of the Preferred Shares at the time outstanding will be entitled to receive, in Pesos out of the Company’s assets available for distribution to shareholders, together with the holders of any other of the Company’s shares ranking, as regards repayment of capital, pari passu with the Preferred Shares and before any distribution of assets is made to holders of any class of the Company’s shares ranking after the Preferred Shares as regards repayment of capital, liquidating distributions in an amount equal to the Offer Price of the Preferred Shares plus an amount equal to any dividends declared but unpaid in respect of the previous dividend period and any accrued and unpaid dividends for the then current dividend period to (and including) the date of commencement of the Company’s winding up or the date of any such other return of capital, as the case may be. If, upon any return of capital in the Company’s winding up, the amount payable with respect to the Preferred Shares and any other of the Company’s shares ranking as to any such distribution pari passu with the Preferred Shares is not paid in full, the holders of the Preferred Shares and of such other shares will share ratably in any such distribution of the Company’s assets in proportion to the

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full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of the Preferred Shares will have no right or claim to any of the Company’s remaining assets and will not be entitled to any further participation or return of capital in a winding up. No Pre-emptive Rights There are no pre-emptive rights extended to holders of Preferred Shares over all share issuances of the Company including, without limitation, treasury shares. Transfer of Shares and Share Register The Preferred Shares will be issued in scripless form through the electronic book-entry system of SMC Stock Transfer Service Corporation as Registrar for the Offer, and lodged with Philippine Depository and Trust Corporation (“PDTC”) as Depository Agent on Listing Date through PSE Trading Participants nominated by the Applicants. Legal title to the Preferred Shares will be shown in an electronic register of shareholders (the “Registry of Shareholders”) which shall be maintained by the Registrar. The Registrar shall send a transaction confirmation advice confirming every receipt or transfer of the Preferred Shares that is effected in the Registry of Shareholders (at the cost of the requesting Shareholder). The Registrar shall send (at the cost of the Company) at least once every quarter a Statement of Account to all Shareholders named in the Registry of Shareholders confirming the number of Shares held by each Shareholder on record in the Registry of Shareholders. Such Statement of Account shall serve as evidence of ownership of the relevant Shareholder as of a given date thereof. Any request by Shareholders for certifications, reports or other documents from the Registrar, except as provided herein, shall be for the account of the requesting Shareholder. Initial placement of the Preferred Shares and subsequent transfers of interests in the Preferred Shares shall be subject to normal Philippine selling restrictions for listed securities as may prevail from time to time. After Listing Date, Shareholders may request the Registrar, through their nominated PSE Trading Participant, to (a) open a scripless registry account and have their holdings of the Preferred Shares registered under their name (“name-on-registry account”), or (b) issue stock certificates evidencing their investment in the Preferred Shares. Any expense that will be incurred in relation to such registration or issuance shall be for the account of the requesting Shareholder. Philippine law does not require transfers of the Preferred Shares to be effected on the PSE, but any off- exchange transfers will subject the transferor to a capital gains tax or, to the extent applicable, donor’s tax and documentary stamp tax, which taxes may be significantly greater than the stock transfer tax applicable to transfers effected on an exchange. See “Taxation”. All transfers of shares on the PSE must be effected through a licensed stock broker in the Philippines. Not convertible into Common Shares The Preferred Shares shall not be convertible to any other preferred shares or common shares of the Company. Other Rights and Incidents Relating to the Preferred Shares Following are other rights and incidents relating to the Preferred Shares, which may also apply to other classes of Petron’s stock. Directors Unless otherwise provided by law or the Articles, the Company’s corporate powers are exercised, its

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business is conducted, and its property is controlled by the Board. Petron has 15 directors who are elected by holders of shares entitled to voting rights under the Articles during each annual meeting of the shareholders for a term of one year who shall serve as such until their successors shall have been duly elected and shall have qualified. As mentioned, holders of Preferred Shares are not entitled to vote for and elect the Company’s Directors. Petron’s By-laws currently disqualify or deem ineligible for nomination or election to the Board any person who is engaged in any business which competes with or is antagonistic to that of the Company. Without limiting the generality of the foregoing, a person shall be deemed so engaged:

a. If he is an officer, manager or controlling person of, or the owner (either of record or beneficially) of 10% or more of any outstanding class of shares of, any corporation (other than one in which the Company owns at least 30% of the capital stock) engaged in a business which the Board determines by resolution to be competitive or antagonistic to that of the Company or any of its affiliates and subsidiaries;

b. If he is an officer, manager, controlling person of, or the owner (either of record or beneficially) of 10% or more of any outstanding class of shares of any other corporation or entity engaged in any line of business of the Company or any of its affiliates and subsidiaries, if the Board determines by resolution that the laws against combinations in restraint of trade shall be violated by such person’s membership in the Board; and

c. If the Board, in the exercise of its judgment in good faith, determines by resolution that such person is the nominee of any person set forth in (a) or (b).

The Company conforms to the requirement under the Revised Corporation Code to have independent directors constituting at least 20% of the board. As of the date of this Prospectus, the Company has four independent directors, namely, Reynaldo G. David, Artemio V. Panganiban, Margarito B. Teves, and Carlos Jericho L. Petilla. The presence of a majority of the directors shall constitute a quorum for the transaction of business at any meeting. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum is achieved. Notice of any adjourned meeting need not be given. Any vacancy other than that caused by the removal by the shareholders, expiration of the term or increase in the number of directors on the Board, may be filled by the affirmative vote of at least a majority of the remaining directors, if still constituting a quorum. Any director elected in this manner shall serve only for the unexpired term of the director replaced. Shareholders’ Meetings At the annual meeting or at any special meeting of the Company’s shareholders, the latter may be asked to approve actions requiring shareholder approval under Philippine law. Quorum The Revised Corporation Code provides that, except in instances where the approval of shareholders representing two-thirds of the outstanding capital stock is required to approve a corporate act (usually involving the significant corporate acts where even non-voting shares may vote, as identified above) or where the by-laws provide otherwise, a quorum for a meeting of shareholders will exist if shareholders representing a majority of the capital stock are present in person, by proxy, via remote communication, or in absentia. Voting At each shareholders’ meeting, each holder of common shares shall be entitled to vote in person, or by proxy, via remote communication, or in absentia, all shares held by him, upon any matter duly raised in such meeting. Upon the other hand, holders of preferred shares may vote on matters which the Revised

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Corporation Code considers significant corporate acts that may be implemented only with the approval or assent of shareholders, including those holding shares denominated as non-voting in the articles of incorporation. See “Description of the Preferred Share –In General: No Voting Rights”. The Company’s By-laws provide that proxies shall be in writing and signed and in accordance with the existing laws, rules and regulations of the SEC. Duly accomplished proxies must be submitted to the office of the Corporate Secretary not later than 10 business days prior to the date of the stockholders’ meeting. Pursuant to the Revised Corporation Code, no proxies shall be valid for a period longer than five years. Fixing Record Dates The Board has the authority to fix in advance the record date for shareholders entitled: (a) to notice of, to vote at, or to have their votes voted at, any shareholders’ meeting; (b) to receive payment of dividends or other distributions or allotment of any rights; or (c) for any lawful action or for making any other proper determination of shareholders’ rights. Under the By-laws, the Board may, by resolution, direct the stock transfer books of the Corporation be closed for a period not exceeding 60 days preceding the date of any meeting of stockholders. The record date shall in no case be more than 60 days nor less than 35 days preceding such meeting of shareholders. In the case of dividend payments, the record date shall not be less than 10 business days after dividend declaration date in compliance with applicable regulations of the PSE. Appraisal Rights Philippine law recognizes the right of a shareholder to institute, under certain circumstances, proceedings on behalf of the corporation in a derivative action in circumstances where the corporation itself is unable or unwilling to institute the necessary proceedings to redress wrongs committed against the corporation or to vindicate corporate rights, as for example, where the directors themselves are the malefactors. In addition, the Revised Corporation Code grants a shareholder a right of appraisal in certain circumstances where he has dissented and voted against a proposed corporate action, including:

• An amendment of the articles of incorporation which has the effect of adversely affecting the rights attached to his shares or of authorizing preferences in any respect superior to those of outstanding shares of any class or extension or shortening the term of corporate existence;

• The sale, lease, exchange, transfer, mortgage, pledge or other disposal of all or substantially all of the assets of the corporation;

• The investment of corporate funds in another corporation or business for any purpose other than the primary purpose for which the corporation was organized; and

• A merger or consolidation.

In these circumstances, the dissenting shareholder may require the corporation to purchase his shares at a fair value which, in default of an agreement, is determined by three disinterested persons, one of whom shall be named by the shareholder, one by the corporation, and the third by the two thus chosen. The SEC will, in the event of a dispute, determine any question about whether a dissenting shareholder is entitled to this right of appraisal. The dissenting shareholder will be paid if the corporate action in question is implemented and the corporation has unrestricted retained earnings sufficient to support the purchase of the shares of the dissenting shareholders. Derivative Rights Under Philippine law, shareholders have the right to institute proceedings on behalf of the corporation in a derivative action in the event that the corporation itself is unable or unwilling to institute the necessary proceedings to rectify the wrongs committed against the corporation or to vindicate corporate rights as, for example, where the directors themselves are the malefactors.

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Accounting and Auditing Requirements/Rights of Inspection Philippine stock corporations are required to file copies of their annual financial statements with the SEC and the Philippine Bureau of Internal Revenue (“BIR”). Corporations whose shares are listed on the PSE are also required to file quarterly and annual reports with the SEC and the PSE. Shareholders are entitled to request copies of the most recent financial statements of the corporation which include a statement of financial position as of the end of the most recent tax year and a profit and loss statement for that year. Shareholders are also entitled to inspect and examine at reasonable hours on a business day the books and records that the corporation is required by law to maintain. The Board is required to present to shareholders at every annual meeting a financial report of the operations of the corporation for the preceding year. This report is required to include audited financial statements.

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RISK FACTORS

Investment in the Preferred Shares involves a certain degree of risk. Prior to making any investment decision, prospective investors should carefully consider all of the information in this Prospectus, including the risks and uncertainties described below. The business, financial condition or results of operations of the Issuer could be materially adversely affected by any of these risks. This Prospectus contains forward-looking statements that involve risks and uncertainties. Petron adopts what it considers conservative financial and operational controls and policies to manage its business risks. The Company’s actual results may differ significantly from the results discussed in the forward- looking statements. See “Forward-Looking Statements” of this Prospectus. Factors that might cause such differences, thereby making the offering speculative or risky, may be summarized into those that pertain to the business and operations of Petron, in particular, and those that pertain to the over-all political, economic, and business environment, in general. These risk factors and the manner by which these risks shall be managed are presented below. The risk factors discussed in this section are of equal importance and are only separated into categories for easy reference. The means by which the Company intends to address the risk factors discussed herein are principally presented under "The Company — Strengths" beginning on page 84, "The Company — Areas of Strategic Focus" beginning on page 87, "Management’s Discussion and Analysis of Financial Position and Results of Operations" beginning on page 171, “Corporate Governance and Management” on page 142 and "Board of Directors and Management of the Company" beginning on page 143 of this Prospectus. Additional considerations and uncertainties not presently known to the Issuer or which the Issuer currently deems immaterial may also have an adverse effect on an investment in the Preferred Shares. Investors should carefully consider all the information contained in this Prospectus including the risk factors described below, before deciding to invest in the Preferred Shares. The Company’s business, financial condition and results of operations could be materially adversely affected by any of these risk factors. General Risk Warning The price of securities can and does fluctuate, and any individual security may experience upward or downward movements, and may even become valueless. There is an inherent risk that losses may be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. There may be a big difference between the buying price and the selling price of these securities. Investors deal in a range of investments, each of which may carry a different level of risk. Prudence Required This risk disclosure does not purport to disclose all the risks and other significant aspects of investing in these securities. Investors should undertake independent research and study on the trading of securities before commencing any trading activity. Investors may request publicly available information on the Preferred Shares and the Issuer thereof from the SEC and PSE. Professional Advice Investors should seek professional advice if they are uncertain of, or have not understood any aspect of the securities to invest in or the nature of risks involved in trading of securities, especially high risk securities.

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Risks Relating to the Company’s Business and Operations Volatility of the price of crude oil and petroleum products may have a material adverse effect on the Company’s business, results of operations and financial condition. The Company’s financial results are primarily affected by the relationship, or margin, between the prices for its refined petroleum products and the prices for crude oil that is the main raw material for these refined petroleum products. Crude oil generally accounts for a large portion of the Company’s total cost of goods sold. For example, in the year ended December 31, 2018, crude oil accounted for approximately 52% of the Company’s total cost of goods sold. Many factors influence the price of crude oil, including changes in global supply and demand for crude oil, international economic conditions, global conflicts or acts of terrorism, weather conditions, domestic and foreign governmental regulation and other factors over which the Company has no control. Historically, international crude oil prices have been volatile, and they are likely to continue to be volatile in the future. For example, in the latter part of 2014, the global oil market was especially volatile with crude oil prices plunging by as much as approximately US$40/bbl in just four months. Dubai crude oil price declined from an average of approximately US$102/bbl in August 2014 to an average of approximately US$60/bbl in December 2014. The volatility continued, albeit at a more gradual manner, with oil prices extending their downward trend throughout 2015 until January 2016 when Dubai crude oil price reached a bottom of approximately US$23/bbl. Thereafter, crude prices steadily recovered with Dubai crude oil price averaging US$41/bbl and US$53/bbl in 2016 and 2017, respectively. However, this volatility once again manifested as Dubai crude peaked to an average of US$79//bbl for the month of October 2018 only to drop to an average of US$57/bbl for the month of December of the same year. Prices have since recovered in the first two months of 2019 with Dubai crude averaging approximately US$60/bbl. The Company holds approximately two months and approximately three weeks of crude oil and finished petroleum products inventory in the Philippines and Malaysia, respectively. Accordingly, since the Company accounts for its inventory using the first-in-first-out method, a sharp drop in crude oil prices could adversely affect the Company, as it may require the Company to sell its refined petroleum products produced with higher-priced crude oil at lower prices. The Company may not be able to pass crude oil price fluctuations along to its consumers in a timely manner, or at all, due to regulatory restrictions or social and competitive concerns. The Philippine government has historically intervened to restrict increases in the prices of petroleum products in the Philippines from time to time. For example, on October 2, 2009, then President Gloria MacapagalArroyo declared a state of national calamity in view of the devastation caused by typhoons “Ondoy” and “Pepeng.” President Arroyo subsequently issued Executive Order 839 mandating that prices of petroleum products in Luzon be kept at October 15, 2009 levels effective October 23, 2009. As a result of this price freeze, the Company was unable to raise prices for its refined petroleum products, which adversely affected its profitability during the period until the price freeze was lifted on November 16, 2009. Any inability or limitation on the ability to pass on fluctuations in the price of crude oil may have a material adverse effect on the Company’s business, results of operations and financial condition. In addition, even if the Company were able to pass on increases in the price of crude oil to its customers, demand for its products may decrease as a result of such price increases. In Malaysia, the Company’s operations are subject to government price controls. See “Risk Factors—Risks Relating to the Company’s Business and Operations—The fuel business in Malaysia is regulated by the Malaysian government, and the Company is affected by Malaysian government policies and regulations relating to the marketing of fuel products, including price controls, subsidies and quotas”. Furthermore, a sharp rise in crude oil prices would increase the Company’s requirements for short-term financing for working capital and may result in higher financing costs for the Company. Any difficulty in securing short-term financing for working capital, or unfavorable pricing terms, may have a material adverse effect on the Company’s financial condition and results of operations.

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To minimize the Company’s risk of potential losses due to volatility of international crude and product prices, the Company enters into commodity hedging for crude and petroleum products. A hedging policy developed by the Company’s Commodity Risk Management Department is in place. Hedges are intended to protect crude inventories from risks of downward price movements and squeezed margins.

The Company relies primarily on a small number of suppliers for a significant portion of its crude oil requirements in each of the Philippines and Malaysia. The Company purchases a significant portion of the crude oil for its Philippine operations from Saudi Arabian Oil Company (“Saudi Aramco”), the state-owned national oil company of Saudi Arabia. For example, in 2018, the Company purchased approximately 46% of the total crude oil supply requirements of the Limay Refinery from Saudi Aramco. Petron has a term contract with Saudi Aramco entered into in 2008 to purchase various Saudi Aramco crudes. Pricing is determined through a formula that is linked to international industry benchmarks. The contract is automatically renewed annually unless either the Company or Saudi Aramco decides to terminate the contract upon at least 60 days’ written notice prior to its expiration date. As of March 31, 2019, neither the Company nor Saudi Aramco has terminated the contract. In addition, the Company also purchases a significant portion of the crude oil for its Philippine operations from Kuwait Petroleum Corporation (“KPC”). Petron has a contract with KPC to purchase various Kuwait crude. Pricing is determined through a formula that is linked to international industry benchmarks. The contract is renewable subject to mutual agreement of the parties. As of March 31, 2019, neither the Company nor KPC has terminated the contract. The supply of crude oil by Saudi Aramco and KPC is subject to a variety of factors beyond the Company’s control, including political developments in and the stability of Saudi Arabia, Kuwait and the rest of the Middle East, government regulations with respect to the oil and energy industry in those regions, weather conditions and overall economic conditions in the Middle East. In Malaysia, the Company purchases a significant portion of its crude oil supply requirements for the Port Dickson Refinery from ExxonMobil Exploration and Production Malaysia, Inc. (“EMEPMI”) pursuant to a long-term supply contract. A disruption in the operations of Saudi Aramco, KPC or EMEPMI, or a decision by any of Saudi Aramco, KPC or EMEPMI to amend or terminate their respective contracts with the Company, could negatively impact the Company’s crude oil supply. If the Company’s supply of crude oil from Saudi Aramco, KPC or EMEPMI were disrupted, the Company would be required to meet any consequent supply shortfall through other suppliers or spot market purchases. Depending on market conditions at the time of the disruption, such purchases from other suppliers or the spot market could be at higher prices than the Company’s purchases from Saudi Aramco, KPC or EMEPMI, which would adversely affect the Company’s financial condition and results of operations. The Limay Refinery is capable of processing various types of crude oil. The Company’s crude oil optimization strategy includes the utilization of various types of crude oil to provide additional value to the Company. The completion of the RMP-2 has given the Limay Refinery greater flexibility to use heavier, more sour alternative crude. The Port Dickson Refinery is designed to process sweet crude oil. The Company’s crude oil optimization strategy for the Port Dickson Refinery includes diversification in processing different types of local as well as regional sweet crude oil. However, there can be no assurance that the Company will be able to successfully implement its crude oil optimization strategies and diversify to using other crude oil efficiently or in a timely manner. If the Company is unable to obtain an adequate supply of crude oil or is only able to obtain such supply at unfavorable prices, its margins and results of operations would be materially and adversely affected. The Company maintains an inventory management system that allows it to forecast demand with ample lead time to source for supply and meet the needs of its clients.

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The Company’s business, financial condition and results of operations may be adversely affected by intense competition and cyclicality in global and regional refining capacities. The Company faces intense competition in the sale of petroleum and other related products in the markets in which it operates. The Company competes with a number of multinational, national, regional and local competitors in the refined petroleum products business for market share of petroleum products sales. See “Business–Competition” for more information about the competition faced by the Company. Because of the commodity nature of oil products, competition in the Philippine and international markets for refined petroleum products is based primarily on price as adjusted to account for differences in product specifications and transportation and distribution costs. Participants in the reseller and LPG sectors in the Philippines continue to rely on aggressive pricing and discounting in order to expand their market share. The Company’s Malaysian operations are subject to government price controls and quotas. As a result, competition in these market sectors is based primarily on the allocation of the applicable quotas by the Malaysian government. See “Risk Factors—Risks Relating to the Company’s Business and Operations—The fuel business in Malaysia is regulated by the Malaysian government, and the Company is affected by Malaysian government policies and regulations relating to the marketing of fuel products.” The Company’s competitiveness will depend on its ability to manage costs, increase and maintain efficiency at its refineries, effectively hedge against fluctuations in crude oil prices, maximize utilization of its assets and operations and comply with and obtain additional quotas from the Malaysian government. If the Company is unable to compete effectively with its competitors, its financial condition and results of operations, as well as its business prospects could be materially and adversely affected. In addition, the Philippine oil industry is affected by ongoing smuggling and illegal trading of petroleum products. These illegal activities have resulted in decreases in sales volume and sales price for legitimate oil market participants in the Philippines. The Company’s ability to compete effectively will depend to a degree on the proper enforcement of Philippine regulations by the Philippine government, which is beyond its control. Furthermore, the global and regional refining industry has historically experienced periods of tight supply, resulting in increased prices and margins, as well as periods of substantial capacity additions, resulting in oversupply and reduced prices and margins. Any downturn in prices or margins resulting from existing or future excess industry capacity could have a material adverse impact on the Company's business, financial condition and results of operations. The Company strengthens and expands its distribution network to improve its presence in both growing and high potential markets. In addition, the Company continues to invest in building brand equity to ensure consistent market recognition. Any significant disruption in operations or casualty loss at the Company’s refineries could adversely affect its business and results of operations and result in potential liabilities. The Company’s operation of its refineries and implementation of its expansion plans could be adversely affected by many factors, including accidents, breakdown or failure of equipment, interruption in power supply, human error, fires, explosions, release of toxic fumes, engineering and environmental problems, natural disasters and other unforeseen circumstances and problems. For example, in June 2016, there was a fire in the Port Dickson Refinery which necessitated a 10-day plant shutdown. Through the Company’s structured safety program, the fire was safely extinguished by trained Petron firefighters and the local fire department as well as personnel from the neighboring oil company. The incident required the activation of the Company’s business continuity plan, including repairs and re-starting operations at the Port Dickson Refinery, and in the interim, managing incoming crude supply and continued supply of petroleum products to customers, to ensure the reliable and continuous supply of finished products. Although Port Dickson Refinery underwent a temporary shutdown to facilitate investigations and repair works, there was no significant impact on product supply due to the activation of the Company’s business continuity plan. No injury was recorded and the incident left minimal impact on the environment.

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These types of disruptions could result in product run-outs, facility shutdowns, equipment repair or replacement, increased insurance costs, personal injuries, loss of life and/or unplanned inventory build-up, all of which could have a material adverse effect on the business, results of operations and financial condition of the Company. The Company has insurance policies that cover property damage, marine cargo, third party liability,

personal injury, accidental death and dismemberment, sabotage and terrorism, machinery breakdown and

business interruption to mitigate the potential impact of these risks. However, these policies do not cover

all potential losses, and insurance may not be available for all risks or on commercially reasonable terms.

The Company self-insures some risks which have a low probability of occurring and for which insurance

policies are not readily available or are priced unreasonably high.

There can be no assurance that operational disruptions will not occur in the future or that insurance will adequately cover the entire scope or extent of the losses or other financial impact on the Company. The fuel business in Malaysia is regulated by the Malaysian government, and the Company is affected by Malaysian government policies and regulations relating to the marketing of fuel products. As in many countries, the fuel business in Malaysia is regulated by the government. The Malaysian government regulates the pricing structure through the automatic pricing mechanism (“APM”), pursuant to which it mandates (i) the prices of certain refined petroleum products, (ii) quotas and (iii) certain fixed amounts for marketing, transportation and distribution costs in relation to the subsidy structure. See “Regulatory and Environmental Matters—Malaysia—Sale and Pricing of Refined Petroleum Products—Price Control and Anti Profiteering Act, 2011.” The Malaysian government may subsidize fuel prices so that increases in international crude oil prices are not borne fully by Malaysian consumers. Effective March 30, 2017, the Malaysian government implemented a managed float system under which the Malaysian government fixes the government-mandated retail prices of RON 95 and RON 97 petroleum and diesel on a weekly basis based on Mean of Platts Singapore (“MOPS”). If government mandated prices are lower than the fuel products’ total built up cost per the APM, the Company receives subsidies from the Malaysian government. Conversely, if government mandated prices are higher than the fuel products’ total built up cost per the APM, the Company pays a balancing figure to the Malaysian government. On March 2, 2019, the government implemented ceiling prices for RON95 and diesel. See “Regulatory and Environmental Matters—Malaysia Sale and Pricing of Refined Petroleum Products—Price Control and Anti Profiteering Act, 2011.” A substantial portion of the Company’s revenue has been derived from sales of refined petroleum products in Malaysia that are subject to price controls. In addition, the sale of diesel in Malaysia is subject to a quota system that applies to oil companies and eligible users and customers to ensure that subsidized diesel sold at service stations (meant strictly for road transport vehicles) is not sold illegally to industrial or commercial customers at unregulated prices. Diesel sales at service stations that exceed the volumes permitted under the Company’s or its customers’ quotas are not eligible for government subsidies. Accordingly, in instances when the government-mandated prices are lower than the Company’s total built-up costs, the Company endeavors to limit diesel sales to volumes covered by the quotas. See “Regulatory and Environmental Matters — Malaysia — Sale and Pricing of Refined Petroleum Products — Price Control and Anti Profiteering Act, 2011.” There can be no assurance that the Malaysian government will increase quotas, grant applications or not decrease the Company’s quotas or those of any of its customers in the future. A substantial portion of the Company’s revenue is derived from sales of diesel in Malaysia that are subject to the quota system. Accordingly, if the Malaysian government decreases or does not increase the Company’s quotas or those of any of its selected transportation sector customers, the Company’s financial condition and results of operations may be materially and adversely affected. The Company keeps itself updated on government policies and regulations pertaining to the oil industry in Malaysia in order to identify potential regulatory risks and proactively respond to these risks.

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Continued compliance with safety, health, environmental and zoning laws and regulations may adversely affect the Company’s results of operations and financial condition. The operations of the Company’s business are subject to a number of national and local laws and regulations in the countries in which it operates, including safety, health, environmental and zoning laws and regulations. These laws and regulations impose controls on air and water discharges, the storage, handling, discharge and disposal of waste, the location of storage facilities, and other aspects of the Company’s business. Failure to comply with relevant laws and regulations may result in financial penalties or administrative or legal proceedings against the Company, including the revocation or suspension of the Company’s licenses or operation of its facilities. The Company has incurred, and expects to continue to incur, operating costs to comply with such laws and regulations. In addition, the Company has made, and expects to continue to make, capital expenditures on an ongoing basis to comply with safety, health, environmental and zoning laws and regulations. See “Regulatory and Environmental Matters—Philippines.” For example, the Company built a light virgin naphtha isomerization unit and a gas oil hydrotreater in 2006 to ensure that the Limay Refinery complied with the standards mandated by the Philippine Clean Air Act. Additional facilities were built from 2014 to 2015 to comply with environmental requirements mainly in relation to the RMP-2. These included a refinery wastewater treatment plant, sour water stripping facilities, sulphur recovery units, a flue gas desulfurizer and a flare system. There can be no assurance that the Company will be in compliance with applicable laws and regulations or will not become involved in future litigation or other proceedings or be held responsible in any future litigation or proceedings relating to safety, health, environmental and zoning matters, the costs of which could be material. In addition, safety, health, environmental and zoning laws and regulations in the Philippines and Malaysia have become increasingly stringent. There can be no assurance that the adoption of new safety, health, environmental and zoning laws and regulations, new interpretations of existing laws, increased governmental enforcement of safety, health, environmental and zoning laws or other developments in the future will not result in the Company being subject to fines and penalties or having to incur additional capital expenditures or operating expenses to upgrade or relocate its facilities. For example, in November 2001, the City of Manila, citing concerns of safety, security and health, passed an ordinance reclassifying the area occupied by the Company’s main storage facility in Pandacan, Manila, from industrial to commercial, thereby prohibiting the continued operation of the Company’s facility in Pandacan as a petroleum storage facility and necessitating relocation to other alternative sites in Luzon. In accordance with the Supreme Court decision in the case relating to the petroleum storage facilities in Pandacan, the Company ceased operations of its petroleum storage facilities in Pandacan in August 2015. The Company has also decided to eventually relocate its lubricant blending plant located in Pandacan to another site. Another example is the mandatory compliance with Euro IV standards in the Philippines in 2016 and the implementation in Malaysia of Euro 4M and Euro 5M compliant fuels in phases from 2014 to 2027. See “Regulatory and Environmental Matters—Malaysia—Environmental Laws—Environmental Quality Act, 1974.” The Company has made and is making capital expenditures to ensure that its refineries comply with Euro IV standards, Euro 4M and Euro 5M standards, as applicable, as these standards are mandated by the Philippine and Malaysian governments, respectively. If the Company fails to complete its planned refinery upgrades or enhancements on time, it may have to import additional products in the spot market to blend with its own production to ensure compliance with the relevant standards, which could have a material adverse effect on the Company’s financial condition and results of operations. In addition, if the measures implemented by the Company to comply with applicable laws, regulations and standards are not deemed sufficient by governmental authorities, compliance costs may significantly exceed current estimates, and expose the Company to potential liabilities, including administrative penalties. If the Company fails to meet safety, health and environmental requirements, it may be subject to administrative, civil and criminal proceedings by governmental authorities, as well as civil proceedings by environmental groups and other individuals, which could result in substantial fines and penalties against the Company and damage to its reputation, as well as orders that could limit or affect its operations. There is no assurance that the Company will not become involved in future litigation or other proceedings relating

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to safety, health and environmental matters. Litigation or other proceedings are inherently unpredictable and may be time consuming and disruptive to the Company’s business and operations, regardless of the merits of the claims. There is no assurance that the Company will not be held responsible in any such future litigation or other proceedings, the costs of which could be material. Environmental compliance and remediation costs at sites on which the Company’s facilities are located or other locations and related litigation and other proceedings could materially and adversely affect the Company’s financial condition and results of operations. The Company maintains a strong compliance culture and monitors government policies and regulations to enable the Company to identify potential regulatory risks and proactively respond to such risks. Failure to respond quickly and effectively to product substitution or government-mandated product formulations may adversely affect the Company’s business and prospects. Any potential increase in oil prices and environmental concerns could make it more attractive for the Company’s customers to switch to alternative fuels such as natural gas, ethanol and palm oil methyl ester fuel blends. If alternative fuels become more affordable and available than petroleum products, customers may shift from petroleum to these alternative fuels not offered by the Company, resulting in lower sales volumes. In recent years, the Philippine government has enacted regulations mandating the inclusion of a specified percentage of alternative fuels in gasoline and diesel fuels sold or distributed by every oil company in the Philippines, and these types of requirements may be increased in the future. In Malaysia, the government initially mandated that all diesel used for automotive purposes be comprised of 5% palm oil methyl ester. This was subsequently increased to 7% in the second half of 2014. If the Company does not respond quickly and effectively to product substitutions or government mandated product formulations in the future, its business and prospects may be adversely affected. To ensure adherence to government product substitution requirements, the Company monitors government policies and coordinates with regulators. The Company’s business strategies require significant capital expenditures and financing, are subject to a number of risks and uncertainties, and its financial condition and results of operations may be adversely affected by its debt levels. The Company’s business is capital intensive. Specifically, the processing and refining of crude oil and the purchase, construction and maintenance of machinery and equipment require substantial capital expenditures. The Company’s ability to maintain and increase its sales, net income and cash flows may be affected by the timely and successful completion of its planned capital expenditure projects. The Company’s current business strategies involve, among others, (i) continued investment in the Limay Refinery to support the increased utilization from RMP—2 and improve refinery operations; (ii) continued expansion of its retail service station, LPG and lubes network in the Philippines; (iii) expansion and upgrade of its logistics capacity; and (iv) expansion of Malaysia operations with new service station additions and facilities improvements in Port Dickson Refinery to enable it to produce Euro 5M-compliant fuels. If the Company fails to complete its planned capital expenditure projects on time or within budget or at all, or to operate its facilities at their designed capacity, it may be unable to achieve the targeted growth in sales and profits, and its business, results of operations and financial condition could be adversely affected. Furthermore, there can be no assurance that the Limay Refinery will run at the expected capacity or achieve the expected production profile, or that there will be sufficient demand and logistical support for the Company’s increased production resulting from the completion of RMP-2. Any of the foregoing factors could adversely affect the Company’s business, financial condition and results of operations. In addition, the Company has incurred a substantial amount of debt to finance its capital expenditure projects, a significant portion of which is due in five years or less. The Company’s ability to complete its planned capital expenditure projects and meet its debt servicing obligations will depend in part on its ability to generate sufficient cash flows from its operations and obtain adequate additional financing. There can be no assurance that the Company will be able to generate sufficient cash flows from its operations or obtain adequate financing for its planned capital expenditure projects or to meet its debt servicing

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obligations, on acceptable terms or at all. Failure by the Company to finance and successfully implement its planned capital expenditure projects could adversely affect its business, financial condition and results of operations. The Company judiciously oversees its capital expenditure projects and ensures progress is on track. The Company likewise practices prudent financial management and continues to develop new sources of financing. Changes in applicable taxes, duties and tariffs could increase the Company’s operating costs and adversely affect its business, results of operations and financial condition. The Company’s operations are subject to various taxes, duties and tariffs. The tax and duty structure of the oil industry in the Philippines has undergone some key changes in recent years. For example, duties for the import of crude oil and petroleum products into the Philippines were increased on January 1, 2005 from 3% to 5%, and these duties were subsequently reduced to 0% with effect from July 4, 2010 (except for certain types of aviation gas). Furthermore, the Philippine government imposed an additional 12% value-added tax (“VAT”) on the sale or importation of petroleum products in 2006.

On January 1, 2018, Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and

Inclusion (“TRAIN”), took into effect. The TRAIN amended provisions of the Philippine Tax Code, among

others, increasing excise tax rates of petroleum products to take effect on January 1, 2018, January 1, 2019

and January 1, 2020.

The increase in excise tax rates on petroleum products will significantly increase the excise taxes and VAT payable of the Company on its importation and production of petroleum products. However, the scheduled increase shall be suspended when the average Dubai crude oil price based on MOPS for three 3 months prior to the scheduled increase of the month reaches or exceeds USD80/bbl. Malaysia’s system of import duties and sales taxes was replaced by a goods and service tax (“GST”) effective April 1, 2015. The GST, however, was revoked effective June 1, 2018 and the Sales and Service Tax was issued to take its place effective September 1, 2018. The changes in the GST and Sales and Service Tax did not affect import duty. There can be no assurance that any future tax changes in the Philippines or Malaysia would not have a material and adverse effect on the Company’s business, financial condition and results of operations. The Company may be adversely impacted by the fluctuations in the value of the Philippine Peso and the Ringgit Malaysia against the U.S. dollar. The substantial majority of the Company’s revenues are denominated in either Philippine Pesos or Ringgit Malaysia, while the substantial majority of its expenses, including crude oil purchases and foreign currency denominated debt service costs, are denominated in U.S. dollars. In 2018, approximately 50% of the Company’s revenues were denominated in Philippine Pesos, approximately 34% of its revenues were denominated in Ringgit Malaysia, while approximately 71% of its cost of goods sold were denominated in U.S. dollars. In addition, as of 2018, 29% of the Company’s outstanding debt was denominated in U.S. dollars. The Company’s financial reporting currency is the Peso, and therefore depreciation of the Peso relative to the U.S. dollar would result in increases in the Company’s foreign currency denominated expenses as reflected in its Peso financial statements, and could also result in foreign exchange losses resulting from the revaluation of foreign currency denominated assets and liabilities, including increases in the Peso amounts of the Company’s U.S. dollar denominated debt obligations, thereby adversely affecting the Company’s results of operations and financial condition. In addition, there can be no assurance that the Company could increase its Peso—or Ringgit—denominated product prices to offset increases in its crude oil or other costs resulting from any depreciation of the Peso or the Ringgit, as applicable. From January 1, 2016 to December 31, 2018, the Philippine Peso versus the U.S. dollar fluctuated from a low of ₱ 46.010 per U.S. dollar on June 8, 2016 to a high of ₱ 54.33 per U.S. dollar on October 4, 2018. In the same period,

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Malaysian Ringgit versus the U.S. dollar fluctuated from a low of RM 3.8430 per U.S. dollar on April 13, 2016, to a high of RM 4.4980 per U.S. dollar on January 4, 2017.5 While the Company uses a combination of natural hedges, which involve holding U.S. dollar—denominated assets and liabilities, and derivative instruments to manage its exchange rate risk exposure, its exchange rate exposures are not fully protected. There can be no assurance that the value of the Peso or the Ringgit Malaysia will not decline or continue to fluctuate significantly against the U.S. dollar, and any significant future depreciation of the Peso or the Ringgit Malaysia could have a material adverse effect on the Company’s margins, results of operations and financial condition. The Company undertakes hedging of foreign exchange risk to manage its exposure to foreign currency denominated liabilities and the risk posed by foreign exchange fluctuations in the cost of its imported petroleum products. The Company depends on experienced, skilled and qualified personnel and management team, and its business and growth prospects may be disrupted if it is unable to retain their services. The Company depends on experienced, skilled and qualified personnel for the management and operation of its business. The loss of such experienced, skilled or qualified personnel may lead to operating challenges and increased costs. These challenges include lack of resources, loss of knowledge and lengthy period of time associated with skill development. In this case, costs, including costs related to contract labor, productivity and safety, may rise. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to new employees, or the limited availability and rising cost of contract labor may adversely affect the Company’s ability to manage and operate its business. The loss of a significant number of qualified personnel could adversely affect the Company’s ability to compete in its industry, which in turn could have a material adverse effect on its business, results of operations and cash flows. In addition, the Company relies, and will likely continue to rely, significantly on the continued individual and collective contributions of its management team. There can be no assurance that the Company will be able to retain its management team. The loss of any of these key employees without a suitable replacement, or the Company’s inability to retain these key employees, could have a material adverse effect on its business, results of operations and cash flows. To mitigate this risk, the Company ensures that its compensation and benefit packages for its management, officers, staff and rank-and-file are competitive and within industry standards. Promotions and pay raises are merit-based and performance appraisals are conducted regularly. The Company’s controlling shareholder may have interests that may not be the same as those of other shareholders. San Miguel Corporation (“SMC”), directly and indirectly, holds an effective 68.26% of the Company’s outstanding common equity as of December 31, 2018. See “Ownership and Corporate Structure” of this Prospectus. SMC is not obligated to provide the Company with financial support. The interests of SMC may differ from those of the other shareholders. SMC may direct the Company in a manner that is contrary to the interests of the shareholders. There can be no assurance that conflicts of interest between SMC and the other shareholders will be resolved in favor of the Company’s shareholders. If the interests of SMC conflict with the interests of the Company, the Company could be disadvantaged by the actions that SMC chooses to pursue. In addition, while the Company expects to benefit from its ongoing relationship with SMC and its subsidiaries and affiliates through their global reach and relationships, there can be no assurance that SMC will allow the Company to have access to such benefits.

5 According to Bloomberg historical rates of the Philippine Peso Spot Currency and Reuters historical rates of the Malaysian Ringgit Spot Currency

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The Company may fail to integrate acquired businesses properly, which could adversely affect the Company’s results of operations and financial condition. From time to time, the Company considers selective opportunities to expand both domestically and outside the Philippines through strategic acquisitions consistent with its focuses on increased production of White Products, expansion of its sales network and logistics capability, and the creation of operational synergies. However, there can be no assurance that the Company will be able to integrate its acquisitions fully in line with its strategy. Any failure to do so could have a material adverse effect on the business, results of operations and financial condition of the Company. If the number or severity of claims for which the Company is self-insured increases, or if it is required to accrue or pay additional amounts because the claims prove to be more severe than its recorded liabilities, the Company’s financial condition and results of operations may be materially adversely affected. The Company’s refining of crude oil and marketing and distribution of refined petroleum products in the Philippines and Malaysia are subject to inherent risks, such as equipment defects, malfunctions, failures or misuse, which could cause environmental pollution, leaks or spills, personal injury or loss of life, as well as damage to and destruction of the environment, which could result in liabilities that exceed the Company’s insurance coverage and have a material adverse effect on its financial condition and results of operations. The Company could also be adversely affected by business interruption caused by war, terrorist activities, mechanical failure, human error, political action, labor strikes, fire and other circumstances or events. The Company uses a combination of self-insurance, reinsurance and purchased insurance to cover its properties and certain potential liabilities. The Company’s insurance coverage includes property, marine cargo and third-party liability, as well as personal injury, accidental death and dismemberment, sabotage and terrorism, machinery breakdown and business interruption. One of the main insurance policies of the Company, the Industrial All Risk (“IAR”) policy covers the Limay Refinery for material damages, machinery breakdown and business interruption. The business interruption coverage under the IAR policy has a US$300.0 million limit. All insurance policies relating to the Company’s Philippine operations are written by its wholly owned insurance subsidiary, Petrogen Insurance Corporation (“Petrogen”). The majority of the risks insured by Petrogen are reinsured with Standard & Poor’s A—rated foreign insurers through Overseas Ventures Insurance Corporation Ltd. (“Ovincor”), Petron’s Bermuda-based captive insurance subsidiary. For its Malaysian operations, the Company purchases insurance from Malaysian insurance companies, consistent with Malaysian law. The Company estimates the liabilities associated with the risks retained by it, in part, by considering historical claims, experience and other actuarial assumptions which, by their nature, are subject to a degree of uncertainty and variability. Among the causes of this uncertainty and variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, legal interpretations and actual claim settlement patterns. If the number or severity of claims for which the Company is self—insured increases, or if it is required to accrue or pay additional amounts because the claims prove to be more severe than the original assessments, the Company’s financial condition, results of operations and cash flows may be materially and adversely affected. The Company regularly reviews and updates its insurance policies to ensure it is reasonably protected from foreseeable events and risks. Existing or future claims against the Company, its subsidiaries, associates or joint ventures, or directors or key management may have an unfavorable impact on the Company. From time to time, the Company, its subsidiaries, associates or joint ventures, or directors or key management may be subject to litigation, investigations, claims and other legal proceedings. For a description of certain legal proceedings, see “Business—Legal Proceedings” of this Prospectus. Legal proceedings could cause the Company to incur unforeseen expenses, occupy a significant amount of management’s time and attention, and negatively affect the Company’s business operations and financial position. Further, legal proceedings could continue for a prolonged period of time and be time-consuming with unpredictable outcomes and it is difficult for the Company to predict the possible losses, damages or

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expenses arising from such legal proceedings. An unfavorable outcome in these or other legal proceedings could have a material adverse effect on the business, financial position, results of operations and cash flows. With respect to the ongoing legal cases, while the final outcomes of these legal proceedings are not certain, the Company believes it has strong legal grounds in each of these legal proceedings. In certain cases, the Company has made provisions in its financial statements for possible liabilities arising from adverse results of these legal proceedings.

Changes in applicable accounting standards may impact the Company’s businesses, financial

condition and results of operations.

The PFRS Council issues, from time to time, new standards and amendments to existing standards and interpretations. There can be no assurance that the Company’s financial condition, results of operations or cash flows will not appear to be materially worse under the new standards. For example, effective January 1, 2019, lessees may no longer classify their leases as either operating or finance leases in accordance with Philippine Accounting Standard 17. Rather, lessees will be required to 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. There can be no assurance that the Company’s financial condition and results of operations will not be materially affected under PFRS 16. Furthermore, any failure to successfully adopt the new standards may adversely affect the Company’s results of operations or financial condition. Risks Relating to the Philippines and Malaysia The Company’s business and sales may be negatively affected by slow growth rates and economic instability in the Philippines and Malaysia, as well as globally. The Company derives substantially all of its revenues and operating profits from sales of its products in the Philippines and Malaysia. In 2018, the Company derived approximately 64% and 36% of its sales from its Philippine and Malaysian operations, respectively. The Company’s product demand and results of operations have generally been influenced to a significant degree by the general state of the Philippine and Malaysian economies and the overall levels of business activity in the Philippines and Malaysia, and the Company expects that this will continue to be the case in the future. The Philippines and Malaysia have both experienced periods of slow or negative growth, high inflation, significant devaluation of the Philippine Peso or the Ringgit Malaysia, as applicable, and the imposition of exchange controls. The Company cannot assure prospective investors that one or more of these factors will not negatively impact Philippine or Malaysian consumers’ purchasing power, which could materially and adversely affect the Company’s financial condition and results of operations. In the past, the Philippine and Malaysian economies and the securities of Philippine companies have been influenced, to varying degrees, by economic and market conditions in other countries, particularly other countries in Southeast Asia, as well as investors’ responses to those conditions. The uncertainty surrounding the global economic outlook could cause economic conditions in the Philippines and/or Malaysia to deteriorate. Any downturn in the Philippine or Malaysian economies may negatively affect consumer sentiment and general business conditions in the Philippines or Malaysia, as applicable, which may lead to a reduction in demand for the Company’s products and materially reduce the Company’s revenues, profitability and cash flows. Moreover, there can be no assurance that current or future Philippine and Malaysian government policies will continue to be conducive to sustaining economic growth.

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Political instability, acts of terrorism or military conflict or changes in laws or government policies in the Philippines or Malaysia could have a destabilizing effect and may have a negative effect on the Company. The Philippines has, from time to time, experienced political and military instability. In recent years, there has been political instability in the Philippines, including impeachment proceedings against two (2) former presidents, the Chief Justice of the Supreme Court of the Philippines, and public and military protests arising from alleged misconduct by current and previous administrations. There can be no assurance that acts of election-related or other political violence will not occur in the future and any such events could negatively impact the Philippine economy. An unstable political environment, whether due to the impeachment of government officials, imposition of emergency executive rule, martial law or widespread popular demonstrations or rioting, could negatively affect the general economic conditions and operating environment in the Philippines, which could have a material adverse effect on the business, operations, and financial condition of the Company. Currently, the Duterte administration is pushing for a shift to a federal form of government. For this purpose, the President created a consultative committee to review the 1987 Constitution and draft a federal constitution. Recently, the Bangsamoro Organic Law (“BOL”) was enacted to abolish the Autonomous Region in Muslim Mindanao, and created the Bangsamoro Autonomous Region in Muslim Mindanao (“BARMM”). The BARMM will be parliamentary-democratic in form, and will be headed by a chief minister, who will preside over an 80-member parliament. The BOL, however, still has to be cleared by a plebiscite and overcome possible legal challenges. The upcoming Philippine legislative and local elections are also scheduled on May 2019. There is no assurance that the upcoming elections will be peaceful and free of allegations of fraud and voter disenfranchisement. In addition, the Company may be affected by political and social developments in the Philippines and changes in the political leadership and/or government policies in the Philippines. Such political or regulatory changes may include (but are not limited to) the introduction of new laws and regulations that could impact the Company’s business. The Philippines has been subject to a number of terrorist attacks in the past several years. The Philippine army has been in conflict with various groups which have been identified as being responsible for kidnapping and terrorist activities in the Philippines as well as clashes with separatist groups. In addition, bombings have taken place in the Philippines, mainly in cities in the southern part of the country. For example, in January 2019, bombs were detonated in the Jolo Cathedral in the Municipality of Jolo, Sulu and a Mosque in Zamboanga City, Zamboanga del Sur. In May 2017, a clash erupted in Marawi, Lanao del Sur between government security forces and the ISIS affiliated-Maute group, following the government’s offensive to capture alleged ISIS leader in Southeast Asia, Isnilon Hapilon, who was believed to be in the city. President Duterte immediately declared Martial Law in Mindanao amid protests from the opposition and sectors of civil society. In a special joint session convened on July 22, 2017, both Houses of Congress voted to extend Martial Law until the end of 2017. On October 17, 2017, President Duterte declared the liberation of Marawi City. The clashes resulted in the loss of lives of civilians, soldiers and ISIS-inspired extremists, as well as damage to property and livelihood of Marawi residents and the reconstruction of the city is on-going. On December 13, 2017, both Houses of Congress again granted President Duterte’s request to extend Martial law in Mindanao until December 31, 2018. For the third time on December 17, 2018, Martial Law was extended by both Houses of Congress until December 31, 2019. In January 2019, separate petitions were filed with the Supreme Court challenging the third extension of Martial Law in Mindanao. An increase in the frequency, severity or geographic reach of these terrorist acts, violent crimes, bombings and similar events could have a material adverse effect on investment and confidence in, and the performance of, the Philippine economy. Any such destabilization could cause interruption to parts of the

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Company’s businesses and materially and adversely affect its financial conditions, results of operations and prospects. These continued conflicts between the Government and separatist groups could lead to further injuries or deaths by civilians and members of the AFP, which could destabilize parts of the Philippines and adversely affect the Philippine economy. There can be no assurance that the Philippines will not be subject to further acts of terrorism or violent crimes in the future, which could have a material adverse effect on the Company’s business, financial condition, and results of operations. Territorial and other disputes with neighboring states may disrupt the Philippine economy and business environment. Competing and overlapping territorial claims by the Philippines, China and several Southeast Asian nations (such as Vietnam, Brunei and Malaysia) over certain islands and features in the West Philippine Sea (South China Sea) have for decades been a source of tension and conflicts. China claims historic rights to nearly all of the West Philippine Sea based on its so-called “nine-dash line” and in recent years dramatically expanded its military presence in the sea which has raised tensions in the region among the claimant countries. In 2013, the Philippines became the first claimant country to file a case before the Permanent Court of Arbitration, the international arbitration tribunal based at the Hague, Netherlands to legally challenge claims of China in the West Philippine Sea and to resolve the dispute under the principles of international law as provided for under the United Nations Convention on the Law of the Sea (UNCLOS). In July 2016, the tribunal rendered a decision stating that the Philippines has exclusive sovereign rights over the West Philippine Sea (in the South China Sea) and that the “nine-dash line” claim of China is invalid. The Philippine government, under the Duterte administration, has taken action to de-escalate tensions concerning the territorial dispute with China. There is no guarantee that the territorial dispute between the Philippines and other countries, including China, would end or that any existing tension will not escalate further, as China has taken steps to exercise control over the disputed territory. In such event, the Philippine economy may be disrupted and its business and financial standing may be adversely affected. Any deterioration in the Philippine economy as a result of these or other factors, including a significant depreciation of the Philippine peso or increase in interest rate, may adversely affect consumer sentiment. This, in turn, could materially and adversely affect the Company’s financial condition and results of operations, and its ability to implement its business strategy and expansion plans. The occurrence of natural or man-made catastrophes or electricity blackouts may materially disrupt the Company’s operations. The Philippines and Malaysia have experienced a number of major natural or man—made catastrophes in recent years, including typhoons, volcanic eruptions, earthquakes, tsunamis, mudslides, fires, droughts and floods related to El Niño and La Niña weather events. Natural catastrophes may disrupt the Company’s ability to produce or distribute its products and impair the economic conditions in affected areas, as well as the overall Philippine and Malaysian economies. The Philippines and Malaysia have both experienced electricity blackouts resulting from insufficient power generation, faulty transmission lines and other disruptions, such as typhoons or other tropical storms. These types of events may materially disrupt the Company’s business and operations and could have a material adverse effect on the Company’s financial condition and results of operations. The Company has insurance policies that cover business interruption and material damage to its facilities caused by natural catastrophes. However, the Company cannot assure prospective investors that the insurance coverage it maintains for these risks will adequately compensate the Company for all damages and economic losses resulting from natural or man—made catastrophes or electricity blackouts, including possible business interruptions.

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Investors may face difficulties enforcing judgments against the Company The Company is organized under the laws of the Philippines and most of its assets are located in the Philippines and Malaysia. It may be difficult for investors to effect service of process outside the Philippines upon the Company with respect to claims pertaining to the Preferred Shares. Moreover, it may be difficult for investors to enforce in the Philippines or Malaysia judgments against the Company obtained outside the Philippines or Malaysia, as applicable, in any actions pertaining to the Preferred Shares, particularly with respect to actions for claims to which the Company has not consented to service of process outside the Philippines or Malaysia, as the case may be. In addition, substantially all of the directors and senior management of the Company are residents of the Philippines, and all or a substantial portion of the assets of these persons are or may be located in the Philippines. As a result, it may be difficult for investors to effect service of process outside of the Philippines upon such persons or to enforce against them judgments obtained in courts or arbitral tribunals outside the Philippines. The Philippines is not a party to any international treaty relating to the recognition or enforcement of foreign judgments. Philippine law provides that a final and conclusive judgment of a foreign court is enforceable in the Philippines through an independent action filed to enforce such judgment, and without re-trial or re-examination of the issues, only if (i) the court rendering such judgment had jurisdiction in accordance with its jurisdictional rules, (ii) the other party had notice of the proceedings, (iii) such judgment was not obtained by collusion or fraud or based on a clear mistake of fact or law and (iv) such judgment was not contrary to public policy or good morals in the Philippines. A judgment obtained for a fixed sum in a court of a reciprocating country (as listed in the First Schedule of the Reciprocal and Enforcement of Foreign Judgments Act 1958 (“REJA”)) may be recognized and enforced by the courts of Malaysia upon registration of the judgment with the courts of Malaysia under the REJA within six years after the date of the judgment, or, where there have been proceedings by way of appeal against the judgment, after the date of the last judgment given in those proceedings, so long as the judgment: (i) is not inconsistent with public policy in Malaysia; (ii) was not given or obtained by fraud or duress or in a manner contrary to natural justice; (iii) is not directly or indirectly for the payment of taxes or other charges of a like nature or of a fine or other penalty; (iv) was of a court of competent jurisdiction of such jurisdiction and the judgment debtor being the defendant in the original court received notice of those proceedings in sufficient time to enable it to defend the proceedings; (v) has not been wholly satisfied; (vi) is final and conclusive between the parties; (vii) could be enforced by execution in the country of that original court; (viii) is for a fixed sum; (ix) is not preceded by a final and conclusive judgment by a court having jurisdiction in that matter; and (x) is vested in the person by whom the application for registration was made. Under current Malaysian law, any judgment obtained for a fixed sum in a court of a foreign jurisdiction with which Malaysia has no arrangement for reciprocal enforcement of judgments, after due service of process, may, at the discretion of the courts of Malaysia, be actionable in the courts of Malaysia by way of a suit on a debt if such judgment is final and conclusive. However, such action may be met with defenses, including, but not limited to, defenses based on the conditions listed above. A money judgment by the courts of a non-reciprocating country may be recognized by Malaysian courts and be enforced by way of summary judgment without re-examination of the issues in dispute provided that the judgment: (i) is not inconsistent with public policy in Malaysia; (ii) was not given or obtained by fraud or duress or in a manner contrary to natural justice; (iii) is not directly or indirectly for the payment of taxes or other charges of a like nature or of a fine or other penalty; (iv) was of a court of competent jurisdiction of such jurisdiction; (v) has not been wholly satisfied; (vi) is final and conclusive between the parties; and (vii) is for a fixed sum.

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If foreign exchange controls were to be imposed, the Company’s ability to access foreign currency to purchase raw materials and equipment and to service foreign currency denominated debt obligations could be adversely affected. Generally, Philippine residents may freely dispose of their foreign exchange receipts and foreign exchange may be freely sold and purchased outside the Philippine banking system. The Monetary Board of the Bangko Sentral ng Pilipinas (the “BSP”), with the approval of the President of the Philippines, has statutory authority, in the imminence of or during a foreign exchange crisis or in times of national emergency, to: (i) suspend temporarily or restrict sales of foreign exchange; (ii) require licensing of foreign exchange transactions; or (iii) require delivery of foreign exchange to the BSP or its designee banks. The Philippine government has, in the past, instituted restrictions on the conversion of Pesos into foreign currency and the use of foreign exchange received by Philippine residents to pay foreign currency obligations. There are foreign exchange policies in Malaysia that support the monitoring of capital flows into and out of the country in order to preserve its financial and economic stability. The foreign exchange policies in Malaysia are governed by the Financial Services Act 2013 (“FSA”) and the Islamic Financial Services Act 2013 (“IFSA”) and are administered by the Foreign Exchange Administration, an arm of Bank Negara Malaysia (“BNM”), which is the central bank of Malaysia. BNM has issued Rules and Notices that regulate foreign exchange dealings in Malaysia pursuant to the powers conferred by the FSA and IFSA. Currently, there are (i) Rules Applicable to Non-Residents; and (ii) Rules Applicable to Residents. Under the Rules Applicable to Non-Residents issued by BNM, there is no restriction for non-residents to invest in Malaysia in any form of Ringgit assets either as direct or portfolio investments, and non-residents are free to repatriate any amount of funds in Malaysia at any time, including capital, divestment proceeds, profits, dividends, rental, fees and interest arising from investment in Malaysia, subject to the applicable reporting requirements and any withholding tax. Repatriation, however, must be made in foreign currency. The Company purchases some critical raw materials, particularly crude oil, and some technically advanced equipment from abroad and needs foreign currency to make these purchases. In addition, the Company has incurred and may continue to incur foreign currency denominated obligations and Peso—denominated debt obligations that are payable in foreign currency. There can be no assurance that the Philippine government or the Malaysian Foreign Exchange Administration will not impose economic or regulatory controls that may restrict free access to foreign currency in the future. Any such restrictions imposed in the future could severely curtail the Company’s ability to purchase crude oil, materials and equipment from outside the Philippines or Malaysia in U.S. dollars and its ability to make principal and interest payments in U.S. dollars on its foreign currency-denominated obligations or Peso-denominated debt obligations that are payable in foreign currency, which could materially and adversely affect its financial condition and results of operations. Risks Relating to the Preferred Shares The Preferred Shares may not be a suitable investment for all investors Each potential investor in the Preferred Shares must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:

• have sufficient knowledge and experience to make a meaningful evaluation of the Preferred Shares, the merits and risks of investing in the Preferred Shares and the information contained in this Prospectus;

• have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Preferred Shares and the impact the Preferred Shares will have on its overall investment portfolio;

• have sufficient financial resources and liquidity to bear all of the risks of an investment in the Preferred Shares, including where the currency for principal or dividend payments is different from the potential investor’s currency;

• understand thoroughly the terms of the Preferred Shares and be familiar with the behavior of any relevant financial markets; and

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• be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate, foreign exchange rate and other factors that may affect its investment and its ability to bear the applicable risks.

The Preferred Shares are perpetual securities and investors have no right to require redemption. The Preferred Shares are perpetual and have no fixed final maturity date. Holders have no right to require the Company to redeem the Preferred Shares at any time and they can only be disposed of by sale in the secondary market. Holders who wish to sell their Preferred Shares may be unable to do so at a price at or above the amount they have paid for them, or at all, if insufficient liquidity exists in the market for the Preferred Shares. Therefore, holders of the Preferred Shares should be aware that they may be required to bear the financial risks of an investment in the Preferred Shares for an indefinite period of time. The Preferred Shares are subordinated obligations. The obligations of the Company under the Preferred Shares will constitute unsecured and subordinated obligations of the Company. In the event of the winding-up of the Company, the rights and claims of holders of the Preferred Shares will (subject to and to the extent permitted by applicable law) rank senior to the holders of the common shares of the Company and pari passu with each other, but junior to the claims of all other creditors and holders of the Capital Securities. In the event of a winding-up of the Company, there is a substantial risk that an investor in the Preferred Shares will lose all of its investment and will not receive a full return of the principal amount or any unpaid amounts due under the Preferred Shares. There are no terms in the Preferred Shares that limit the Company’s ability to incur additional indebtedness, including indebtedness that ranks senior to or pari passu with the Preferred Shares. There may be insufficient distributions upon liquidation. Under Philippine law, upon any voluntary or involuntary dissolution, liquidation or winding up of the Company, holders of the Preferred Shares will be entitled only to the available assets of the Company remaining after the indebtedness of the Company is satisfied. If any such assets are insufficient to pay the amounts due on the Preferred Shares, then the holders of the Preferred Shares shall share ratably in any such distribution of assets in proportion to the amounts to which they would otherwise be respectively entitled. In the event of liquidation or winding-up, the unsubordinated obligations of the Company shall be preferred over the claims of holders of the Preferred Shares in respect of the Preferred Shares, which Preferred Shares shall rank pari passu with each other. Holders may not receive dividend payments if the Company elects to defer dividend payments. Cash dividends on the Preferred Shares may not be paid in full, or at all. Under the terms and conditions governing the Preferred Shares, the Company may pay no dividends or less than full dividends on a Dividend Payment Date. Holders of the Preferred Shares will not receive dividends on a Dividend Payment Date or for any period during which the Company does not have retained earnings out of which to pay dividends. If dividends on the Preferred Shares are not paid in full, or at all, the Preferred Shares may trade at a lower price than they might otherwise have traded if dividends had been paid. The sale of Preferred Shares during such a period by a holder of Preferred Shares may result in such holder receiving lower returns on the investment than a holder who continues to hold the Preferred Shares until dividend payments resume. In addition, because of the dividend limitations, the market price for the Preferred Shares may be more volatile than that of other securities that do not have these limitations.

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The ability of the Company to make payments under the Preferred Shares is limited by the terms of the Company’s other indebtedness. The Company has and will continue to have a certain amount of outstanding indebtedness. The current terms of the Company’s financing agreements contain provisions that could limit the ability of the Company to make payments on the Preferred Shares. Also, the Company may, in the future, directly or indirectly through its subsidiaries, enter into other financing agreements which may restrict or prohibit the ability of the Company to make payments on the Preferred Shares. There can be no assurance that existing or future financing arrangements will not adversely affect the Company’s ability to make payments on the Preferred Shares. The market price of the Preferred Shares may be volatile, which may result in the decline in the value of investments of the investors. The market price of the Preferred Shares could be affected by several factors, including: (i) general market, political and economic conditions; (ii) changes in earnings estimates and recommendations by financial analysts; (iii) changes in market valuations of listed stocks in general and other retail stocks in particular; (iv) the market value of our assets; (v) changes to Government policy, legislation or regulations; and (vi) general operational and business risks. In addition, many of the risks described elsewhere in this Prospectus could materially and adversely affect the market price of the Preferred Shares. In part as a result of the global economic downturn, the global equity markets have experienced price and volume volatility that has affected the share prices of many companies. Share prices for many companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. Fluctuations such as these may adversely affect the market price of the Preferred Shares. There may be a lack of public market for the Preferred Shares. The Philippine securities markets are substantially less liquid and more volatile than major securities markets in other jurisdictions, and are not as highly regulated or supervised as some of these other markets. The Company cannot guarantee that the market for the Preferred Shares will always be active or liquid upon their listing on the PSE. An active or liquid trading market for the Preferred Shares may not develop. The Company and the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners are not obligated to create a trading market for the Preferred Shares and any such market-making will be subject to the limits imposed by applicable law, and may be interrupted or discontinued at any time without notice. Accordingly, the Company cannot predict whether an active or liquid trading market for the Preferred Shares will develop or if such a market develops, if it can be sustained. Consequently, a shareholder may be required to hold his Preferred Shares for an indefinite period of time or sell them for an amount less than the Offer Price. Holders of the Preferred Shares may not be able to reinvest at a similar return on investment. On the Series 3A Optional Redemption Date or Series 3B Optional Redemption Date, as applicable, or at any time a Tax Event or an Accounting Event occurs, the Company may redeem the Preferred Shares for cash at the redemption price See ‘‘Description of the Preferred Shares’’ of this Prospectus. At the time of redemption, dividend rates may be lower than at the time of the issuance of the Preferred Shares and, consequently, the holders of the Preferred Shares may not be able to reinvest the proceeds at a comparable yield or purchase securities otherwise comparable to the Preferred Shares.

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The Preferred Shares have no voting rights. Holders of Preferred Shares will not be entitled to elect the Directors of the Company. Except as provided by Philippine law, holders of Preferred Shares will have no voting rights. See ‘‘Description of the Preferred Shares’’ of this Prospectus.

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USE OF PROCEEDS

The Company estimates that the net proceeds from the Offer shall amount to approximately ₱14.87 Billion after fees, commissions and expenses. Assuming the oversubscription option is fully exercised, the net proceeds of the Offer shall amount to approximately ₱19.84 Billion after fees, commissions, and expenses. Estimated fees, commissions and expenses relating to the Offer are as follows:

Underwriting Fees for the Preferred Shares being sold by the Company ₱82,500,000.00

Taxes to be paid by the Company ₱6,360,000.00

Philippine SEC filing and legal research fee ₱5,618,125.00

PSE filing fee (inclusive of VAT) ₱22,000,000.00

Estimated legal and other professional fees ₱8,500,000.00

Estimated other expenses ₱1,000,000.00

TOTAL ₱125,978,125.00

Assuming the oversubscription option is fully exercised:

Underwriting Fees for the Preferred Shares being sold by the Company ₱110,000,000.00

Taxes to be paid by the Company ₱8,480,000.00

Philippine SEC filing and legal research fee ₱5,618,125.00

PSE filing fee (inclusive of VAT) ₱22,000,000.00

Estimated legal and other professional fees ₱8,500,000.00

Estimated other expenses ₱1,000,000.00

TOTAL ₱155,598,125.00

The net proceeds of the Offer shall be used primarily for the redemption of the outstanding Series 2A Preferred Shares of the Company, repayment of outstanding short-term loans and for general corporate purposes, as follows:

Purpose ₱ 14.87 Billion Net proceeds of

the Offer

₱ 19.84 Billion Net proceeds of

the Offer

Estimated Timing of

Disbursement Redemption of the Series 2A Preferred Shares (“PRF2A”)

• Dividend Rate: 6.3% p.a. subject to Step-up Rate

• Optional Redemption Date: November 3, 2019

₱ 7.12 Billion ₱ 7.12 Billion 3 November 2019

Repayment of Outstanding Short-Term Debt from Bank of the Philippine Islands with an aggregate amount of Php6.96 Billion

₱6.96 Billion ₱6.96 Billion 7 June 2019 or up to 1 Business Day

after the Issue Date of the

Preferred Shares General corporate purposes (such as, but not limited to, the purchase of crude oil)

₱0.79 Billion ₱5.76 Billion 2nd or 3rd quarter of 2019

Details of the short-term debt from Bank of the Philippine Islands with an aggregate amount of Php6.96

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Billion are as follows:

BPI Short-Term Facility BPI Revolving Facility

Amount Php5,000,000,000.00 Php1,960,000,000.00

Tenor 43 days 72 days

Maturity Date 7 June 2019 (Can be rolled-over should issuance of Preferred Shares be after 7 June 2019)

7 June 2019 (Can be rolled-over should issuance of Preferred Shares be after 7 June 2019)

Purpose Working capital requirements (i.e. crude importations)

Pending the above use of proceeds, the Company intends to invest the net proceeds from the Offer in short-term liquid investments including, but not limited to, short-term government securities, bank deposits and money market placements which are expected to earn prevailing market rates. In the event such investments should incur losses, any shortfall will be financed from the Company’s internally generated funds. No amount of the proceeds is to be used to reimburse any officer, director, employee, or shareholder, for services rendered, assets previously transferred, money loaned or advanced, or otherwise. The Company undertakes that it will not use the net proceeds from the Offer for any purpose, other than as discussed above. The Company’s cost estimates may also change as these plans are developed further, and actual costs may be different from budgeted costs. For these reasons, timing and actual use of the net proceeds may vary from the foregoing discussion and the Company’s management may find it necessary or advisable to alter its plans. In the event of any substantial deviation, adjustment or reallocation in the planned use of proceeds, the Company shall inform the SEC, PSE and the holders of the Preferred Shares in writing at least 30 days before such deviation, adjustment or reallocation is implemented. Any material or substantial adjustments to the use of proceeds, as indicated above, should be approved by the Board or the Executive Committee, and disclosed to the PSE. In addition, the Company shall submit via the PSE’s online disclosure system, the Electronic Disclosure Generation Technology (“EDGE”), the following disclosures to ensure transparency in the use of proceeds:

i. any disbursements made in connection with the planned use of proceeds from the Offer;

ii. quarterly progress report on the application of the proceeds from the Offer on or before the first 15 days of the following quarter;

iii. annual summary of the application of the proceeds on or before January 31 of the following year;

and

iv. approval by the Board or the Executive Committee of any reallocation on the planned use of proceeds. The actual disbursement or implementation of such reallocation must be disclosed by the Company at least 30 days prior to the said actual disbursement or implementation.

The Company shall submit a certification by the Company’s Treasurer and external auditor on the accuracy of the information reported by the Company to the PSE, as well as a detailed explanation for any material variances between the actual disbursements and the planned use of proceeds in the Prospectus, if any, in the Company’s quarterly and annual reports as required in items (ii) and (iii) above. Such detailed explanation will state the approval of the Board as required in item (iv) above.

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DETERMINATION OF THE OFFER PRICE

The Offer Price of ₱1,000.00 is at a premium to the Preferred Share’s par value per share of ₱1.00. The Offer Price was arrived at by dividing the desired gross proceeds of ₱20 billion by the amount of Preferred Shares allocated for this offering. The Company’s Outstanding Preferred Shares are listed and traded on the PSE under the stock symbol “PRF2A” and “PRF2B”. The closing prices of the Outstanding Preferred Shares as of March 29, 2019, the last trading date for the month of March, are ₱985.00 and ₱1,050.00, respectively. Upon listing, the Series 3A Preferred Shares and Series 3B Preferred Shares shall be traded under the symbols “PRF3A” and “PRF3B”, respectively.

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PLAN OF DISTRIBUTION

Petron plans to issue the Preferred Shares to institutional and retail investors through a public offering to be conducted through the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners. Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners The Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners: BDO Capital & Investment Corporation (“BDO Capital”), BPI Capital Corporation (“BPI Capital”) China Bank Capital Corporation (“China Bank Capital”), and PNB Capital and Investment Corporation (“PNB Capital”), have agreed to distribute and sell the Preferred Shares at the Offer Price, pursuant to an Underwriting Agreement to be entered into with Petron (the “Underwriting Agreement”). Subject to the fulfillment of the conditions provided in the Underwriting Agreement, the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners have committed to underwrite the following amounts on a firm basis:

BDO Capital ₱3,750,000,000.00

BPI Capital ₱3,750,000,000.00

China Bank Capital ₱3,750,000,000.00

PNB Capital ₱3,750,000,000.00

TOTAL ₱15,000,000,000.00

The Underwriting Agreement may be terminated in certain circumstances prior to payment being made to Petron of the net proceeds of the Preferred Shares. The underwriting and selling fees to be paid by the Company in relation to the Offer shall be equivalent to 0.55% of the gross proceeds of the Offer. This shall be inclusive of fees to be paid to the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners and Co-Lead Underwriter, if any, and commissions to be paid to the Trading Participants of the PSE, which shall be equivalent to 0.125% of the total proceeds of the sale of Preferred Shares by such Trading Participant. The Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners are duly licensed by the SEC to engage in underwriting or distribution of the Preferred Shares. The Joint Issue Managers, Joint Lead Underwriters, and Joint Bookrunners may, from time to time, engage in transactions with and perform services in the ordinary course of its business for Petron or any of its subsidiaries. The Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners have no direct relations with Petron in terms of ownership by either of their respective major stockholder/s, and have no right to designate or nominate any member of the Board of Directors of Petron. The Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners have no contract or other arrangement with Petron by which it may return to Petron any unsold Preferred Shares. BDO Capital was incorporated in the Philippines in December 1998. It is duly licensed by the SEC to operate as an investment house and was licensed by the SEC to engage in underwriting or distribution of securities to the public. As of December 31, 2017, it had ₱4.2 billion and ₱4.1 billion in consolidated resources and capital, respectively. It has an authorized capital stock of ₱1.1 billion, of which approximately ₱1.0 billion represents its paid-up capital. BDO Capital is the wholly-owned investment banking subsidiary of BDO Unibank, Inc.. BPI Capital is the wholly-owned investment banking subsidiary of the Bank of the Philippine Islands and is duly licensed by the SEC to engage in the underwriting and distribution of securities. BPI Capital offers investment banking services in the areas of financial advisory, mergers and acquisitions, debt and equity underwriting, private placement, project finance and loan syndication. It began operations as an investment house in December 1994. BPI is one of the banks which the Issuer intends to repay using the proceeds of the Offer.

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China Bank Capital, a subsidiary of China Bank, provides a wide range of investment banking services to clients across different sectors and industries. Its primary business is to help enterprises raise capital by arranging or underwriting debt and equity transactions, such as project financing, loan syndications, bonds and notes issuances, securitizations, initial and follow-on public offerings, and private equity placements. The Underwriter also advises clients on structuring, valuation, and execution of corporate transactions, including mergers, acquisitions, divestitures, and joint ventures. It was established and licensed as an investment house in 2015 as the spin-off of China Bank's investment banking group, which was organized in 2012. PNB Capital, an investment house, was incorporated on July 30, 1997 and commenced operations on October 8, 1997. It is a wholly-owned subsidiary of the Philippine National Bank. Its principal business is providing investment banking services, namely: debt underwriting (bonds, commercial papers), equity underwriting, private placements, loan syndications, project finance, and financial advisory services. PNB Capital is authorized to buy and sell for its own account, securities issued by private corporations and the government of the Philippines. As of December 31, 2018, total assets of PNB Capital were at ₱1.56 billion while total capital was at ₱1.54 billion. Sale and Distribution The distribution and sale of the Preferred Shares shall be undertaken by the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, and Co-Lead Underwriter who shall sell and distribute the Preferred Shares to third party buyers/investors. The Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners are authorized to organize a syndicate of other underwriters, soliciting dealers and/or selling agents for the purpose of the Offer. Of the 15,000,000 Preferred Shares to be offered, 80% or 12,000,000 Preferred Shares are being offered through the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners and Co-Lead Underwriter for subscription and sale to Qualified Institutional Buyers and the general public. The Company plans to make available 20% or 3,000,000 Preferred Shares for distribution to the respective clients of the 131 Trading Participants of the PSE, acting as Selling Agents. Each Trading Participant shall be allocated 22,900 Preferred Shares (the “Allocation per TP”) (computed by dividing the Preferred Shares allocated to the Trading Participants by 131). Trading Participants may undertake to purchase more than their allocation of 22,900 shares. Any requests for shares in excess of 22,900 may be satisfied via the reallocation of any Preferred Shares not taken up by other Trading Participants. The remainder of 100 Preferred Shares, plus any Preferred Shares allocated to the Trading Participants but not taken up by them, will be allocated first to the Trading Participants who subscribed for their full allotment and indicated additional demand, at the sole discretion of the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners. Prior to the close of the Offer Period, any Preferred Shares not taken up by the Trading Participants shall be distributed by the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners directly to their clients and the general public. All Preferred Shares not taken up by the Trading Participants, general public and the Joint Issue Managers’, Joint Lead Underwriters’ and Joint Bookrunners’ and Co-Lead Underwriter’s clients shall be purchased by the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners pursuant to the terms and conditions of the Underwriting Agreement. Local Small Investors There will be no allocation to Local Small Investors under the proposed offering.

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Allocation Process Mechanics of Distribution

1. Upon preparation of the Firm Undertaking report, the assigned Joint Issue Manager shall, under the supervision of a representative from the PSE Listings Department, input the number of Offer Shares requested by each TP in a spreadsheet designed for the reservation and allocation of the Offer Shares.

2. The spreadsheet shall distribute the total number of Offer Shares to be allocated to each Participating TP in accordance with the following process:

a) If the total number of Offer Shares requested by a Participating TP, based on its Firm Undertaking, does not exceed the allocation per TP, the assigned Joint Issue Manager shall fully satisfy the request of such Participating TP. Each TP is assured of not less than the Allocation per TP. The balance, if any, shall be re-distributed among those who have signified a commitment to purchase more than the Allocation per TP in their Firm Undertaking until all the Offer Shares allotted for distribution are fully allocated.

b) If the total number of Offer Shares requested by a Participating TP exceeds the allocation per TP, Additional Shares may be sourced from the Offer Shares not taken up by the other TPs. The assigned Joint Issue Manager, under the observation of a representative of the PSE Listings Department, shall allocate the Offer Shares to Participating TPs by: (i) fully satisfying the orders of those TPs who have Firm Orders that are less than or equal to the allocation per TP; and (ii) distributing equitably the remaining TP Allocation to other TPs with orders for Additional Shares, but only up to their respective Firm Order.

c) The allocation will be done based on the total number of shares, regardless of the series.

d) In no case shall any Participating TP be awarded more than the shares indicated in its Firm Undertaking.

e) If the aggregate number of Offer Shares requested by all Participating TPs is less than the TP Allocation, the balance shall be returned to the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners.

3. Unless otherwise determined by the Issuer, the final TP allocation shall be distributed between

Series 3A and Series 3B in the same proportion as each Series bears to the TP’s aggregate Firm Undertaking, rounded to the prescribed board lot requirement as described in paragraph 10 below.

4. All deadlines indicated in these procedures shall be strictly followed. Term of Appointment The engagement of the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners shall subsist so long as the SEC Permit to Sell remains valid, unless otherwise terminated pursuant to the Underwriting Agreement. Manner of Distribution The Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners shall, at its discretion, determine the manner by which proposals for subscriptions to, and issuances of, the Preferred Shares shall be solicited, with the sale of the Preferred Shares to be effected only through the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners.

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No shares are designated to be sold to specific persons. Offer Period The Offer Period shall commence at 9:00 a.m. on June 3, 2019 and end at 12:00 noon on June 18, 2019, or such other date as may be mutually agreed between the Company and the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners. Application to Purchase All Applications to Purchase the Preferred Shares shall be evidenced by a duly completed and signed Application to Purchase, together with two fully executed specimen signature cards authenticated by the Corporate Secretary with respect to corporate and institutional investors. The purchase price must be paid in full in Pesos upon the submission of the duly completed and signed Application to Purchase and specimen signature card together with the requisite attachments. Payment for the Preferred Shares shall be made by manager’s check/cashier’s check, corporate check or personal check drawn against any Bangko Sentral ng Pilipinas authorized bank or any branch thereof. All checks should be made payable to “Petron Preferred Shares Offer”, crossed “Payee’s Account Only,” and dated on or before the date of submission of the Application. The Applications and the related payments will be received at any of the offices of the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners. Applicants submitting their Application to a Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner may also remit payment for their Preferred Shares through the RTGS facility of the BSP to the Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner to whom such Application was submitted or via direct debit to their deposit account maintained with such Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner. Cash payments shall not be accepted. Should the Applicant elect to pay through RTGS, the Application should be accompanied by an instruction issued by the Applicant to effect payment through RTGS in an amount equal to the total Offer Price of the Shares applied for, to be effected and fully funded not later than 12:00 noon on June 18, 2019. Should the Applicant elect to pay by a debit memo or instruction, the Application should be accompanied by a debit memo or instruction issued by the Applicant in an amount equal to the total Offer Price applied for in favor of the Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner to whom the Application is submitted, to be effected no later than 12:00 noon on June 18, 2019. Corporate and institutional purchasers must also submit a copy of SEC-certified or corporate secretary- certified true copy of the SEC Certificate of Registration, Articles of Incorporation and By-laws, General Information Sheet, or such other relevant organizational or charter documents, and the original or corporate secretary-certified true copy of the duly notarized certificate confirming the resolution of the board of directors and/or committees or bodies authorizing the purchase of the Preferred Shares and designating the authorized signatory/ies therefore. Individual Applicants must also submit a photocopy of any one of the following identification documents (“ID”): passport/driver's license, company ID, Social Security System/Government Service and Insurance System ID and/or Senior Citizen's ID or such other ID and documents as may be required by or acceptable to the selling bank. An Applicant who is exempt from or is not subject to withholding tax or who claims reduced tax rates under the Philippine National Internal Revenue Code (NIRC) or tax treaty shall, in addition, be required to submit the following requirements to the relevant Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners (together with their Applications) who shall then forward the same to the Registrar and Depository Agent, subject to acceptance by the Company as being sufficient in form and substance: (i) in the case of tax exemption, a certified true copy of the original tax exemption certificate, ruling or opinion on tax exemption issued by the BIR addressed to the Applicant as certified by its duly authorized officer; (ii) with respect to reduced tax rates if tax sparing applies, (a) an authenticated certification issued by the foreign tax authority that the dividends received by the non-resident foreign corporation from the domestic corporation were not among the items considered in arriving at the income tax due from the non-resident foreign corporation; (b) the income tax return of the non-resident foreign corporation for the taxable year

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when the dividends were received; and (c) an authenticated document issued by the foreign tax authority showing that the foreign Government allowed a credit on the tax deemed paid in the Philippines or did not impose any tax on the dividends; or (d) proof of filing of an application for ruling with the BIR; and (d) with respect to tax treaty relief, (a) prior to initial dividend payment, 3 original copies of a duly accomplished Certificate of Residence for Tax Treaty Relief (“CORTT”) Form or the prescribed certificate of residence of their country together with the CORTT Form as required under BIR Revenue Memorandum Order No. 8-2017 and 3 originals of the duly notarized and consularized, if executed outside of the Philippines, Special Power of Attorney executed by the Applicant in favor of its authorized representative (if the CORTT Form and other documents are accomplished by an authorized representative) and confirmation acceptable to the Issuer that the Applicant is not doing business in the Philippines to support the applicability of a tax treaty relief; and (b) for subsequent dividends due, 3 originals of Part II (D) of the CORTT Form shall be submitted by the Applicant to the Company no later than the 1st day of the month when such subsequent dividends fall due and, if applicable, including any clarification, supplement or amendment thereto; (iii) an original of the duly notarized undertaking, in the prescribed form, declaring and warranting its tax exempt status, undertaking to immediately notify the Company and the Registrar and Depository Agent of any suspension or revocation of its tax exempt status and agreeing to indemnify and hold the Company, the Registrar and Depository Agent and the Paying Agent free and harmless against any claims, actions, suits, and liabilities resulting from the non-withholding or reduced withholding of the required tax; and (iv) such other documentary requirements as may be required under the applicable regulations of the relevant taxing or other authorities. The Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners shall be responsible for accepting or rejecting any Application or scaling down the amount of Preferred Shares applied for. The Application, once accepted, shall constitute the duly executed purchase agreement covering the amount of Preferred Shares so accepted and shall be valid and binding on the Company and the Applicant. On the Business Day following the Closing Date, the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners shall advise all the Co-Lead Underwriter and Selling Agents of any Applications that were rejected and/or scaled-down, with copy to the Company. Minimum Purchase A minimum purchase of 50 Preferred Shares shall be considered for acceptance. Purchases in excess of the minimum shall be in multiples of 10 Preferred Shares. Refunds In the event an Application is rejected or the amount of Preferred Shares applied for is scaled down, the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, upon receipt of such rejected and/or scaled down Applications, shall notify the Applicant concerned that his Application has been rejected or the amount of Preferred Shares applied for is scaled down. All refunds, without interest, shall be made through the Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner, Co-Lead Underwriter or Selling Agent with whom the Applicant has filed the Application within five (5) Business Days from the end of Offer Period. Should the refund be made via a check, an Applicant may retrieve such check refund at the office of the relevant Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner, Co-Lead Underwriter or Selling Agent with whom the Applicant has filed the Application. Refund checks that remain unclaimed after thirty (30) days from the date such checks are made available for pick-up shall be delivered through registered mail, at the Applicant’s risk, to the address specified by the Applicant in the Application. Secondary Market Petron may purchase the Preferred Shares at any time without any obligation to make pro rata purchases of Preferred Shares from all Shareholders.

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Registry of Shareholders The Preferred Shares will be issued in scripless form through the electronic book-entry system of SMC Stock Transfer Service Corporation as Registrar for the Offer, and lodged with PDTC as Depository Agent on Listing Date through PSE Trading Participants nominated by the Applicants. Applicants shall indicate in the proper space provided for in the Application to Purchase the name of the PSE Trading Participant under whose name their Preferred Shares will be registered and the relevant PSE Trading Participants shall sign the Application to Purchase on the space provided therefor. Legal title to the Preferred Shares will be shown in an electronic register of shareholders (the “Registry of Shareholders”) which shall be maintained by the Registrar. The Registrar shall send a transaction confirmation advice confirming every receipt or transfer of the Preferred Shares that is effected in the Registry of Shareholders (at the cost of the requesting Shareholder). The Registrar shall send (at the cost of the Company) at least once every quarter a Statement of Account to all Shareholders named in the Registry of Shareholders, confirming the number of Preferred Shares held by each Shareholder of record in the Registry of Shareholders. Such Statement of Account shall serve as evidence of ownership of the relevant Shareholder as of a given date thereof. Any request by Shareholders for certifications, reports or other documents from the Registrar, except as provided herein, shall be for the account of the requesting Shareholder. Expenses All out-of-pocket expenses, including, but not limited to, registration with the SEC, printing, publication, communication and signing expenses incurred by the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners in the negotiation and execution of the transaction will be for Petron's account irrespective of whether the transaction contemplated herein is completed. Such expenses are to be reimbursed upon presentation of a composite statement of account. See “Use of Proceeds” of the Prospectus for details of expenses.

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DILUTION

The Preferred Shares will not have any dilutive effect as these are non-voting, non-convertible and non- participating.

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CAPITALIZATION

The following table sets forth the consolidated capitalization of the Issuer as at December 31, 2018 and as adjusted to give effect to the Offer (assuming the Oversubscription Option is exercised). This table should be read in conjunction with the Issuer’s audited condensed consolidated financial statements as at December 31, 2018 included elsewhere in this Prospectus.

As at December 31, 2018

Actual (audited)

Adjusted1 for maximum

Offer size of P20 Billion

(in P millions) Short-term liabilities Short-term loans 82,997 82,997 Current portion of long-term debt - net 17,799 17,799

Total short-term debt 100,796 100,796 Long-term liabilities Long-term debt – net of current portion 100,201 100,201

Total long-term liabilities 100,201 100,201 Equity Equity Attributable to Equity Holders of the Parent: Capital stock 9,485 9,485 Additional paid-in capital2 19,653 37,497 Capital securities 24,881 24,881 Retained earnings 49,491 49,491 Equity reserves (14,031) (14,031) Treasury stock (10,000) (8,000)

Total Equity Attributable to Equity Holders of the Parent 79,479 99,323 Non-controlling interests 6,707 6,707

Total Equity 86,186 106,030

Total capitalization3 287,183 307,027

Notes: 1Adjusted amount as at December 31, 2018 includes proceeds of P19.84 billion of the maximum Offer, after deduction of commissions and expenses. 2 Includes excess of offer price over par 3Total capitalization is the sum of debt and equity.

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THE COMPANY

Overview Petron Corporation was incorporated under the Corporation Code of the Philippines and registered with the SEC on December 22, 1966. On September 13, 2013, the SEC approved the extension of the 50-year corporate term of the Company to 2066. As a general rule under the Revised Corporation Code, which took effect on February 23, 2019, corporations with certificates of incorporation prior to the effectivity of the Revised Corporation Code, and which continue to exist, shall have perpetual existence. By operation of law therefore, Petron shall now have perpetual existence. As at December 31, 2018, it has a market capitalization of ₱72.3 billion. Petron is the largest oil refining and marketing company in the Philippines and is a leading player in the Malaysian market. The Company has a combined refining capacity of 268,000 barrels per day (“bpd”). The Company refines crude oil and markets and distributes refined petroleum products in the Philippines and Malaysia. In the Philippines, the Company operates the largest and most modern refinery in Bataan, the Limay Refinery, which supplies approximately 30% of the country’s total fuel requirements and has a production capacity of 180,000 bpd. The Company had an overall market share of 28.5%6 of the Philippine oil market for the year ended December 31, 2018 in terms of sales volume based on Company estimates using its internal assumptions and calculations and industry data from the DOE. The Limay Refinery processes crude oil into a range of petroleum products, including gasoline, diesel, LPG, jet fuel, kerosene, naphtha, and petrochemical feedstock such as benzene, toluene, mixed xylene and propylene. The completion of Phase 2 of the Refinery Master Plan (“RMP-2”), a US$2 billion project for the Limay Refinery, enabled the Company to produce more valuable White Products7, increase the Company’s production of petrochemicals, and made the Company the first oil company in the Philippines capable of producing Euro IV-standard fuels From the Limay Refinery, the Company moves its products, mainly by sea, to terminals and airport installations situated throughout the Philippines, representing the most extensive distribution network for petroleum products in the Philippines. The network comprises 12 terminals in Luzon, eight in the Visayas and eight in Mindanao, as well as two airport installations in Luzon and two in Mindanao. Through this nationwide network, the Company supplies its various petroleum products such as gasoline, diesel, and LPG to its customers. The Company also supplies jet fuel to international and domestic carriers at key airports in the Philippines. The map below shows the geographic coverage of the Company’s terminals, airport installations, and manufacturing plants in the Philippines as of March 31, 2019.

6 Market share is derived from Company estimates based on Company information and data from the Philippine Department of Energy for FY2018. Company estimates exclude direct imports of jet fuel by airlines, direct imports of naphtha as feedstock for petrochemical plants, direct imports of condensate as fuel for natural gas power plants, and lubes and greases. 7 White Products refer to diesel, gasoline, jet fuel, kerosene and LPG.

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Through its network of about 2,400 retail service stations in the Philippines as of March 31, 2019, representing approximately 27% of the country’s total service station count, the Company sells gasoline, diesel, and kerosene to motorists and to the public transport sector. Approximately 30% of service stations are CODOs and 70% are DODOs8. As of March 31, 2019, the Company’s LPG distribution network includes approximately than 1,100 branch stores as well as 34 car care centers, 11 lube centers, and 10 motorcycle centers. The Company also sells its LPG brands “Gasul” and “Fiesta Gas” to households and other consumers through its extensive dealership network. The Company actively pursues initiatives to improve customer service and promote customer loyalty. As of March 31, 2019, the extent of the Company’s programs includes about 413,800 fleet cards, about 6 million value cards, and approximately 9.4 million Petron Miles Privilege cards. The Company owns and operates a fuel additives blending plant in the Subic Bay Freeport Zone in the Philippines, which has a tolling agreement with Innospec, Limited (“Innospec”), a global fuel additives

8 CODO represents company-owned-dealer-operated service stations and DODO represents dealer-owned-dealer-operated service stations.

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supplier. Regional customers of Innospec and the Company’s own requirements are served from the output of the Subic plant. The Company diversified into petrochemicals and in 2000 added a mixed xylene recovery unit to the Limay Refinery and a propylene recovery unit in 2008. Its benzene-toluene extraction unit became operational in May 2009. On July 1, 2014, the Company acquired and took over from Philippine Polypropylene Inc. (“PPI”), an indirect subsidiary of the Company, the operations of the polypropylene plant in order to enhance the overall efficiency of its petrochemical operations. The polypropylene plant is located in Mariveles, Bataan and is owned by Robinson International Holdings Limited (“RIHL”), an indirect subsidiary of the Company, which has the capacity to produce 160,000 metric tons of polypropylene resin annually. The Company entered the Malaysian market in March 2012 through the purchase of ExxonMobil’s downstream oil business in Malaysia. For the year ending 2018, the Company ranked third in the Malaysian retail market with a 20.9% market share based on Company estimates using its internal assumptions and calculations and industry data from The Concilium Group Sdn Bhd, a market research consultant appointed by Malaysian retail market participants to compile industry data. The Company also covers the industrial segment in Malaysia, selling diesel and gasoline to unbranded mini-stations and power plants, as well as to manufacturing, plantation, transportation and construction sectors. The Company owns and operates the Port Dickson Refinery, which has a crude oil distillation capacity of 88,000 barrels per day, and produces a range of petroleum products, including LPG, naphtha, gasoline, jet fuel, diesel and low-sulfur waxy residue (“LSWR”). As of March 31, 2019, the Company had 10 product terminals, a network of approximately 650 retail service stations, and about 275 convenience stores in Malaysia. The Company has presence in the aviation segment with a 20% ownership of a multi-product pipeline to Kuala Lumpur International Airport. The joint venture through which the Company owns its interest in the multi-product pipeline also owns a fuel terminal, the Klang Valley Distribution Terminal. The Company’s products are primarily sold to customers in the Philippines and Malaysia. The Company also exports various petroleum products and petrochemical feedstock, including low- sulfur waxy residue, naphtha, mixed xylene, benzene, toluene and propylene, to other customers in the Asia-Pacific region. The Company’s revenues from these export sales amounted to ₱37.4 billion, or 9% of total sales, in 2017, and ₱51.5 billion, or 9% of total sales, in 2018. In 2016, 2017 and 2018, the Company’s sales were ₱343.8 billion, ₱434.6 billion and ₱557.4 billion, respectively, and net income was ₱10.8 billion, ₱14.1 billion and ₱7.1 billion, respectively. The Company’s common shares are listed for trading on the PSE under the symbol “PCOR”, while its Series 2 preferred shares are listed and traded on the same exchange under the symbols “PRF2A” and “PRF2B.” The Company’s US$500 million senior perpetual capital securities (ISIN: XS1740858540) are listed on The Singapore Exchange Securities Trading Limited. In Malaysia, the Company’s common shares for its subsidiary Petron Malaysia Refining & Marketing Bhd. are listed for trading on the Bursa Malaysia under the symbol “PETRONM.” Strengths The Company believes that its principal competitive strengths include the following: Market leadership in the Philippine downstream oil sector With an overall market share of approximately 28.5% of the Philippine oil market for the year ended December 31, 2018 in terms of sales volume, based on Company estimates using its internal assumptions and calculations and industry data from the DOE, the Company believes it is the leader in the Philippine oil industry, ahead of the other two major oil companies and other smaller players operating in the Philippines. In particular, the Company believes that it is the market leader based on domestic sales volume

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in the retail trade as well as in the industrial and LPG market segments. In the Philippines, the Company owns and operates the largest petroleum refinery complex, with a total crude oil distillation capacity of 180,000 barrels per day, which is 70,000 barrels per day higher compared to the only other operating petroleum refinery in the Philippines. The Company has the most extensive distribution network for petroleum products in the Philippines, which allows it to operate and serve its customers across the Philippines. This distribution network includes 32 terminals and airport installations and reaches most key points in the Philippines. Given the challenges of distribution across the Philippine archipelago, this capability plays a significant role in securing the Company’s leading position in the Philippines. Since 2011, the Company has focused on expanding its distribution network to accommodate the increasing demand across the Philippines, and will continue to invest in the expansion of its distribution network. The Company’s strong participation in the different market segments such as retail, LPG and bulk industrial customer operations also plays a large role in its success in the Philippine downstream oil sector. As of March 31, 2019, the Company had approximately 2,400 retail service stations, an increase of approximately 86% from about 1,288 service stations in 2008, which the Company believes to be greater than any other market participant in the Philippines. As of March 31, 2019, the Company’s retail service stations represent approximately 27% of the country’s total service station count. The Company intends to grow this number to utilize the increased production from RMP-2. The Company believes it is the leader in the LPG segment with approximately 1,100 branch stores as of March 31, 2019. The Company’s industrial sales cover approximately 800 direct industrial accounts as of December 31, 2018. Established position in the Malaysian downstream oil sector The Company has acquired an established position in the Malaysian downstream oil sector through its acquisition of ExxonMobil’s downstream oil business in Malaysia, which has a recognized health, safety and environmental track record. This provides geographic diversification to its portfolio, an additional platform to expand its business and added stability to its operations. For the year 2018, the Company ranked third in the Malaysian retail market with a 20.9% market share based on Company estimates using its internal assumptions and calculations and industry data from The Concilium Group Sdn Bhd, a market research consultant appointed by Malaysian retail market participants to compile industry data. The Company also covers the industrial segment in Malaysia, selling diesel and gasoline to unbranded mini-stations and power plants, as well as to manufacturing, plantation, transportation and construction sectors. The Company owns and operates the Port Dickson Refinery, which has a crude oil distillation capacity of 88,000 barrels per day, and produces a range of petroleum products, including LPG, naphtha, gasoline, jet fuel, diesel and LSWR. As of March 31, 2019, the Company had 10 product terminals, a network of approximately 650 retail service stations, and about 275 convenience stores in Malaysia. The Company has presence in the aviation segment with a 20% ownership of a multi-product pipeline to Kuala Lumpur International Airport. The joint venture through which the Company owns its interest in the multi-product pipeline also owns a fuel terminal, the Klang Valley Distribution Terminal. Operating a highly complex refinery Over the years, the Company has developed and maintained a strong core base of petroleum products, and consistently made significant investments in upgrading its facilities and focused on increasing production of higher margin White Products and petrochemicals while minimizing production of low margin fuel products. RMP-2, a US$2 billion project completed in the fourth quarter of 2014, enables the Limay Refinery to further enhance its operational efficiencies, convert its fuel oil production into production of more White Products, and increase the Company’s production of petrochemical feedstock like propylene, benzene, toluene and xylene. The completion of RMP-2 has made the Company the first oil company in the Philippines capable of producing Euro IV and Euro VI-standard fuels, the global standard for clean air fuels. The upgraded

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production capability has improved refinery utilization rate to about 95% and increased White Products to Black Products ratio to approximately 100% for the year ended December 31, 2018, compared to previous operating levels of approximately 57% utilization rate and White Products to Black Products ratio of approximately 80% for the year ended December 31, 2014. Operations in markets with favorable industry dynamics The Company operates as an integrated oil refining and marketing company in the Philippines and Malaysia, both of which the Company believes have favorable oil industry dynamics. The Philippines operates under a free market scheme with movements in regional prices and foreign exchange reflected in the pump prices on a weekly basis. Malaysia, on the other hand, operates under a regulated environment and implements an APM that provides stable returns to fuel retailers. According to the International Monetary Fund9, the Philippine and Malaysian economies are expected to experience stable real GDP growth at annual rates of 6.74% and 4.76%, respectively, from years 2019-2022. This favorable economic backdrop is expected to contribute to energy and petroleum products demand growth in these countries. Both the Philippines and Malaysia are importers of finished petroleum products. The Company believes it is well-positioned to benefit from this supply shortfall with its current production capacities of 180,000 and 88,000 barrels per day in the Philippines and Malaysia, respectively, giving it a significant competitive advantage over its competitors. Differentiated service experience driving retail volumes The Company’s network of service stations in the Philippines and Malaysia offers differentiated and comprehensive services to customers. Beyond just a petroleum station, the Company’s service station provides a one-stop service experience to travelers on the road, offering amenities such as Treats convenience stores, restaurants, and specialty shops. These convenience stores, restaurants and specialty shops help generate non-fuel revenues and improve traffic in the service stations. As of March 31, 2019, the Company has about 2,400 retail service stations in the Philippines representing approximately 27% of the country’s total service station count, As of March 31, 2019, the Company’s LPG distribution network includes approximately 1,100 branch stores as well as 34 car care centers, 11 lube centers, and 10 motorcycle centers. In Malaysia, the Company rebranded all ExxonMobil Esso-branded service stations to the Petron brand and refurbished the stations. As of March 31, 2019, 275 of the Company’s network of approximately 650 service stations in Malaysia have convenience stores. The Company has also partnered with the Royal Malaysia Police to set up “Go-to Safety Points” at selected Petron stations in Malaysia. The Company also offers loyalty programs that complement its retail business. The Company continues to upgrade existing loyalty programs and offer new and diverse programs to cater to customers’ unique needs. Some of the benefits of the program include 24-hour free towing and roadside assistance, reward points for every purchase and complimentary annual personal accident insurance coverage (Philippines). As of March 31, 2019, the extent of the Company’s programs includes about 413,800 fleet cards in the Philippines and 185,000 in Malaysia, about 6 million value cards, and approximately 9.4 million Petron Miles Privilege cards. Experienced management team and employees and strong principal shareholder in San Miguel Corporation The Company has an experienced team of managers with substantial relevant experience in refining operations and development of service stations. In addition, the Company has a team of employees skilled in managing the various aspects of its business, including a highly experienced management team at the Limay Refinery, a focused sales and marketing team, which includes a group that has years of experience in service station engineering and construction, and a research and development team that has overseen years of product development and production process improvement. The Company is also committed to

9 International Monetary Fund as of October 2018

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the development of its employees by adopting on-going training and development programs to ensure that operations will be run by well-equipped and capable employees. The average tenure of employees in the Company is approximately 8 years for the Philippines and 10 years for Malaysia. SMC, directly and indirectly, holds an effective 68.26% of the Company’s outstanding common equity. See “Ownership and Corporate Structure.” SMC is amongst the largest and most diversified Philippine conglomerates, with sales equivalent to 5.2% of the country’s GDP in 2017. Its broad range of businesses includes beverages, food, packaging, properties, fuel and oil, energy, infrastructure, and investment in banking. The Company believes that it benefits from its relationship as a key material subsidiary of SMC, primarily by realizing synergies, including the provision of fuels for SMC’s expanding power generation business, SMC’s infrastructure business and its various production facilities as well as cross-marketing opportunities with SMC’s consumer and energy-related businesses. The Company also believes that SMC’s strong balance sheet and international reach and relationships increase its leverage and bargaining power with suppliers and financial institutions as well as enhance its sources of funding for its capital expenditure projects. Areas of Strategic Focus The Company’s principal strategies are set out below:

Maximize production of high margin refined petroleum products and petrochemicals Over the years, the Company has made significant investments in upgrading its facilities and is focused on increasing production of White Products and petrochemicals while minimizing production of low margin fuel products. In recent years, it has shifted production from lower margin fuel oils to higher margin products, including petrochemical feedstock such as propylene, mixed xylene, toluene and benzene. The RMP-2 program, which exemplifies this strategic focus, increases revenues, reduces costs, and places the Limay Refinery’s utilization, processing and energy efficiency at par with more advanced refineries in the region, improving its competitiveness. Going forward, the Company expects to continue investing in upgrading its production capability. In the medium term, the Company will assess the viability of further expanding the Limay Refinery’s value generation through upgrading its petrochemicals facilities to increase production of petrochemicals benzene, toluene and mixed xylene, and enable production of higher value para-xylenes. Further increase market share in the downstream oil markets in the Philippines and in Malaysia The Company intends to leverage on its leading market position and extensive retail and distribution network in the Philippines to maximize its revenue and margin potential. The Company believes that the downstream oil market in the Philippines is still underserved and has a strong potential for growth. To capture this growth and further strengthen its market position, the Company will embark on: (i) increasing its retail outlets for fuels and LPG to improve market penetration and arrest the growth of other industry players; (ii) introducing new products with differentiated and superior qualities; (iii) expanding lubes distribution network by putting up more sales channels such as new lubes outlets, sales centers and car care centers, and penetrating non-traditional outlets such as auto parts and repair shops; (iv) continuing to expand its non-fuel businesses by leasing additional service station spaces to food chains, coffee shops and other consumer services to provide “value conscious” customers with a one-stop full service experience; and (v) intensifying its dealer and sales personnel training to further improve customer service experience. These initiatives will support the Company’s growing retail business and continuing service station network expansion. In Malaysia, the Company intends to increase its market share by expanding its existing Malaysian retail network of approximately 650 retail service stations. The Company plans to strategically increase its

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presence in developing areas to make its products and services accessible to more Malaysians. In addition, the Company seeks to maintain and further strengthen its established position in the Philippines and Malaysia by reinforcing business relationships with existing customers, by providing differentiated service offerings in its retail service stations and by promoting enhanced loyalty programs in both countries. Continue investments to improve operational efficiency and profitability and to increase market reach The Company has undertaken a number of strategic projects such as the RMP-2 aimed at improving operational efficiency and profitability, and increasing market reach through the expansion of the Company’s service station network. The Company also intends to enhance efficiency and reduce production costs through supply chain improvements and enhancements to its existing facilities through a range of initiatives including: (i) enhancing its crude optimization program (a program which determines the crude mix that will yield the best product value at the lowest cost) and expanding its crude oil supply sources in addition to its major crude oil suppliers; (ii) reducing inventory levels in the Philippines by sourcing feedstock from suppliers located near the Limay Refinery; (iii) investing in new receiving and storage facilities and improving the existing facilities to attain greater sourcing flexibility and support new growth areas; (iv) managing crude oil freight costs and availability of terminal-compliant vessels with contracts of affreightment that guarantee cost competitiveness in the spot market; and (v) reducing distribution costs through rationalization of the terminal network, joint operations with other companies and optimized utilization of its marine and tank truck fleet. The Company also expects to continue utilizing operational synergies by leveraging on SMC’s network, products and services. Pursue selective synergistic acquisitions In addition to organic growth, the Company will continue to consider and evaluate selective opportunities to expand both within and outside the Philippines through strategic acquisitions that will create operational synergies and add value to the existing business. For example, in March 2010, the Company acquired a 40% stake in Petrochemical Asia (HK) Ltd. (“PAHL”), which owned PPI through a wholly owned subsidiary RIHL. PPI operated a polypropylene plant owned by RIHL located in Mariveles, Bataan in the Philippines, which has the capacity to produce 160,000 metric tons of polypropylene resin annually. On July 1, 2014, the Company acquired and took over the operations of the polypropylene plant in order to enhance the overall efficiency of the petrochemical operations of the Company. As of July 25, 2016, the Company had increased its stake in PAHL to 100%. In addition, on March 30, 2012, the Company completed its acquisition of ExxonMobil’s downstream business in Malaysia, extending its portfolio of oil refining and marketing businesses outside the Philippines. On December 23, 2016, the Company acquired from SMC Powergen Inc. a 140MW cogeneration power plant located in the Limay Refinery, which supplies the power and steam requirements of the Limay Refinery. The acquisition is expected to lower steam and power costs. Corporate History and Milestones

1957 Standard Vacuum Oil Company was granted a concession to build and operate the Limay Refinery in Limay, Bataan owned by Bataan Refining Corporation

1961 The Limay Refinery commenced commercial operations with a capacity of 25,000 barrels per day.

1998 The lubricant oil blending plant in Pandacan, Manila was modernized, replacing facilities that were built in 1968.

2000 The mixed xylene plant in the Limay Refinery commenced operations, marking the Company’s entry into the petrochemicals market.

2008 The petrofluidized catalytic cracking (“PetroFCC”) unit in the Limay Refinery

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commenced operations, enabling the Company to convert fuel oil into higher value products such as LPG, gasoline and diesel. The propylene recovery unit in the Limay Refinery commenced operations, enabling the recovery of propylene from the LPG produced by the PetroFCC unit.

The fuel additives blending plant in the Subic Freeport Zone commenced operations, making the Company the exclusive blender of Innospec’s additives in the Asia Pacific region.

2009 Debottlenecking of the Company’s continuous catalyst regeneration reformer unit and its mixed xylene plant was completed, enabling the recovery of more mixed xylene. The benzene-toluene extraction unit in the Limay Refinery commenced operations, enabling the Company to produce benzene and toluene.

2010 The Company acquired a 40% stake in PAHL, the ultimate parent company of PPI, which was diluted to 33% when PAHL issued new shares to another investor in June 2010. PPI operated a polypropylene plant located in Mariveles, Bataan in the Philippines from 2011 until its polypropylene business was acquired by the Company on July 1, 2014. The Company acquired a 35% stake in MNHPI, forming a joint venture between the Company and Harbour Centre Port Terminal, Inc.

In the fourth quarter of 2010, the Company commenced construction of RMP-2, a US$2 billion project designed to enable the Limay Refinery to further enhance its operational efficiencies, convert its fuel oil production into production of more White Products, increase the Company’s production of petrochemicals, and produce Euro-IV standard fuels.

2011 PPI commissioned a rehabilitated polypropylene plant in Mariveles, Bataan. 2012 The Company acquired ExxonMobil’s downstream oil business in Malaysia,

extending its portfolio of oil refining and marketing businesses outside the Philippines. The Company converted certain loans that it had extended to PAHL to additional equity, increasing its stake in PAHL to 45.9%.

2013 The Company sold to SMC Powergen Inc. the cogeneration power plant located in the Limay Refinery.

2014 The Company acquired the polypropylene business of PPI and took over the operations of the polypropylene plant, which is leased from PPI’s parent, RIHL. The Company completed RMP-2 in the fourth quarter of 2014.

2015

The Company completed commissioning of RMP-2 in the fourth quarter of 2015.

The Company increased its stake in PAHL to 47.25%.

2016 The Company declared commercial operations of RMP-2 in January 2016. The Company took over the retail operations of PMC. The Company increased its stake in PAHL to 100%. The Company acquired from SMC Powergen Inc. the cogeneration power plant.

2017 In March 2017, the Company introduced Blaze 100 EURO 6 gasoline in the

Philippines. Petron Blaze 100 is the first premium plus gasoline in the Philippines with

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100 octane and the first local fuel to surpass Euro 6 fuel standards. In October 2017, the Company completed the sale of its 10,449,000 shares in MNHPI (equal to 34.83% of MNHPI’s outstanding shares) to International Container Terminal Services, Inc.

Ownership and Corporate Structure The Company is a publicly listed company jointly owned by SEA Refinery, PCERP, SMC and others, including the general public. The chart below sets forth the ownership structure of the Company’s common shares as of December 31, 2018.

SEA Refinery is a Philippine company wholly owned by SMC. SMC is Southeast Asia’s largest publicly listed food, beverage and packaging company. Its broad range of businesses includes properties, fuel and oil, energy, infrastructure and investment in banking. PCERP is a tax qualified and fully funded defined pension plan covering all permanent, regular and full-time employees of the Company. It is administered by its board of trustees. Certain members of the Company’s management are also trustees of PCERP. Subsidiaries, Associates and Holding Companies The table below sets forth the Company’s equity interest in its primary operating subsidiaries, associates and holding companies as of the date of this Prospectus, as well as their principal businesses and places of incorporation. The Company has two insurance subsidiaries, Petrogen and Ovincor, which were established to support the insurance requirements of the Company and its allied business partners, including contractors, suppliers, haulers and dealers. The Company also has marketing and trading

50.10% 26.84% 4.90% 18.16%

San Miguel

Corporation

SEA Refinery

Corporation

Petron

Corporation

Employees’

Retirement

Plan

Others

(including

the public)

public)

100%

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subsidiaries and interests in realty companies to support its core business.

Name of Company Place (Date) of

Incorporation/Form of Organization

Company’s Equity Interest

Principal Business

Overseas Ventures Insurance Corporation Ltd. (“Ovincor”)

Bermuda (1995)/ exempt company

100% Reinsurance

Petrogen Insurance Corporation (“Petrogen”)

Philippines (1996)/ company

100% Insurance

Petron Freeport Corporation (“PFC”)


100%

Wholesale or retail sale of fuels, operation of retail outlets, restaurants and convenience stores, and the manufacture of fuel additives

Petron Singapore Trading Pte. Ltd. (“PSTPL”)

Singapore (2010)/ company

100%

Procurement of crude oil, trading of petroleum and petrochemical products, vessel chartering and risk management

Petron Oil & Gas International Sdn Bhd (“POGI”)

Malaysia (2011)/ company

100% indirect interest Investment holding

Petron Malaysia Refining & Marketing Bhd (“PMRMB”)


73.4% indirect interest (the other 26.6% is owned by the public)

Manufacturing and marketing of petroleum products in Peninsular Malaysia

Petron Fuel International Sdn. Bhd. (“PFISB”)


100% indirect interest Marketing of petroleum products in Peninsular Malaysia

Petron Oil (M) Sdn. Bhd. (“POMSB”)


100% indirect interest Marketing of petroleum products in East Malaysia

New Ventures Realty Corporation (“NVRC”)


85.55%

Purchase and sale of properties suitable for use as service station sites, bulk plants or sales offices

For the year ended December 31, 2018, the total contribution of the Company’s subsidiaries amounted to ₱206 billion or 37% of total revenues. Revenues contributed by the subsidiaries amounted to 34% and 38% of the total revenues for the years ended December 31, 2016 and December 31, 2017, respectively.

Products Core Products The Company’s core products are categorized into fuels, lubricants and greases, and petrochemicals.

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Fuels The list below sets forth each of the Company’s fuels products, as well as a description of each product. The Philippines PETRON GASUL is a premium LPG product. It is used as fuel for cooking, lighting and industrial applications and is sold in 2.7-kg, 11-kg, 22-kg and 50-kg cylinders and in bulk. FIESTA GAS is an economy LPG product. It is used as fuel for cooking, lighting and industrial applications and is sold in 2.7-kg, 11-kg, 22-kg and 50-kg cylinders. PETRON GAAS is water-white kerosene. It is used as fuel for stoves, lamps and other domestic uses. PETRON BLAZE 100 Euro 6 is a 100 octane and Euro-6 level premium plus gasoline. It meets European fuel quality standards for Euro-6 technology vehicles. It also meets Euro 6b emission standards. PETRON XCS is a 95 octane premium gasoline that contains a complete combustion additive system that delivers excellent engine response, enhanced power and acceleration, and improved fuel economy. It meets and exceeds Euro IV-PH standard for premium grade gasoline. PETRON XTRA ADVANCE is a 91 octane regular gasoline that was formulated to provide better engine protection, corrosion control, better power, and improved fuel economy. PETRON TURBO DIESEL is an advanced diesel designed for high performance diesel engines. It is designed to provide excellent engine protection, improved fuel economy, and maximum power for today’s modern diesel engines. PETRON DIESEL MAX is a regular diesel fuel formulated with robust multi-functional additive system for optimum engine protection, better power and improved fuel economy. PETRON AVIATION GASOLINE is a low-lead, high-octane aviation gasoline for aircraft with reciprocating engines. PETRON JET A-1 is a highly-purified kerosene-type aviation fuel used by aircraft with turbo prop and turbojet engines. It has good combustion characteristics suitable for low-temperature operation at high altitude. Malaysia PETRON BLAZE 100 is Malaysia’s first 100 octane premium grade gasoline. It meets the Euro 4M and SIRIM MS 118-3:2011 standards. It provides optimum performance in terms of power, acceleration, and combustion efficiency. It has less sulfur and benzene content, making it a very environmentally-friendly product. PETRON BLAZE 97 is a 97 octane high-performance premium gasoline. It contains a special blend of multi-functional additive, combustion enhancer and friction modifier, resulting in excellent engine cleaning action, enhanced power and acceleration, and improved fuel economy. It meets Euro 4M specifications. PETRON BLAZE 95 is a 95 octane premium gasoline. It contains a high performance detergent additive, friction modifier, and unique gas saving combustion improver that provides better engine protection, optimum power and acceleration, and improved fuel economy. PETRON TURBO DIESEL EURO 5 is a premium plus diesel fuel with 7% palm oil methyl ester. It is

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formulated with an advanced additive technology to provide excellent power, improved fuel economy, and reduced exhaust emissions. It also provides better ignition quality and smoother engine run. It is specially designed to meet European fuel quality standards. PETRON DIESEL MAX is a premium biodiesel mix of 7% palm oil methyl ester and diesel which comply with the requirement under the Malaysia Biofuel Industry Act of 2007. It contains a robust multi-functional detergent additive and a smoke reducing agent to provide improved fuel economy, clean engine, and reduced exhaust emissions. PETRON DIESEL is a premium diesel fuel with robust and multifunctional additives that provide improved fuel economy and reduced emissions. It is designed to maintain and improve fuel injection system cleanliness through unsurpassed detergency characteristics. It meets Euro 2M and SIRIM MS 123-1:2014 specifications. PETRON GASUL is a premium LPG product. It is used as fuel for cooking, lighting and industrial applications and is sold in 12-kg, 14-kg and 50-kg cylinders and in bulk. In 2018, the Company introduced an additional product line called F14, which are 14-kg cylinders for forklifts. PETRON KEROSENE is refined kerosene with clean and efficient burning qualities. PETRON JET A-1 is a highly-purified kerosene-type aviation fuel used by aircraft with turbo prop and turbojet engines. LOW SULFUR WAXY RESIDUE is a low-sulfur bottom/residue from refinery processing that is used as feedstock for chemical plants or as fuel for industrial boilers or heaters. Lubricants and Greases Automotive oil and lubricant products include the Company’s extensive line of automotive oil and lubricants for different types of vehicle engines and road conditions. Industrial oil and lubricant products include the Company’s broad range of oil and lubricants designed for extreme temperatures and operating conditions for various industrial uses. Marine oil and lubricant products include the Company’s broad range of oil designed for lubrication of various types of diesel engines used in the maritime industry. Greases include the Company’s grease products used for the protection of equipment and the reduction of wear on gears and other components of vehicle and industrial engines. Asphalts include the Company’s asphalt products used for road paving, sealing applications, undercoating, waterproofing and rust proofing. Special products include the Company’s products designed for special applications, such as process oils, thermal oils, protective coatings, steel case moulding, tire manufacturing, processing of natural fibers and other non-lubricating applications. Aftermarket specialties include products such as brake fluid coolants, diesel additives, engine oil and gasoline additives, sprayable grease, car shampoos and multi-purpose sprays. Petrochemicals Xylene is used to make polyester fibres, packaging materials, bottles and films. Propylene is the raw material used for the production of polypropylene.

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Polypropylene is used to manufacture food packaging plastics, car bumpers, computer housings, appliance parts and fibres. Benzene is an aromatic hydrocarbon used to produce numerous intermediate petrochemical compounds, such as styrene, phenol, cyclohexane, alkylbenzenes, and chlorobenzenes, which are used to produce plastics, pharmaceuticals, pesticides and other chemicals. It is also used as a solvent for paints and natural rubber. Toluene is used as a solvent in paints, inks, adhesives, and cleaning agents, as well as in chemical extractions. It is also used in the chemical synthesis of benzene, urethane foams and other organic chemicals, and in the production of pharmaceuticals, dyes and cosmetic nail products. Other Refinery Products Naphtha is widely used as a motor gasoline component. It is also used as feedstock in steam crackers to produce olefins. Like some petrochemicals, it is also used as solvent for cleaning applications and also as a diluent in the mining industry. Molten sulfur is a by-product of the Limay Refinery. It is used as precursor to different chemical compounds with a wide variety of applications from sulfuric acid to fertilizers and pharmaceutical drugs. Petcoke is used in power generation and manufacturing processes as an alternative feedstock to coal. Scope of Business Petron’s principal business involves the refining of crude oil and the marketing and distribution of refined petroleum products. It sells a full range of refined petroleum products including LPG, gasoline, diesel, jet fuel, kerosene, solvents, asphalts, and petrochemical feedstocks such as mixed xylene, propylene and toluene. The major markets in the petroleum industry are Retail, Industrial, LPG and Lube Trades. Petron sells its products to both industrial end-users and through a nationwide network of service stations, LPG dealerships, sales centers and other retail outlets. It also supplies jet fuel at key airports to international and domestic carriers. In line with the Company’s efforts to increase its presence in the regional market, it exports various petroleum and non-fuel products to Asia-Pacific countries such as, South Korea, Taiwan, China, Vietnam, Singapore, Malaysia, Hong Kong, Thailand and Indonesia. Exports, which generate dollar inflows for the Company, provide a natural hedge against losses which may arise from fluctuations in the foreign exchange rate. Petron also operates a lube oil blending plant at its Pandacan terminal. Its fuel additives blending plant in Subic Bay Freeport supplies the Company’s requirements and serves as Asian supply hub of Innospec. Production The Philippines In the Philippines, the Company owns a petroleum refinery complex located in Limay, Bataan. The Limay Refinery has a crude oil distillation capacity of 180,000 barrels per day. It has its own piers and offshore berthing facilities, one of which can accommodate very large crude oil carriers, or VLCCs. The Limay Refinery is capable of producing a range of petroleum products such as LPG, naphtha, gasoline, kerosene, jet fuel, and diesel. In 2000, the Limay Refinery commenced petrochemical production with the commercial operation of its mixed-xylene plant, designed to produce 232,000 tons per year of mixed xylene.

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The Limay Refinery started producing propylene in 2008 with the commissioning of its first propylene recovery unit, which has a demonstrated capacity of 148,000 tons per year of polymer-grade propylene. Also in 2008, the Limay Refinery started the construction of the benzene-toluene extraction unit to further expand its capability to produce petrochemical feedstock. The benzene-toluene extraction unit, which became operational in May 2009, is designed to produce benzene and toluene at respective capacities of 24,000 and 158,000 tons per year. In early 2011, PPI commissioned a rehabilitated polypropylene plant in Mariveles, Bataan, to capture the incremental margin from converting the Limay Refinery’s propylene production into polypropylene. The facility has the capacity to produce 160,000 metric tons of polypropylene resin annually. In July 2014, the Company acquired the polypropylene business of PPI to enhance efficiency. As a result of the acquisition, the operation of the polypropylene plant was integrated into the Limay Refinery’s propylene production operation which expanded in 2015 with the commissioning of the second propylene recovery unit, increasing propylene production capacity to 415,000 tons per year. In December 2016, the Company acquired the cogeneration powerplant from SMC Powergen, Inc., which consists of four turbo generators and four fuel fired boilers. This ensures the sufficient and reliable supply of steam, power and other utilities necessary for the continuous and stable operation of the Limay Refinery. The Company completed a fuel additives blending plant in the Subic Bay Freeport Zone in July 2008 with a capacity of 12,000 metric tonnes per year, which serves the fuel additive requirements of Innospec’s customers in the Asia-Pacific region. The Company is Innospec’s exclusive blender in the Asia-Pacific region. Malaysia In Malaysia, the Company owns a petroleum refinery complex located in Port Dickson, Negeri Sembilan. The Port Dickson Refinery has a crude oil distillation capacity of 88,000 barrels per day. The Port Dickson Refinery produces a range of petroleum products, including LPG, naphtha, gasoline, jet fuel, diesel and LSWR. With the exception of naphtha and LSWR, these products are intended to meet domestic demand in Malaysia. The Company exports its naphtha and LSWR to various customers in the Asia-Pacific region under term and spot contracts.

Crude oil for the Port Dickson Refinery is received by means of a single buoy mooring (“SBM”) and crude

pipeline facilities that are jointly owned with Hengyuan Refining Company Berhad (formerly known as Shell

Refining Company (Federation of Malaya) Berhad) through an unincorporated joint venture. Under the

joint venture, the Company shares all SBM operating and capital costs and also pays a levy of one-third

of the overhead and administrative charges incurred in connection with the operation of the SBM.

Refining Process and Quality Improvement Initiatives The Limay Refinery The Limay Refinery has implemented various programs and initiatives to achieve key performance indices on reliability, efficiency and safety. These programs include the Reliability Availability Maintenance (“RAM”) program and the Profitability Improvement Program (“PIP”), which were developed and implemented in coordination with KBC Market Services, an independent consulting group. The RAM program resulted in improved operational availability and lower maintenance cost through higher plant reliability and a longer turnaround cycle of four to five years from the previous two years. The PIP likewise significantly improved White Products recovery, particularly diesel and LPG. The Limay Refinery has adopted a continuous improvement culture. The Limay Refinery’s Continuous Improvement Program was one of the finalists for the 2008 Peoples’ Program of the Year award sponsored by the People Management Association of the Philippines. The Limay Refinery achieved its Integrated Management System (“IMS”) certification issued by TÜV-SÜD-PSB, an internationally recognized certification and inspection body, in 2009. The IMS is an integration of

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three management systems: (1) Quality ISO 9001:2008; (2) Environment ISO 14001:2004; and (3) Health and Safety OHSAS 18001:2007. The benefits of an IMS for the Limay Refinery include: standardized and more systematized quality, environmental, health and safety work procedures, instructions and practices; improved quality, productivity, environment, health and safety performance through continual improvement and compliance with legal requirements; customer satisfaction; hazard and injury free working environment; and environmentally friendly operations. In 2018, Limay Refinery successfully passed its recertification and surveillance audit, making the refinery IMS-certified for 10 consecutive years. The Port Dickson Refinery The Port Dickson Refinery utilizes Quality Management Systems (“QMS”) in support of its operations. Embedded within the QMS are the Safety, Health and Environmental Management System (“SMS”), Control Management System (“CMS”), and Product Quality Management System (“PQMS”). In addition, the Port Dickson Refinery also practices the Loss Prevention System (“LPS”), the Reliability Management System (“RMS”) and plant optimization initiatives for improved plant efficiency. The Port Dickson Refinery adopted the QMS in 2016 to align all existing processes under one management system. SMS provides a structured approach to the management of risk related to safety, security, health and the environment (“SSHE”) and to comply with local SSHE regulations and laws. CMS provides a process for ensuring Corporate Policies and In-Line Controls are implemented and effectively sustained over time. PQMS provides a work process to ensure high-quality products delivered to customers. Adopting QMS was also part of the initiative to obtain ISO 9001:2015 certification. The Port Dickson Refinery was awarded with the certification on December 16, 2016. In 2018, Port Dickson Refinery had received the Grand Award, the highest accolade by Malaysian Society for Occupational Safety and Health (“MSOSH”) and the Prime Minister’s Hibiscus Award for “Exceptional Achievement in Environmental Performance 2017/2018.” To increase plant reliability, the Port Dickson Refinery adopted the RMS, which utilizes a risk-based equipment strategy and aims to improve mechanical efficiency through routine work planning, scheduling and execution. The Port Dickson Refinery continuously seeks improvement in the areas of process optimization, and energy conservation through the use of advanced process computer control and an integrated plant information system. Raw Materials Philippine Operations The main raw material used in the Limay Refinery’s production process is crude oil. The Company acquires crude oil for the Limay Refinery from foreign sources, through a combination of term purchase contracts and spot market purchases. The Company has a term contract with Saudi Aramco entered into in 2008 to purchase various Saudi Arabian crude. The pricing and payment mechanisms under this contract are consistent with Saudi Aramco’s standard practice for its Far East customers. Pricing is determined through a formula that is linked to international industry benchmarks, and payment is on an open account basis secured by an irrevocable standby letter of credit. The contract is automatically renewed annually unless either the Company or Saudi Aramco elects to terminate the contract upon at least 60 days’ written notice prior to its expiration date. As of December 31, 2018, neither the Company nor Saudi Aramco had terminated the contract. The Company also has a term contract with Kuwait Petroleum Corporation (“KPC”) to purchase Kuwait crude. Pricing is determined through a formula that is linked to international industry benchmarks. The contract is renewable subject to mutual agreement of the parties. As of December 31, 2018, neither the Company nor KPC had terminated the contract. Several other crude oils are purchased on a spot basis from various suppliers.

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The Limay Refinery is capable of processing various types of crude oil. The Company’s crude oil optimization strategy includes the utilization of various types of crude oil that are not confined to light and sweet crude, which the Limay Refinery had been processing predominantly prior to RMP-2 commissioning, to provide additional value to the Company. The completion of the RMP-2 has given the Limay Refinery greater flexibility to use heavier, more sour alternative crude. The Company entered into a contract for the 2019 term supply of group I and II base oils (SN500, SN150 and BS150 J500(500N) and J150(150N)) with Shell International Eastern Trading Co. and GS Caltex in December 2018. The term contract is renewable annually, subject to the Company’s option, and pricing is calculated using a formula based on an international standard price benchmark for base oils. Group I and II base oils are the Company’s main feedstocks for the production of automotive, industrial and marine lubricants. The Company also imports aviation gas, asphalt and some gasoline blending components. These imports are necessary as the Company does not produce aviation gas and asphalt. The Company ceased producing fuel oil, a lower margin product, upon the completion of the RMP-2. Imports of LPG, diesel, gasoline and jet fuel may also be necessary during maintenance of the Limay Refinery. Pricing is usually based on Mean of Platts Singapore for diesel, gasoline and some gasoline blending components, or Saudi Aramco contract prices (“Saudi CP”) for LPG. Malaysian Operations The main raw materials used in the Port Dickson Refinery’s production process are crude oil and condensate. The Company acquires crude oil and condensate for the Port Dickson Refinery from various sources, through a combination of term purchase contracts and spot market purchases. The Company has a long-term supply contract for Tapis crude oil and Terangganu condensate with Exxon Mobil Exploration and Production Malaysia Inc. (“EMEPMI”), supplemented by other short-term supply contracts and spot crude purchases. Currently, the Company purchases about 65% of crude and condensate volume from EMEPMI, while the balance is sourced from other term and spot purchases. Pricing is determined through a formula that is linked to international industry benchmarks. The Port Dickson Refinery is designed to process sweet crude oil. The Company’s crude oil optimization strategy includes diversification in processing different types of local as well as regional sweet crude oil. A portion of the Company’s Palm Oil Methyl Ester (“POME”) requirements for its bio-diesel mix are sourced from the small POME plant acquired by PMRMB last March 1, 2019. The POME plant is located in Lumut, Perak and has an annual capacity of 60,000 metric tonnes. The Company buys the balance of its POME requirements from Malaysian government-approved local suppliers. POME is the bio-component of the biodiesel mix sold to domestic customers in Malaysia as a replacement for diesel. The Company produces a biodiesel mix initially comprising 5% POME and 95% diesel. Subsequently, the Malaysian Biofuel Industry Act of 2007 changed the mix to 7% POME and 93% diesel. In October 2014, the Malaysian government announced the implementation of the B7 programme (blending of 7% POME and 93% diesel) for the subsidized sector. Implementation was completed in the second quarter of 2015. In November 2018, the Malaysian government further announced implementation of Euro 2 B10 for transportation and retail sectors effective February 1, 2019 and Euro 2 B7 for industrial sectors effective July 1, 2019. The Company also imports LPG, diesel, gasoline, jet fuel and some gasoline blending components into Malaysia since the refinery production is not enough to meet the demand. These imports are purchased through term purchase contracts and in the spot market. Pricing is usually based on Mean of Platts Singapore for diesel, gasoline, jet fuel and some gasoline blending components, or Saudi CP for LPG. Utilities The principal utilities required for the Company’s production process are water, electricity and steam.

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Water Deep wells provide the Limay Refinery’s water requirements. The Port Dickson Refinery’s clean water requirements for the process units are sourced from the local municipal cooling water source. Water for fire-fighting purposes is sourced from a natural lagoon located within the Port Dickson Refinery complex. Electricity and Steam The Limay Refinery’s electricity and steam requirements are sourced from the Limay Refinery’s existing turbo and steam generators as well as from its cogeneration power plant. The cogeneration power plant was acquired by the Company in December 2016 from SMC Powergen Inc., a subsidiary of SMC and an affiliate of the Company. The Port Dickson Refinery’s electricity requirements are purchased from Tenaga Nasional Berhad, the Malaysian national electricity provider, while the Port Dickson Refinery’s fired and waste heat boilers supply the steam requirements of the refinery’s process units. Sales and Marketing The Philippines In the Philippines, the Company is the leading integrated oil refining and marketing company. The Company had an overall market share of 28.5% of the Philippine oil market for the year ended December 31, 2018 in terms of sales volume based on Company estimates using its internal assumptions and calculations and industry data from the DOE. Retail Service Stations The Company had approximately 2,400 retail service stations in the Philippines as of March 31, 2019, representing approximately 27% of the country’s total service station count, according to the Company’s estimates. Most of these stations are located in Luzon, where demand is heaviest. The Company employs two types of service station operating structures in the Philippines, namely: company-owned-dealer-operated service stations (“CODO”) and dealer-owned-dealer-operated service stations (“DODO”). For CODOs, the Company buys or leases the land and owns the service station structures and equipment, but third party dealers operate the CODOs. For DODOs, third party dealers buy or lease the land, build service station structures according to Company specifications, lease the service station equipment from the Company, and operate the DODOs. As of March 31, 2019, approximately 30% of the Company’s retail service stations in the Philippines were CODOs, and approximately 70% were DODOs. In 2009, the Company launched its pioneering Petron Bulilit Stations, which are small service stations that provide the flexibility to establish a presence even in remote rural areas and make the Company’s products and services accessible to more Filipinos. To improve traffic in the Company’s service stations and increase potential revenues of the Company’s non-fuel business, the Company established Treats convenience stores and leases space to quick-serve restaurants and other consumer service shops in strategic service stations nationwide. The Treats convenience stores were rebranded under the brand name San Mig Food Avenue in 2011 pursuant to an agreement with San Miguel Foods Inc. The convenience stores are operated by dealers through a franchise obtained from San Miguel Foods, Inc. In 2014, the Company opened two bakeshops in Manila under the brand name “Treats” with permission from San Miguel Foods, Inc. for the use of the brand name. As of March 31, 2019, there are about 14 Treats outlets nationwide. The Company continues to install the point of sale (“POS”) system across its retail network throughout the Philippines. POS systems are used for gaining efficiencies through automating retail transactions and the

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proper monitoring of actual sales in service stations. As of March 31, 2019, the Company had installed POS terminals in more than 1,400 retail service stations in the Philippines. Industrial Sales The Company believes it is the leading supplier to the Philippine industrial sector, which includes major manufacturing, aviation, marine, and power accounts. The Company had approximately 800 direct industrial account customers as of March 31, 2019. LPG The Company is the leading market participant in the Philippine LPG market in terms of market share. The Company has set up approximately 1,100 branch stores through its Gasul and Fiesta Gas LPG dealers as of March 31, 2019. The Company commissioned 8 mini-refilling plants in the Philippines as of March 31, 2019 to broaden the reach of the Company’s LPG products and make them accessible to more Filipinos. Lubricants, Specialties and Petrochemicals To augment lubricants and greases sales, the Company has a network of approximately 34 Car Care Centers, 11 Lube Centers, and 10 Motorcycle Centers throughout the Philippines as of March 31, 2019. The Company capitalizes on its expanded LPG-outlet network by utilizing its LPG branch stores as outlets for the Company’s lubricants and specialty products. The Company has expanded into blending and export of fuel additives, leveraging on its technology partnership with Innospec, a global fuel additives supplier. The Company also provides technical services to Innospec’s customers, and is able to tap the customer base of Innospec in Asia to broaden the market for its own lubricant brands. The Company exports various petroleum products and petrochemical feedstock, including naphtha, mixed xylene, benzene, toluene and propylene, to customers in the Asia-Pacific region. These products are sold through accredited traders and to end-users under term or spot contracts. Polypropylene is sold mostly to companies engaged in the manufacture of packaging materials. Loyalty Programs The Company actively pursues initiatives to improve customer service and promote customer loyalty. In

2004, the Company launched the Petron Fleet Card, the first microchip-powered card in the Philippines,

which is a credit card that offers rebates and discounts on fuel, lubricants and services and provides 24-

hour free towing and roadside assistance to cardholders. As of March 31, 2019, approximately 413,800

and 185,800 Petron Fleet Cards had been issued in the Philippines and Malaysia respectively. In 2008,

the Company launched Petron e-Fuel Card as a promotional item. To maximize patronage of its service

stations and related businesses, the Company launched a loyalty program in October 2011 through its

Petron Value Card, which offers 24-hour free towing and roadside assistance, rewards points for every

purchase and complimentary annual personal accident insurance coverage. In the fourth quarter of 2014,

the Company introduced the Petron Super Driver Card, a variant of the Petron Value Card, to the public

utility vehicle sector, specifically targeting the taxi and tricycle markets. As of March 31, 2019, the

Company has issued approximately 6 million Petron Value Cards (including Petron Super Driver Cards).

Malaysia The Company’s fuels marketing business in Malaysia is divided into retail business and commercial sales.

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Retail Service Stations The retail business markets fuel and other retail products through a dealer network comprising about 640 retail service stations located throughout Peninsular and East Malaysia. In Malaysia, the Company uses the CODO and DODO operating structures for its retail service stations. As of March 31, 2019, approximately 63% of the Company’s retail service stations in Malaysia were CODOs and approximately 37% were DODOs. About 275 of the service station sites had convenience stores, which generate non-fuel revenues and improve traffic in the service stations. To further enhance the customer service experience in Malaysia, the Company launched the Fuel Happy campaign in March 2015 with many marketing activities and events organized to reward and enchant the customers. Fuel Happy Campaign is on its third year and going strong In January 2016, the Company pioneered the country’s first 100 RON fuel with the roll out of the new Blaze 100 to eight pilot sites in Klang Valley. As of March 31, 2019, Blaze 100 is available in about 80 stations, mainly located in Klang Valley and the southern city, Johor Bahru. Industrial and Wholesale Fuels The industrial segment sells diesel and gasoline to unbranded mini-stations and power plants, as well as to the manufacturing, plantation, transportation and construction sectors. The Company’s sales of RON95 gasoline and diesel to unbranded mini-stations represented approximately 64% of such sales in Malaysia by volume for 2018. Sales to the mini-stations are priced according to the APM. Many power plants in Malaysia run on natural gas and use diesel as alternative fuel when there are gas curtailments. The Company sells diesel to such power plants on an ad-hoc basis at formulated prices. The pricing of these sales is determined through a formula that is linked to international industry benchmarks. Prices of diesel to the manufacturing, mining, plantation and construction sectors are not regulated by the Malaysian government, and the pricing of these sales is subject to market supply and demand. Sales of diesel to selected transportation sectors are priced according to the APM. Since sales to these transportation sectors are limited to a volume granted by the Ministry, sales in excess of the approved quotas are not entitled to subsidies. Accordingly, when the government-mandated prices are lower than the fuel products’ built-up costs per the APM, the Company has to manage its sales of subsidized products to ensure that such sales do not exceed the amount permitted under the approved quotas. The Malaysian wholesale segment consists of sales, primarily of diesel, to Company-appointed distributors, which subsequently sell the Company’s products to industrial customers. As of March 31, 2019, the Company had about 208 active distributors. The fuel business in Malaysia is regulated by the Malaysian government, and the Company is affected by Malaysian government policies and regulations relating to the marketing of fuel products. In Malaysia’s aviation sector, the Company is one of the three major jet fuel suppliers at KLIA and KLIA 2 pursuant to a throughput agreement with the Kuala Lumpur Aviation Fuelling System, the operator of the KLIA’s storage and hydrant facility. LPG The Company markets LPG in 12-kg, 14-kg, 14-kg forklift gas and 50-kg cylinders for domestic use through redistribution centers, stockists and dealers. LPG redistribution centers are owned by the Company and distribute bottled LPG to dealers. Stockists are dealer-owned and distribute cylinders to other dealers. Dealers generally collect bottled LPG directly from redistribution centers and stockists for onward sale to domestic consumers. Prices of 12-kg and 14-kg cylinders are regulated under the APM. On April 5, 2018, the Company launched Petron Gasul LPG sales at service stations. It was the first time customers could purchase their LPG cooking gas at service stations. The Company also sells bulk LPG to industrial users through appointed dealers and to resellers. Prices of 14-kg forklift gas, 50-kg and bulk LPG are not covered by the APM. See “Sale and Pricing of Refined

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Petroleum Products — Price Control and Anti Profiteering Act, 2011” for a more detailed discussion of the APM and the Malaysian quota system Lubricants and Specialties The Company established a lubricants and specialties segment in April 2012 to introduce Petron lubricants and greases into the Malaysian market. These products are marketed through a network of appointed distributors in both West and East Malaysia to various industry segments, namely, car and motorcycle workshops, transport and fleet operators, manufacturing and industrial accounts. The Company’s wide range of automotive lubricants is sold through the Company’s extensive network of service stations in Malaysia. The Company exports surplus intermediate products LSWR and naphtha from the Port Dickson Refinery through accredited traders and to end-users under term or spot contracts. Loyalty Programs Since acquiring its Malaysian operations in March 2012, the Company has been actively pursuing initiatives to improve customer service and promote customer loyalty at its Malaysian retail service stations. The Company rebranded its loyalty card programs to Petron Miles Privilege Cards in April 2014 as part of its rebranding program in Malaysia. As of March 31, 2019, approximately 9.4 million Petron Miles Privilege Cards had been issued in Malaysia. Distribution The Philippines The Company’s main storage facility in the Philippines was formerly located in Pandacan, Manila. The reclassification by local authorities of the area occupied by the Pandacan terminal prohibited the continued operation of the Company’s facility in Pandacan as a petroleum storage facility and necessitated relocation to other alternative sites in Luzon. The Company ceased its petroleum product storage operations in Pandacan in January 2015. To serve its domestic markets, the Company maintains 32 terminals and airport installations situated throughout the Philippines, representing the most extensive distribution network for petroleum products in the Philippines. The network comprises 12 terminals in Luzon, 8 in the Visayas and 8 in Mindanao, as well as two airport installations in Luzon, and two in Mindanao. Terminals have marine receiving facilities, multiple product storage tanks for liquid fuels and LPG, drummed products storage, and warehouses for packaged products, such as lubricants and greases. From the Limay Refinery, refined products are distributed to the various terminals and direct large consumer accounts using a fleet of contracted barges and tankers, and to service stations and industrial accounts through a fleet of contracted tank trucks. The barges and tankers are chartered on term or spot contracts from third party ship owners. From the storage terminals, bulk products are hauled by tank trucks owned by third parties to service stations and industrial accounts. Under the terms of the applicable contracts, the third party owners of the contracted barges and tankers and tank trucks that are used to haul the Company’s products are liable for losses and environmental issues that may arise while the products are being transported. In its Philippine LPG business, the Company has a nationwide network of retail dealerships and outlets. Some service stations carry the Company’s LPG products and accessories. The Company has stand-alone LPG operations in its terminals in Pasig City, Legaspi City and San Fernando in Pampanga. Lubricants and greases in various packages are transported by container vans to bulk plants and terminals outside Metro Manila. Package trucks owned by third parties are utilized to deliver these lubricants and greases to various customers in Metro Manila and Luzon. Sales counters throughout the Philippines are appointed to sell these products. The Company has a tolling agreement with Innospec for the blending of fuel additive products in its fuel additive blending plant in the Subic Bay Freeport Zone in the Philippines.

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The Company has airport installations at the Ninoy Aquino International Airport and three other airports located in major urban centers in the Philippines. These installations provide storage of aviation fuels as well as refuelling services for various aircraft. In addition, the Company has presence in the airports of Puerto Princesa and Clark in Luzon, Mactan, Bohol, Kalibo, Caticlan and Iloilo City in the Visayas, as well as in Zamboanga City in Mindanao via mobile into plane refuelling equipment. Malaysia Production from the Port Dickson Refinery is distributed to service stations through tank trucks that lift products via the Port Dickson Terminal's tank truck loading facilities. These loading facilities are connected to the storage tanks inside refinery. Refinery production is also sent to Klang Valley Distribution Terminal (“KVDT”) through a pipeline. Tank trucks lift products from KVDT for delivery to Petron stations. The other terminals source product through imports from Singapore. Products are lifted from the terminals via tank trucks and delivered to service stations. The map below shows the geographic coverage of the Company’s terminals in Malaysia as of March 31, 2019.

Jet fuel is transported from the Port Dickson Refinery to KLIA through a multi-product pipeline (the “MPP”), which is partly owned by the Company through its 20% ownership interest in an unincorporated joint venture with Petronas Dagangan Berhad (“PDB”) and Shell Malaysia Trading Sdn Bhd (“Shell Malaysia”), each of which has a 40% ownership interest. The MPP is a fungible products pipeline for transporting gasoline, diesel and jet fuel and is operated by PS Pipeline Sdn Bhd, a 50-50 joint venture between PDB and Shell Malaysia. Aside from transfer through the MPP, jet fuel is also transported by truck from KLIA to Subang Airport. The joint venture through which the Company owns its interest in the MPP also owns a fuel terminal, the Klang Valley Distribution Terminal, where inventory is commingled. The Company has historically only used the MPP to transport jet fuel to KLIA and not for transporting gasoline or diesel to the Klang Valley Distribution Terminal. In 2015, the Company completed a project linking the Port Dickson Refinery to the MPP in order to improve the Company’s logistics and reduce the cost of delivery to service stations in the Klang Valley area, a major market. The Company commenced the transport of gasoline and diesel through the MPP to the Klang Valley Distribution Terminal in the second quarter of 2015. LPG is bottled at the Port Dickson and Westport terminals. Most redistribution centers and stockists collect bottled LPG directly from the Port Dickson and Westport terminals. The Company has an LPG storage and bottling facility at West Port (part of Port Klang, the principal port facility serving the Klang Valley), which is a 50-50 joint venture between the Company and Boustead Petroleum Marketing Sdn Bhd. Both terminals

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also load for Bulk LPG customers. The Company has contracted new third party bottling facilities to expand the reach of its Gasul cylinders. Among these are Siraga in Ipoh and Sikap Mawar. Capital Expenditure Projects Limay Refinery The Company completed Phase 1 of the Refinery Master Plan (“RMP-1”) in May 2009, under which it completed the construction of the PetroFCC unit, the propylene recovery unit and the benzene-toluene extraction unit. RMP-1 enhanced the Limay Refinery’s capability to convert low-margin fuel oil into White Products such as LPG, gasoline and diesel. RMP-1 also expanded the Company’s venture into production of petrochemical feedstocks such as propylene, benzene, toluene and additional mixed xylene. The Company completed RMP-2 in the fourth quarter of 2014. RMP-2 was a US$2 billion investment project which enabled the Limay Refinery to further enhance its operational efficiencies, convert its fuel oil production into production of more White Products, and increase the Company’s production of petrochemicals. The completion of the RMP-2 made the Company the first oil company in the Philippines capable of producing Euro IV-standard fuels, the global standard for clean air fuels. The Limay Refinery is now also able to produce petcoke, which is used as fuel for the cogeneration power plant for the Limay Refinery, lowering the Company’s power generation costs. RMP-2 places the Limay Refinery’s utilization, processing and energy efficiency on par with more advanced refineries in the region and improve its competitiveness. The Company will continue to make investments in the Limay Refinery facilities that will ensure sufficiency of inputs to critical refinery processes, and storage facilities for more crude and petroleum products. In the medium term, the Company will also assess the viability of further improving the Limay Refinery’s value generation by upgrading its current petrochemical facilities to increase production of high value petrochemicals, benzene, toluene and mixed xylene, and new capability to produce para-xylenes, feedstock for plastic production. Philippine Retail Network Expansion To support growth in sales in the Philippines, the Company intends to continue to increase the number of its service stations in urban and rural areas. LPG and lube outlets will also be expanded for a wider market reach. The retail network expansion will also support the optimized disposition of the increased sales volume from RMP-2. Logistics Expansion and Upgrade The Company is continuously upgrading and expanding its storage capacity to support the increase in volume from RMP-2. Investments in new terminals are being considered in different locations, and the rehabilitation and expansion of existing terminals as well as improvements in pier facilities are being done. These logistics expansion and upgrade programs also aim to improve product supply reliability to customers and end-users. Malaysia Expansion and Improvements The Company will continue to construct new service stations and expand its retail network in Malaysia. The facilities at the Port Dickson Refinery will also be enhanced to improve operating efficiency. The Company also is currently constructing a new diesel hydroteater to meet Euro-5M regulation by 2020. These projects will be financed through a combination of net cash flows provided by operating activities and debt instruments. Contribution of foreign sales to revenues The Company’s revenues from foreign sales amounted to ₱244 billion or 44% of total revenues for the year

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ended December 31, 2018. Revenues contributed by foreign sales amounted to 40% and 38% of the total revenues for the years ended December 31, 2016 and December 31, 2017, respectively. Competition The Philippines In the Philippines, the Company operates in a deregulated business environment, selling its products to individual, commercial and industrial customers. The enactment of the Downstream Oil Industry Deregulation Law in 1998 effectively removed the rate-setting function of the Philippine government through what was then known as the Energy Regulatory Board, leaving price-setting to market forces. It also opened the oil industry to free competition. See “Regulatory and Environmental Matters” for a more detailed discussion of the oil deregulation law. The Philippine downstream oil industry is dominated by three major oil companies: the Company, Shell and Chevron, which, based on Company estimates based on its internal assumptions and calculations and industry data from the DOE for the year 2018, together constituted 57.5% of the Philippine market based on sales volume. Deregulation has seen the entry of more than 200 other industry market participants, rendering the petroleum business more competitive. The Company, with total crude oil distillation capacity of 180,000 barrels per day, and Shell, with total crude oil distillation capacity of 110,000 barrels per day, operate the only petroleum refineries in the country. The rest of the industry market participants are importers of finished petroleum products or purchase finished petroleum products from other market participants in the local market. In the Philippines, the Company competes with other industry market participants on the basis of price, product quality, customer service, operational efficiency and distribution network, with price being the most important competitive factor. Providing total customer solutions has increased in importance as consumers became more conscious of value. The Company participates in the reseller (service station), industrial, LPG and lube sectors through its network of service stations, terminals, dealers and distributors throughout the Philippines. In the reseller sector, competition is most dynamic among the major firms, as seen through the construction of service stations by Shell, Chevron, Total Philippines, Phoenix Petroleum, Seaoil and other new participants in major thoroughfares. The Company has approximately 2,400 retail service stations as of March 31, 2019, representing approximately 27% of the country’s total service station count of about 9,100, reaching more customers throughout the Philippines. The small market participants continued to grow, with station count increasing from 695 in 2001 to more than 2,500 stations as of December 31, 2018. Participants in the reseller and LPG sectors continue to resort to aggressive pricing and discounting in order to expand their market share. The number of major LPG importers in the Philippines increased from three, prior to deregulation, to about seven, with new entrants having more flexible and bigger import receiving capacities. In the industrial sector, the major market participants continue to invest heavily in order to increase their market share and tap new markets. In the lubricants sector, intense competition among approximately 50 brands, including global brands such as Castrol, Mobil, Shell and Caltex, continues. Brands compete for limited shelf space, which has led to the penetration of previously unutilized markets, such as auto-dealerships in malls. The Company is the leader in the Philippine downstream oil industry, with an overall market share of 28.5% of the Philippine oil market in the year ended December 31, 2018. The other two major oil companies have a combined market share of about 29.0%, in terms of sales volume based on Company estimates using its internal assumptions and calculations and industry data from the DOE. Approximately 200 smaller oil market participants, which started operations after the deregulation of the oil industry in 1998, account for the remaining market share. The Company believes that it is the leader in terms of sales volume in the retail, industrial and LPG market segments based on Company estimates using its internal assumptions and calculations and industry data from the DOE in the year ended 2018. The Company’s retail sales volumes for the years ended 2016, 2017 and 2018 were approximately 58,000 barrels per day, 63,000 barrels per day, 59,000 barrels per day, respectively. The Company’s non-retail sales volumes (including industrial, LPG, and export and supply sales) for the years ended 2016, 2017 and 2018 were approximately 126,000 barrels per day, 117,000 barrels per day, and 118,000 barrels per day, respectively.

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The Company believes that its competitive advantages include organization, technology, assets, resources and infrastructure. The Company continues to implement initiatives aimed at improving operational efficiencies, managing costs and risks, and maximizing utilization of its assets and opportunities. Malaysia In the retail service station business, the Company’s Malaysian operations compete with four other main participants in the market, namely: subsidiaries of Petronas, Shell, Caltex and BHPetrol. Of these competitors, Petronas also has refinery operations in Malaysia. Market players compete in terms of product quality, customer service, operational efficiency and extent of distribution networks. Pricing of gasoline and diesel at retail service stations is not a competitive factor since the Malaysian government regulates the pricing these products through the APM. See “Regulatory and Environmental Matters—Malaysia —Sale and Pricing of Refined Petroleum Products— Price Control and Anti Profiteering Act, 2011.” Despite being the newest participant in the market, the Company continued to grow its retail market share to 20.9%, with approximately 640 service stations in Malaysia as of December 31, 2018. With the Company’s customer-centric programs, completion of the rebranding of service stations and facilities, continuous implementation of retail network expansion program, introduction of new product lines, and improvements in logistics and refinery capabilities, the Company believes that it is well positioned to compete in the retail segment. The Company continues to face intense competition in the industrial, aviation and wholesale market segments from other local and multi-national oil companies. The Company uses its local production from the Port Dickson Refinery and its strategic terminal locations across Malaysia to remain competitive in these segments. Besides the mini stations, fisheries and some selected transportation sectors, which are governed by the APM, other sectors do not benefit from the subsidies provided for under the APM. Major participants resort to aggressive pricing in these segments in order to expand market share. The aviation market is also very competitive, as the three local refiners offload their jet fuel through the MPP to KLIA. Sales of jet fuel at the other Malaysian airports are supplied by the oil companies having the necessary storage and logistics capability. In the LPG segment, the Company competes with Petronas and NGC Energy Sdn Bhd, among others. The APM applies only for sales of LPG in domestic cylinders while industrial and bulk LPG are not covered. Competition in this market is driven by supply reliability, dealer network efficiency and customer service. The Company, being well established, remains competitive in this segment. Overall, the Company’s commercial sales volume registered significant growth in all sectors as a result of the Company’s reliable and steady supply of quality fuel to sectors such as transportation, manufacturing, construction, mining, agriculture, and power generation. The Company’s retail sales volumes for the years ended 2016, 2017 and 2018 were approximately 68,000 barrels per day, 73,000 barrels per day, 80,000 barrels per day, respectively. The lubricants and specialties market is dominated by the traditional global brands as well as established local participants. The Company leverages on its growing network of service stations to market its products and to provide brand presence. Price is a major competitive factor in this market. The Company believes that it is well positioned to compete in this market, due to its efficient blending plant and supply chain, and national consumer promotion through service station and independent workshops. Employees As of March 31, 2019, the Company had 3,290 employees, of which 260 are managerial employees, and 2,996 are rank and file (includes professional/technical and supervisory level) employees. Approximately 81% of the Company’s employees are based in the Philippines, with the remaining 19% based in Malaysia and Singapore. The Company believes that it has a well-trained and experienced pool of employees. As of March 31, 2019, approximately 15% of the Company’s employees had worked with it for over 20 years. The average tenure of the Company’s employees is approximately 8 years in the Philippines and approximately 10 years in Malaysia

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The Company has collective bargaining agreements (“CBAs”) with three labor unions in the Philippines: (1) Petron Employees Association with 189 members is affiliated with the National Association of Trade Unions and has a CBA effective from January 1, 2015 to December 31, 2019; (2) Petron Employees Labor Union with 43 members has a CBA effective from January 1, 2014 to December 31, 2018, currently under discussion for renewal; and (3) the Bataan Refiners Union of the Philippines with 630 members is affiliated with the Philippine Transport and General Workers Organization and has a CBA effective from January 1, 2014 to December 31, 2018, likewise currently subject of discussions for renewal. As of December 31, 2018, approximately 32% of the Company’s employees in the Philippines were covered by CBAs. The Company has CBAs with two labor unions in Malaysia: (1) the National Union of Petroleum and Chemical Industry Workers has 127 members with a CBA effective from January 1, 2017 to December 31, 2019; and (2) the Sabah Petroleum Industry Workers Union has eight members with a CBA effective from May 1, 2017 to April 30, 2020. As of December 31, 2018, approximately 22% of the Company’s employees in Malaysia were covered by CBAs. The Company has not experienced any actual strikes or work stoppages for more than 20 years. In addition to Philippine statutory benefits, the Company provides hospitalization insurance; life insurance; vacation, sick and emergency leaves; and computer, company and emergency loans to its employees. It has also established a savings plan wherein an eligible employee may apply for membership and have the option to contribute 5-15% of his or her monthly basic salary. The Company, in turn, contributes a maximum of 5% of the monthly basic salary to a member-employee’s account in the savings plan. The Company has adopted the “Rewarding Excellence through Alternative Pay Program,” a performance incentive program that rewards eligible employees who contribute to the achievement of the Company’s annual business goals. The Company has a fully-funded tax-qualified defined benefit pension plan, PCERP, which covers all permanent, regular and full-time employees of the Company, excluding its subsidiaries. The control and administration of PCERP are vested in its board of trustees, as appointed by the Board of Directors of the Company. PCERP’s accounting and administrative functions are undertaken by the SMC Retirement Funds Office. The annual cost of providing benefits under the plan is determined using the projected unit credit actuarial cost method. As of the Company’s latest actuarial valuation date of January 1, 2018, the Company is expected to contribute ₱837.6 million (US$16 million) to its defined benefit plans in 2019. The benefits in Malaysia are substantially similar to those in the Philippines, with the exception of the savings plan and variable pay scheme. Malaysian employment regulations require employers and employees to contribute to an employees’ provident fund (the “EPF”) to provide for the retirement and other needs of employees in Malaysia. Under present regulations, employees contribute a minimum of 11% of their monthly salary to the EPF via payroll deductions. Employers are required to contribute a minimum amount equivalent to 12% to 13% of a managerial, professional and technical (“MPT”) employee’s monthly salary to the EPF. Under collective agreements entered into by the Company with its non-MPT employees in Malaysia, the Company contributes up to 16% of the salaries to the EPF. The Malaysian government does not require employers to make contributions to the EPF with respect to foreign workers. However, if foreign employees opt to contribute, the Company will make the commensurate employers’ contribution. The Company depends on experienced, skilled and qualified personnel for the management and operation of its business and prioritizes programs that will ensure the retention and continuous engagement of talent. While the Company’s attrition rate is significantly lower than the industry average, it undertakes aggressive talent acquisition activities to maintain an adequate manpower pool. Furthermore, the Company is committed to ensure leadership strength and technical knowledge preservation through an established succession planning program supported by a structured mentoring program for identified replacements of retiring employees. Promising employees are given the opportunity to accelerate their development in the early stages of their careers through a structured coaching program to prepare them for greater roles and responsibilities. The Company also supports the continuous education of employees through an education reimbursement program for post-graduate studies and employees’ participation in functional technical courses, conferences and seminars. The Company believes it has a strong compensation and benefits package and regularly reviews its employee relations programs to continuously attract, retain and engage talent.

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Government Approval of Principal Products or Services Government approval of Petron products and services is not generally required. Petroleum products, both locally refined and imported, however, must conform to specifications under the Philippine National Standards. Importations of petroleum products and additives are reported to the DOE, in accordance with the Downstream Oil Industry Deregulation Act of 1998 and its implementing rules and regulations. Clearances are secured from concerned government authorities for importations of restricted goods. The supply of products or services to government and government agencies undergo a bidding process in accordance with law. Effect of existing or probable government regulations on the business

• Tax Reform for Acceleration and Inclusion (the “TRAIN Law”). Republic Act No. 10963 or the TRAIN Law, which took effect on January 1, 2018, imposes a phased increase in excise taxes on petroleum products from 2018 to 2020. The schedule of increase for this three (3)-year period is P2.65-P2-P1 per liter (“/li”) per year for gasoline, P2.50-P2-P1.50/li for diesel and fuel oil, P1-P1-P1/kg for LPG, and P0.33-P0-P0/li for jet fuel. The incremental excise tax is further subject to 12% VAT. Higher excise taxes can potentially constrain demand growth, especially for LPG given there are substitutes such as charcoal, kerosene and electric, and gasoline with public transportation as alternative.

The TRAIN law also mandates the implementation of a fuel marking program to help curb illicit trading of fuel products. While the program is yet to be implemented, the cost of the program may also lead to possible increase in fuel prices.

• Biofuels Act of 2006 (the “Biofuels Act”). The Biofuels Act and its implementing circulars mandate that gasoline and diesel volumes contain 10% bioethanol and 2% biodiesel/cocomethyl ester (“CME”) components, respectively. To produce compliant fuels, the Company invested in CME injection systems at the Petron Bataan Refinery and the depots. On the bioethanol component, the DOE issued in June 2015 its Circular No. 2015-06-0005 entitled “Amending Department Circular No. 2011-02-0001 entitled Mandatory Use of Biofuel Blend” which currently exempts premium plus gasoline from the 10% blending requirement.

• Renewable Energy Act of 2008 (the “Renewable Energy Act”). The Renewable Energy Act aims to promote development and commercialization of renewable and environment-friendly energy resources (e.g., biomass, solar, wind, hydro, geothermal) through various tax incentives such as seven (7)-year income tax holiday and duty-free importation of renewable energy equipment and machinery. The sale of power generated from these sources is also exempt from value-added tax under the TRAIN Law. The growth in renewable energy may displace or reduce use of oil-based power plants affecting the Company’s sales to the power sector.

• Clean Air Act of 1999 (the “Clean Air Act”). The Clean Air Act established air quality guidelines and emission standards for stationary and mobile equipment. It also included the required specifications for gasoline, diesel and IFO to allow attainment of emission standards. Petron invested in a gasoil hydrotreater plant and an isomerization plant to enable it to produce diesel and gasoline compliant with the standards set by law.

• Laws on Controlled Chemicals (Presidential Decree No. 1866 as amended by Republic Act No. 9516). The implementing rules and regulations for this amended law were approved on June 9, 2016 and listed the chemicals under the control of the Philippine National Police. These rules reduced the controlled list from 101 to 32 chemicals and further classified 15 chemicals as high-risk and 17 as low-risk substances. The rules also outline the procedures for regulating, storing, handling and transporting chemicals.

• Compliance with Euro 4 standards. In September 2010, the DENR issued Administrative Order 2010-23 mandating that, by 2016, all new motor vehicles that would be introduced in the market shall comply

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with Euro 4 emission limits, subject to Euro 4 fuel availability. In June 2015, the DOE issued Circular 2015 - 06-0004 entitled “Implementing the Corresponding Philippine National Standard Specifications (PNS) for the Euro 4/IV PH Fuels Complying with the Euro 4/IV Emissions” directing all oil companies to adopt Euro4-compliant fuels. With its RMP-2, Petron is now producing Euro 4-compliant fuels ahead of the 2016 mandate.

• Department Circular 2014-01-0001. The DOE issued Department Circular 2014-01-0001 directed at ensuring safe and lawful practices by all LPG industry participants as evidenced by standards compliance certificates. The circular also mandates that all persons engaged or intending to engage as a refiller of LPG shall likewise strictly comply with the minimum standards requirements set by the DTI and the DOE. The circular imposes penalties for, among others, underfilling, illegal refilling and adulteration.

• Laws on Oil Pollution. To address issues on marine pollution and oil spillage, the Maritime Industry Authority (“MARINA”) mandated the use of double-hull vessels for transporting black products beginning end-2008 and white products by 2011. Petron has been using double-hull vessels in transporting all its products.

• Oil Marine Pollution Circulars. The Philippine Coast Guard has memorandum circulars prescribing the rules and regulations on the prevention, containment, abatement and control of oil marine pollution by all marine vessels, coastal and offshore facilities and other facilities utilizing or storing petroleum products. The circulars identify the prohibited acts and provide the penalties.

• Anti-Competition Law (the “Philippine Competition Act”). The Philippine Competition Act, approved in July 2015, prohibits anti-competitive agreements, abuses of dominant positions, and mergers and acquisitions that limit, prevent, and restrict competition. To implement the national competition policy and attain the objectives and purposes of the law, the Philippine Competition Commission (“PCC”) was created. Among the powers of the PCC is the review of mergers and acquisitions based on factors it may deem relevant. The PCC, after due notice and hearing, may impose administrative fines on any entity found to have violated the provisions of the law on prohibited arrangements or to have failed to provide prior notification to the PCC of certain mergers and acquisitions. The PCC is empowered to impose criminal penalties on an entity that enters into any anti-competitive agreement and, when the entities involved are juridical persons, on its officers, directors, or employees holding managerial positions who are knowingly and willfully responsible for such violation.

• Amended Price Freeze Act of 2013. This law mandates the implementation of a 15-day price freeze of basic necessities, including LPG and kerosene, for areas declared under a state of emergency or calamity.

Executive Order 890: Removing Import Duties on All Crude and Refined Petroleum Products.

After the ASEAN Trade in Goods Agreement was implemented in 2010, the tariff rate structure in the oil industry was distorted with crude and product imports from ASEAN countries enjoying zero tariff while crude and product imports from outside the ASEAN were levied 3% tariff. To level the playing field, Petron filed a petition with the Tariff Commission to apply the same tariff duty on crude and petroleum product imports, regardless of source. In June 2010, the government approved Petron’s petition and issued Executive Order 890 which eliminated import duties on all crude and petroleum products regardless of source. The reduction of duties took effect on July 4, 2010.

• LPG Bill. The LPG Bill, currently pending in the Philippine Congress, will mandate stricter standards on industry practices.

Research and Development To enhance productivity and efficiency, reduce costs and strengthen its competitiveness, the Company engages in research and development to identify improvements that can be made to its products and production processes. The Company’s Research and Development Department (“R&D”) engages in

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various technical research and testing activities to develop and enhance the performance of the products and optimize production processes. In addition to research and product development, it also engages in quality control and technical training. The development, reformulation and testing of new products are continuing business activities of the Company. R&D develops revolutionary products that meet and exceed the highest industry quality standards. The Company utilizes appropriate technology in developing new fuel and lubricant products to improve product’s performance, quality level and cost-effectiveness. R&D also continuously seeks ways on developing more eco-friendly petroleum products. The Company remains fully compliant with all government laws and regulations such as the Clean Air Act and the Biofuels Act. In addition to these regulations, Petron also secures stringent certifications and approvals from global industry certifying institutes and original equipment manufacturers to be more competitive both in local and international markets. These approvals are applicable to specific Petron products in the Philippines, Malaysia, China, Brunei, and Cambodia. The Company believes that its continued success is influenced in part by its ability to be innovative and attentive to consumer preferences and local market conditions. Expenses relating to research and development amounted to approximately ₱66 million in 2016, approximately ₱65 million in 2017, and approximately ₱86 million in 2018, which are equivalent to 0.02% of total revenues in 2016, 2017, and 2018. The annual increase of expenses relating to research and development is roughly 12% to 13% in the past 3 years. As of December 31, 2018, R&D has 33 regular employees. Its testing facilities are ISO/IEC17025 certified – a testament to its ability to perform tests and analyses in accordance with global standards. R&D also has long-standing partnerships with leading global technology providers in fuels, lubricants and grease products. In addition, it provides technical training to keep internal and external customers updated of the latest technology trends in the industry. Intellectual Property The Company’s intellectual property registrations and applications as of December 31, 2018 are described below: Approved Trademark Registrations The Company has trademark registrations for a term of 20 years for the following marks: “Gearkote”, “Petron Old Logo”, “Hypex”, “Petron Old Logo”, “2T”, “Turnol”, “Petromar HD”, “Spinol”, “Airlube”, “Hydrotur”, “Petromix”, “Voltran”, “Stemol”, “Petrocyl 680”, “Overglide”, “Grease Away”, “Petrokut”, “Petron Railroad Extra”, “Rubbex”, “Petron Dust Stop Oil”, “Oil Saver”, “DCL 100”, “Milrol”, “Petropen”, “Petron GST”, “Petron with XCS”, “With XCS”, “Super DC”, “LPG Gasul Cylinder 2.7 kg Petromul CSS-1”, “New Petron Logo”, “Power Booster”, “Zerflo”, “TDH 50”, “Automatic Transmission Fluid”, “Petrotherm 32”, “Petrosine”, “Petron HDX”, “Petron TF”, “Petron”, “Ropgriz”, “Ultron and device”, “2T Motorcycle Oil”, “Lubritop”, “Antimist”, “Molygrease”, “Petron GX and Extra with a car device against a red background”. In addition, the Company has the following trademark registrations for a term of 10 years: “Petrogrease”, “Gearfluid”, “Gasulette”, “Gasulite”, “Gasulgrille”, “Gasul”, “Marinekote”, “LPG Gasul Cylinder 50 kg”, “Gasul and device”, “LPG Gasul Cylinder 11 kg”, “Petron STM”, “Petron Autokote”, “GEP”, “Cablekote”, “Grease Solve”, “Petrokote”, “Petron 2040”, “Petron XD3”, “Extra”, “Petron Gasul 11 kg POL-VALVED Cylinder”, “Ultron Rallye”, “Rev-X Trekker”, “Rev-X Hauler”, “Rev-X HD”, “Ultron Extra”, “Sprint 4T”, “Xpert Diesel Oils”, “Penetrating Oil”, “Solvent 3040”, “Ultron Race”, “Ultron Touring”, “Lakbay Alalay”, “Blaze”, “Clean ‘n Shine”, “Fuel Hope”, “Fuel Success”, “Fuel X Fuel Customer Experience”, “Pchem”, “Petron Farm Trac Oil for Farm Equipment”, “Petron Freeport Corporation”, “Petron Marketing Corporation”, “PetronConnects”, “Treats” (for bottled water), “Tulong Aral ng Petron and device”, “Ultimate Release from Engine Stress”, “Xpert sa Makina X-tra ang Kita”, “Your friend on the Road”, “Fuel Trust”, “Fuel Experience”, “Fuel Drive”, “Fuel Excellence”, “Fuel Efficiency”, “Xtend”, “Car Care and Logo”, “Go for the Xtra Miles”, “e-fuel”, “Rider”,

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“Enduro”, “Fiesta Gas and device”, “Xtra”, “Fiesta Gas 2.7 kg cylinder”, “Fiesta Gas 5 kg cylinder”, “Fiesta Gas 5 kg POL-VALVED”, “Fiesta Gas 11 kg cylinder”, “Fiesta Gas 11 kg POL-VALVED”, “Fiesta Gas 22 kg POL-VALVED”, “Fiesta Gas 50 kg POL-VALVED”, “Bulilit Station”, “Bulilit Station” (Gasoline Station), “How far can you go on one full tank these days?”, “Fuel Journeys”, “Petron Lakbay Pinoy”, “Petron Pinoy Fuels and device”, “Petron Pinoy Diesel and device”, “Petron Pinoy Regular and device”, “Econo”, “Elite”, “Pantra”, “Limay Energen Corporation”, “Racer Maximum Performance”, “Petrolene”, “Petron Value Card and device”, “Pstore”, “Pmart”, “Pshop”, “Go Petron! Get Rewards & Benefits”, “TSI and device”, “Footprints Inside a Sphere and device”, “Lakbay Alalay Para sa Kalikasan”, “Everyone’s Vision and device”, “Petron Super Xtra Gasoline”, “Petron Ronnie Mascot in Seatbelt and device”, “Petron Super Driver”, “Maxi Gas”, “Xtra Exceed”, “Xtra Ultra”, “Xtra Prime”, “Xtra Miles”, “Pinoy HP Gasoline”, “Xtra Excel”, “UnliPower Saver Gasoline”, “Ultramax Gasoline”, “Ecomax Gasoline”, “PMax Gasoline”, “Triangle device”, “Boomerang device”, “Ronnie Mascot”, and “Seat Belt Lives”, “Privilege Miles Card and device”, “Petron Fleet Card and device”, “Blaze 100 Octane Euro 4 and device”, “Pay with Points Save your Cash”, “Road Safety and device”, “Miles”, “Petron Chinese Name” (flag type), “Petron Chinese Name” (long type), “Super Tsuper Gift and App”, “Xtra Advance (inside a rectangle device)”, “Petron Blaze 100”, “Petron XCS3”, “Champion Gasoline”, “Gasulito”, “REV-X”, “Petron Blaze Spikers”, “Thermal Stress Stabilizing System”, “Dynamic Cleaning Technology”, “Miles Better”, “Your Feet Your Rules”, “Xtra Advance Euro 4 and device”, “Petron Super Xtra Gasoline Euro 4 and device”, “Diesel Max Euro 4 and device”, “Turbo Diesel Euro 4 and device”, “XCS Euro 4 and device”, “Fast Gas Fast Prize”, “Carbon Buster”, “Petron Canopy Fascia”, “Diesel Max”, “Petron PMB”, “Blu and device”, “Blu with Gasul Tank”, “Puno ng Buhay”, “Tri-Action”, “Blaze Racing”, “Tri Plus”, “Gas Padala”, “Lakbay Ligtas”, “Petromate”, “Sagip Alalay”, “Petron XCS3 Triple Action Premium Unleaded”, “Accident Insurance and device”, “Thermal Control System”, “Tri-Activ Advantage”, “I Fuel Hope”, “I Fuel Communities”, “Rider 4T”, “Captain Booster”, “Packaging HTP”, “Performance Run”, “Petron Best Day”, “Fe Dela Fiesta”, “Rev-X Turbo” and “Super Saya”. Pending Trademark Registration Applications Petron has pending applications for registration of the following trademarks: “Euro 4” (stylized), “Resibo Blowout” and “Petron Motorsports”. The Company also has registered and pending trademarks in Malaysia, Indonesia, Cambodia, Thailand, Myanmar, Australia, China, United Kingdom, India, Japan, Republic of Korea, Singapore, Hong Kong, China and Saudi Arabia. The Company has filed one hundred seventy nine (179) trademark applications in Malaysia relating to its Malaysian operations. It has obtained copyright protection for the stylized letter “P” and has registered trademarks in Malaysia, including the “Petron (Class 9)”, “Petron Logo”, “Gas Miles”, “Gasul”, “Fiesta Gas”, “Energen”, “Petron Plus (Class 9)”, “Perks”, “Miles”, “Propel”, “XCS”, “Petromate”, “Hydrotur”, “Miles with ‘P’ Logo”, “MILES with ‘P’ Logo and ‘Privilege Miles Card’ words”, “Petroil”, “Fuel Journeys”, “Better by Miles”, “Petron Cares”, “DCL 100”, “Petromar”, “Energy”, “Treats with Crocodile Logo”, “Petron Greenfuel”, “Kedai Mart with P logo”, “Rider”, “Rider 4T”, “Petrolaysia”, “Prime”, “Petron with Canopy Fascia logo”, “Petron Racing”, “Sprint 4T”, “Rev-X Diesel Engine Oils”, “Prestige”, “Xtra Mile”, “Xtra Unleaded”, “Treats and device”, “Petron Value Card Rewards & Benefits”, “Turbo Diesel”, “Diesel Maz”, “Blaze Gasoline”, “Petron XCS3”, “Powerburn 2T and device”, “Racing”, “Powerburn”, “Petrogrease”, “Greaseway”, “GEP”, “Gearfluid”, “Clean ‘n Shine”, “ATF”, “Treats and device”, “Powered by Petron”, “Miles with ‘P’ Logo and ‘Petrol’ word”, “Petromar HD”, “Petrogrease EP”, “Blaze with ‘P’ Logo and ‘Petrol’ word”, “Fuel Trust”, “Fuel Success”, “Fuel Hope”, “Blaze Racing”, “Fuel Care”, “Treats”, “Petron Motorsports”, “Fuel Life”, “Fueled by Petron”, “Miles Better”, “Your Fleet Your Rules”, “5th year Anniversary Fuel Happy” and “Petron Car Care Center”. Copyrights Petron has copyrights for its “7 kg LPG container”, “Gasulito” with stylized letter “P” and two (2) flames, “Powerburn 2T”, “Petron New Logo” (22 styles), “Philippine Card Designs”, “Malaysian Card Designs”, and “Petron font”. Copyrights are protected during the lifetime of the creator and for fifty (50) years after his death.

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Utility Models Petron has registration for the following utility models: “Carbon Buster” (process) and “Carbon Buster” (composition). The term of the said utility models is seven (7) years from the date of filing of the application.

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DESCRIPTION OF PROPERTY

Operating Sites The Philippines In the Philippines, the Company owns a petroleum refinery complex located in Limay, Bataan. The Limay Refinery has a crude oil distillation capacity of 180,000 barrels per day. It has its own piers and off-shore berthing facilities, one of which can accommodate very large crude oil carriers, or VLCCs. The Refinery also has a cogeneration power plant, with four turbo generators and four fuel fired boilers. The Company also operates a lube oil blending plant in Pandacan, a fuel additives blending plant in Subic Bay Freeport, and a polypropylene plant in Mariveles, Bataan. Petron operates a network of terminals as bulk storage and distribution points throughout the Philippines, as well as LPG plants in its Pasig, San Fernando and Legaspi terminals. Its airport installations serve the fuel requirements of the airline industry and other aviation accounts.

PETRON TERMINALS, AIRPORT INSTALLATIONS, SALES OFFICES AND MANUFACTURING PLANTS IN THE PHILIPPINES

Luzon Visayas Mindanao

Terminals Legaspi, Albay (LPG only) Limay, Bataan Limay-Panasia, Bataan Mabini, Batangas Navotas, Metro Manila Pasig, Metro Manila (LPG only) Poro Point, La Union Puerto Princesa, Palawan Rosario, Cavite San Fernando, Pampanga (LPG only) Subic, Zambales Tondo, Manila

Anibong, Tacloban City Bacolod, Negros Occidental Culasi, Roxas City (R/A) Iloilo City Isabel, Leyte Mactan, Lapu-Lapu City Mandaue, Cebu Ormoc, Leyte

Bawing, General Santos City Davao City Iligan City, Lanao del Norte Jimenez, Misamis Occidental Nasipit, Agusan del Norte Tagoloan, Misamis Oriental Tagoloan-Phividec, Misamis Oriental Zamboanga City (R/A)

Airport Installations

Laoag, Ilocos Norte Pasay, Metro Manila

Davao City Laguindingan, Misamis Oriental

Sales Offices Calapan, Oriental Mindoro Mamburao, Occidental Mindoro Masbate, Masbate Pasacao, Camarines Sur (R/A) San Jose, Occidental Mindoro

Amlan, Negros Oriental Tagbilaran City, Bohol (R/A)

Manufacturing Plants

Mariveles, Bataan Pandacan, Manila Subic, Zambales

Note: R/A indicates that a rationalization agreement is in place in relation to the relevant terminal, which is a contract between the owner-operator of the terminal and another oil company regarding product supply and the use of the facilities to rationalize operations and reduce costs. In the retail market, the Company has more than 2,400 retail service stations throughout the Philippines as of March 31, 2019, representing approximately 27% of the country’s total service station count of approximately 9,100. Most of these stations are located in Luzon, where demand is heaviest.

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Malaysia In Malaysia, the Company owns a petroleum refinery complex located in Port Dickson, Negeri Sembilan. The Port Dickson Refinery has a crude oil distillation capacity of 88,000 barrels per day. The Diesel Hydrotreater project that the Port Dickson Refinery embarked on last year is well under way to comply with government’s requirement to implement the Euro 5 specifications for diesel by September 1, 2020. Two new product tanks with 250,000 barrels capacity each are currently in construction to meet higher product demand.

PETRON TERMINALS IN MALAYSIA

Peninsular Malaysia Saba

Terminals Bagan Luar Klang Valley Distribution Terminal10 KLIA Aviation Facility11 Kuantan Pasir Gudang12 Port Dickson Westport13

Sandakan Sepangar Bay Tawau

The retail business in Malaysia markets fuel and other retail products through a dealer network comprising approximately 640 retail service stations located throughout Peninsular and East Malaysia. Description of Other Property All facilities owned by the Company are free from liens and encumbrances. The Company entered into commercial leases with the PNOC for parcels of land occupied by its Limay Refinery, terminals and certain of its service stations. The lease agreements include upward escalation adjustment of the annual rental rates. In 2009, the Company renewed its lease with PNOC (through NVRC) for the continued use of the Limay Refinery land for 30 years starting January 1, 2010 (renewable upon agreement of the parties for another 25 years). In 2015, the Company also entered into another 25-year lease agreement with PNOC effective August 1, 2014 for additional lots near the Limay Refinery for its expansion projects. On October 20, 2017, the Company filed an action against the PNOC in respect of the leased properties to preserve its rights under the lease agreements. The case is currently undergoing judicial dispute resolution (“JDR”) proceedings before the courts. The next JDR conference is scheduled on March 28, 2019, without prejudice to any discussion between the parties regarding the settlement of the case. See “Legal Proceedings—Leases with PNOC.” The Company leases from NVRC 136 sites for service stations and terminals and pursuant to 25-year lease contracts renewable upon agreement of the parties. Expenses relating to the NVRC leases amounted to ₱236.20 million in 2017 and ₱234.77 million in 2018. The Company also leases land for its service stations from third parties pursuant to lease contracts with varying terms that generally range from five to 25 years and which are renewed upon negotiations between the Company and the lessors. As of December 31, 2018, there were leases covering 744 service stations: 501 in Luzon, 135 in the Visayas and 108 in Mindanao. Expenses under these leases amounted to ₱1,118.17 million in 2017 and ₱1,366.72 million 2018.

10 Breakdown of equity share as follows: Petron (20%), Shell Malaysia Trading Sdn Bhd (40%), Petronas Dagangan Berhad (40%) 11 Petron operates within the facility owned by Malaysia Airport Holdings Berhad (MAHB) under an agreement with Kuala Lumpur Aviation Fuelling System Sdn Bhd (KAFS), a subsidiary of Petronas Dagangan Berhad. 12 Co-share with Chevron Malaysia Limited 13 Co-share with Boustead Petroleum Marketing Sdn Bhd

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In Malaysia, the land on which the Company’s retail service stations are based is either owned by the Company or leased from third parties. As of December 31, 2018, the Company owned over 245 parcels of land for service stations and leased approximately 300 parcels of land for its service stations from third parties. Rentals for the service station lands are either paid in advance and amortized over the lease period, or paid over the lease period pursuant to the relevant schedules. Payments under these leases amounted to approximately RM 50 million in 2018. The Port Dickson Refinery occupies a 579-acre site. The Company holds freehold title to 404 acres of this site and leases the remaining 175 acres pursuant to a 99-year lease that expires in 2060. The Company continuously evaluates available properties for sale based on the needs of the Company’s business. Insurance The Company’s insurance coverage includes property, marine cargo and third-party liability, as well as personal injury, accidental death and dismemberment, sabotage and terrorism, machinery breakdown and business interruption. One of the main insurance policies of the Company, the Industrial All Risk (the “IAR”) policy, covers the Limay Refinery for material damages, machinery breakdown and business interruption. The business interruption coverage under the IAR policy has a US$300.0 million limit. The Company considers its insurance coverage to be in accordance with industry standards. All insurance policies relating to the Company’s Philippine operations are written by its wholly owned insurance subsidiary, Petrogen. The majority of the risks are reinsured with Standard & Poor’s A-rated foreign insurers through Ovincor, Petron’s Bermuda-based captive insurance subsidiary. The Company’s Malaysian operations are insured with local Malaysian insurance companies, as required by Malaysian law. Permits and Licenses The Company holds various permits and licenses for its business operations, which include but are not limited to, the following:

1. Certificate of Incorporation issued by the Securities and Exchange Commission (“SEC”), together with the Certificate of Filing Amended Articles of Incorporation dated July 6, 2015

2. Business permits of Petron Corporation (“Petron”) and its Philippine operating subsidiaries—

New Ventures Realty Corporation, Petrogen Insurance Corporation, and Petron Freeport Corporation (“PFC”)

3. Import and Export Certificate of Registration issued by the Bureau of Customs (“BOC”) in favor

of Petron and PFC

Company Permit Permit No. Registration

Date Valid Until

Petron BOC Certificate of

Registration

CCN: IM0003112039 May 06, 2019 May 5,

2020

Petron BOC Certificate of

Registration

CCN: EX0000007331 March 27, 2019 March 26,

2020

PFC BOC Certificate of

Registration

CCN: IM0006121934 September 28,

2018

September

28, 2019

PFC BOC Certificate of

Registration

CCN: EX0000776475 September 28,

2018

September

28, 2019

4. Permit to discharge and shipside permits from the BOC, in favor of Petron*

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5. Certificate of Accreditation as Importer issued by BOC in favor of Petron and PFC

6. Permit to Produce Biofuel- Blended Gasoline (E-10 / E-Gasoline) issued by the Bureau of Internal Revenue (“BIR”), in favor of Petron*

7. Authority to Release Imported Goods issued by BIR (or Subic Bay Metropolitan Authority

(“SBMA”), as applicable), in favor of Petron / PFC*

8. Permit to Export issued by BIR (or SBMA, as applicable), in favor of Petron / PFC*

9. BOC Authority to Load and Export Declaration, in favor of Petron*

10. Department of Energy (“DOE”) Import Notice, in favor of Petron*

11. BIR and DOE denaturing request for bioethanol, in favor of Petron*

12. BIR permit to transport bioethanol, in favor of Petron *

13. BIR permit to buy local ethanol, in favor of Petron*

14. Environmental Compliance Certificate (“ECC”) issued by the Department of Environment and Natural Resources (“DENR”)

a. Refinery

Facility ECC Number Date Issued

Petron Bataan Refinery

1002-0007 December 3, 2012

b. Terminals

Facility ECC Number Date Issued

MM&S

NLOBP ECC-NCR-1609-0061 October 3, 2016

Pandacan (Grease Plant & LOBP)

ECC-LLDA-2005-209-3540 October 18, 2005

NCR 2004-01-30-545-219 September 30, 2004

JOCASP ECC-NCR-1101-0008 January 12, 2011

Navotas ECC-NCR-1206-0224 December 19, 2014

Rosario ECC-R4A-1301-0028 June 26, 2013

Subic R03-1204-0165 October 13, 2015

LPO

Batangas ECC-R4A-1402-0115 August 13, 2018

Limay R03-1111-0550 July 27, 2018

Palawan ECC-R4B-1804-0005 February 11, 2019

Pasacao ECC-BDP-99B-05CS-010 February 10, 1999

Poro ECC-R01-0807-0257-0104 January 9, 2019

Odiongan ECC-R4B-1810-0008 October 25, 2018

VIS

Amlan CNC-OL-R07-2015-03-00069

March 9, 2015

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Bacolod 0607-0516-135-120 May 16, 2007

Iloilo ECC 0607-0516-136-120A November 19, 2012

Isabel CNC-RO8-1101-0001 January 7, 2011

Mactan ECC-R07-0807-0257-104 January 30, 2018

Mandaue ECC-R07-0902-0063-104 December 18, 2018

Ormoc ECC-R8-0803-029-6280 May 28, 2008

Roxas ECC-0604-1117-777-120A June 7, 2017

Tacloban ECC-R08-1501-0001 March 2, 2015

Tagbilaran CNC-R07-1308-0020 September 6, 2013

MIN

Bawing ECC-R12-1201-0004 April 30, 2012

Davao ECC-R11-1707-0012 July 24, 2017

Iligan ECC-R10-1006-0133 December 3, 2012

Jimenez 96-ECC-LPG/FP-1042-1087 June 21, 2016

Nasipit ECC-R13-1001-0012 November 14, 2016

Tagoloan 95-ECC-STF/ODE-1043-852 May 11, 2018

Zamboanga A-2017-017-ZC August 1, 2017

LPG

Gasul Pasig NCR-2005-01-11-002-120 January 11, 2005

Gasul Legazpi CNC-R05-1007-0007 July 8, 2010

Gasul San Fernando R03-1105-0249 September 5, 2017

Gasul San Pablo ECC-R4A-1810-0284 October 29, 2018

c. Company-owned Service Stations

Talisay, Negros Occidental

Angeles, Pampanga

Bacolod, Negros Occidental

Barangay Pampanga, Davao City

Quirino Ilonggot

Amang Rodriguez, Pasig,

Antipolo, Paguntalan

Bacolod City, Taculing, Negros Occidental

Buendia Pasay Triumvirate

Calamba Laguna

Caloocan Congressional

Castillejos Virland

Consolacion, Panabo City

Consolacion, Cebu

East Orient, Lipa

Eusebio Maybunga, Pasig

F. Blumentritt

F. Legaspi, Blackrock

General Trias

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Gingoog Villahermosa Misamis

Gonzaga NGC Villamonte Bacolod

Jaro, Iloilo

Kamagong, Makati

Lapaz, Burgos

Lizares, Bacolod

Isabela, Negros Occidental

Mangan-Vaca, Zambales

Mariveles, Bataan

Mayon corner Calamba, Quezon City

Mexico, Pampanga

Murcia, Negros Occidental

Santa Rosa, Nueva Ecija

P. Oliveros, Antipolo City

P. Ocampo, Makati City

Rodriguez Rizal

Pililia, Rizal

Quezon Avenue, Quezon City

Ozamiz, Misamis Occidental

Burgos, Rodriguez, Rizal

East District, Sorsogon

East District, Sorsogon

Sumulong, Antipolo City

Talisay, Tanaun

Tejero Soriano Del Rosario General Trias, Cavite

Tesoro, Davao

Tondo, Manila

Toril, Davao

Triangulo, Naga City, Camarines Sur

Veterans Avenue, Zamboanga

Villamonte, Bacolod

Barangay San Antonio, Davao City

Cabilang Baybay Carmona, Cavite

Mataas na Kahoy, Batangas

Minglanilla Cebu

Bago, Negros

Barangka, Mandaluyong

Blasco, Pili

Bokawkan, Baguio

Canley, Pasig

Kasiglahan Rodriguez, Rizal

Yulo, Calamba

Marawoy Volvo Robledo, Lipa

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Regalado corner Pontiac, Quezon City

Regalado, Fairview, Quezon City

Bagumbayan, Quezon City

Levi Mariano, Taguig

Addas Bacoor, Cavite

Alaminos, Laguna

Ayala land Pasong Buaya Imus, Daang Hari, Cavite

Bauang, La Union

Bibiana, General Santos

Blumentritt, San Juan

Central Avenue, Quezon City

Felix Avenue Ignacio, Rizal

Barangay Caniogan, Pasig City

Katipunan, Quezon City

Kauswagan, Cagayan de Oro City, Misamis Oriental

Balintawak, Lipa, Batangas

Maraouy, Batangas

Mobo, Masbate

NS Amoranto, Quezon City

Ortigas Extension, Barangay Rosario, Pasig City

Puerto Princesa, Palawan

V. Rama Cebu

Pulo Diezmo, Laguna

F. Blumentritt cor. San Luis Street, Barangay Tibagan, San Juan City

Sindalan, Pampanga

Sta. Rosa Tagaytay Pulong, Sta. Cruz, Laguna

Sindalan, Pampanga

Tandang Sora, Quezon City

Taytay Highway 2000, Rizal

Dagupan, Pangasinan

Carlatan, San Fernando, La Union

Los Banos

Pio Del Pilar, Makati City

Cupang, Muntinlupa City

Pasay EDSA

Meralco Avenue, Pasig City

Oranbo, Pasig City

Cubao Raptor, Quezon City

Kalayaan, Quezon City

Labangon, Cebu City

Kedtag, General Santos

Lapuz Lapaz, Iloilo

Maguikay, Cebu City

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San Agustin, Novaliches, Quezon City

San Isidro, Antipolo

Pulo Diezmo, Laguna

Sta. Barbara, Iloilo

Triangulo Naga, Camarines Sur

V. Rama, Cebu City

Anonas Road, Malabon City

15. DENR foreshore lease agreements (or proof of payment of occupational fees for pending

applications for foreshore lease agreements) of Petron and NVRC

Petron

a. Lease contract dated September 21, 1998, covering 7,572 sq.m. of land located at San Antonio, Aparri, Cagayan, valid for a term of 25 years from and including September 21, 1998;

b. Lease contract dated September 21, 1998, covering 15.9 ha. of land located at Punta,

Aparri, Cagayan, valid for a term of 25 years from and including September 21, 1998; c. Provisional permit no. PP No. R8-19-003 (PL) (FLA No. 083747-26) issued by the DENR

on April 4, 2018 for the temporary occupation and use of the tract of land located at Rawis, Anibong, Tacloban City;

d. Official receipt dated December 12, 2018 for the payment of annual occupation fee in

connection with FLA No. 083747-26 and PPA No. 083747-009 covering tract of land located at Rawis, Anibong, Tacloban City;

e. Provisional permit in connection with provisional permit application no. 042117-2019-002,

for the temporary occupation and use of the tract of land located at Wawa, Rosario, Cavite, valid until February 7, 2020;

f. Official receipt dated February 7, 2019 for the payment of occupation fee in connection

with Provisional permit application no. 042117-2019-002 covering a tract of land located at Wawa, Rosario, Cavite; and

g. Lease contract dated June 11, 2018, covering parcel of land located in Punta, Aparri,

Cagayan, valid for a term of 25 years from June 11, 2018 to June 10, 2043 (for signing by the DENR Secretary).

NVRC a. Lease contract dated December 23, 2009, covering parcel of land located at Alangan,

Limay,Bataan, valid until December 22, 2034; b. Lease contract dated August 22, 2006, covering parcel of land located at Banago, Bacolod

City, valid until August 21, 2031; c. Lease contract dated February 16, 2007, covering parcel of land located at Bo. Looc,

Mandaue City, valid until February 15, 2032; d. Lease contract dated February 18, 2011, covering parcel of land located at Linao, Ormoc

City, valid until February 17, 2036;

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e. Lease contract dated December 13, 2005, covering parcel of land located at Tominobo, Iligan City, valid until December 12, 2030;

f. Lease contract dated February 20, 2009, covering parcel of land located at Casinglot,

Tagoloan, valid until February 19, 2034; and g. Lease contract dated June 17, 2005, covering parcel of land located at Baliwasan,

Zamboanga City, valid until June 16, 2030.

16. Certificate of Compliance (COC No. 18-03-M-00300L) issued by Energy Regulatory Commission on March 15, 2018 in favor of Petron for its Refinery Solid Fuel-Fired Boiler Power Plant, which is valid for the period covering May 6, 2018 to May 5, 2023.

Note: *Obtained on per shipment / transaction basis. The Company and its subsidiaries have all the applicable and material permits and licenses necessary to operate the respective businesses as currently conducted and such permits and licenses are valid and subsisting.14 Health, Safety and Environmental Matters The Company is guided by its Corporate Health, Safety and Environment Policy (the “Corporate HSE Policy”). The principles of the Corporate HSE Policy apply to all assets, facilities, and operating and support groups of the Company. The Company has a Corporate Technical Services Group (“CTSG”) responsible for formulating, implementing and enforcing the Company’s employee health, safety and environment policies, as well as ensuring compliance with applicable laws and regulations in the Philippines. The Philippines The Company is subject to a number of employee health, safety and environment regulations in the Philippines. For example, the Company is subject to the occupational safety and health standards promulgated by the Philippine Department of Labor and Employment as well as various other regulations on environmental compliance. The Safety unit of the CTSG (“CTSG-Safety”) ensures, among others, compliance by the Company’s contractors and service station dealers to government-mandated safety standards and regulations, and conducts training programs designed to raise awareness on process safety, oil spill response, fire-fighting and basic safety procedures for employees, contractors and service station dealers. CTSG-Safety has put together a Corporate Safety Management System, the main reference of all safety management systems in the Company, which is based mainly on OHSAS 18001. The Limay Refinery passed the Repeat Audit for the Integrated Management System (IMS) Certification to Quality Management System (QMS) ISO-9001 Version 2015 and Occupational Health & Safety Assessment Series OHSAS-18001 Version 2007, and also sustained Surveillance Audit to Environmental Management System (EMS) ISO-14001 Version 2015. 30 terminals and airport installations are certified under the new ISO 9001:2015 (QMS) and ISO 14001:2015 (EMS) standards. In addition, all of the Company’s terminals have Philippine Coast Guard-approved Oil Spill Response Contingency Plans. Furthermore, all 15 Petron pier facilities are currently compliant with the International Ship and Port Facility Security Code and certified by the Office of the Transport Security under the DOTC. The ISPS certification is a requirement by the International Maritime Organization for all international vessels calling on international ports and for all ports accepting international vessels. In 2014, CTSGSafety launched the Safety Management System (“SMS”) for Service Stations. This program aims to elevate the level of safety awareness among the Company’s service station dealers, their

14 Based on a legal opinion dated 9 May 2019 rendered by an independent counsel.

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employees, workers as well as the Company’s employees. The SMS, based on OHSAS 18001:2007, is very similar to the Environmental Management System (“EMS”), focusing on Hazards Identification and Risk Assessment. It also aims to educate Petron dealers on the Occupational Safety and Health Standards of the Department of Labor and Employment (“DOLE”). In 2018, the Company’s Terminal Operations Department embarked on a new venture with the implementation of the Loss Prevention System (“LPS”). LPS is a system to prevent or reduce losses using behavior-based tools and proven management techniques. With this new system, the Company aims to improve the over-all safety culture of the department, leading to the eventual application of the same system throughout the organization As part of its advocacy functions, CTSG-Safety is actively involved in public stakeholder consultations during the drafting of Philippine safety and environmental protection standards, laws and regulations. The Company also actively participates in the implementation of government programs, such as the Tripartite Secretary Seal of Excellence and Gawad Kaligtasan at Kalusugan programs of the Philippine DOLE. From January to December 2018, a total of 12,121,674 safe man hours were achieved by the corporate head office, the Limay Refinery and the terminals. The Environment unit of CTSG (“CTSG-Environment”) provides, among others, technical assistance and consultancy services in areas of environmental management and conducts environmental awareness training for the Company’s employees, contractors and service station dealers. CTSGEnvironment is a recognized training organization by DENREnvironment Management Bureau (“DENREMB”) in the conduct of the Basic Pollution Control Officer Training Course for service stations since 2014, when DENR-EMB required national recognition / accreditation of environmental training provider per DAO 2014-22. CTSG-Environment championed the Terminal ECOWATCH Assessment program, a color-coded rating system for all terminals to assess compliance to applicable environmental regulations and the effectiveness of environmental management programs implemented. On its 6th year, the program has recognized (8) Hall of Famers in the area of Environmental Management within the Operations Group. CTSG-Environment conducts compliance monitoring for service stations to measure the effectiveness of trainings conducted. Moreover, CTSGEnvironment conducts environmental due diligence audits for contractors, service providers and possible mergers and acquisitions. Furthermore, CTSG-Environment actively participates in the crafting and review of new laws and policies through Industry associations. CTSG-Safety and CTSG-Environment conduct annual multi-functional audits of the Limay Refinery and the Company’s other facilities, terminals, service stations and industrial accounts in the Philippines to ensure compliance with Petron safety standards and government laws and regulations on safety. As of December 2018, the Company is in material compliance with applicable environmental laws in the Philippines. In particular, the Company has spent approximately US$100 million to build a light virgin naphtha isomerization unit and a gas oil hydrotreater in 2006 to ensure compliance with the more stringent requirements of the Philippine Clean Air Act. Additional facilities were also built to comply with environmental requirements mainly in relation to the RMP-2. These included a refinery wastewater treatment plant, sour water stripping facilities, sulphur recovery units, a flue gas desulfurizer and a flare system. Malaysia The Company is subject to local safety, health and environmental regulations in Malaysia, including (i) the Factories and Machinery Act 1967 (Act 139), Petroleum (Safety Measures) Act 1984 (Act 302), and the Occupational Safety and Health Act 1994 (Act 514), as amended, and regulations, rules and orders made pursuant thereto, which are administered by the Malaysian Department of Occupational Safety and Health, (ii) the Environmental Quality Act 1974 (Act 127), as amended, and regulations, rules and orders made pursuant thereto, which are administered by the Malaysian Department of Environment and (iii) the Fire Services Act 1988 (Act 341), as amended, and regulations made pursuant thereto, which are administered by the Malaysian Fire and Rescue Department.

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CTSG-Safety and CTSG-Environment conduct multi-functional audits of the Port Dickson Refinery and the other facilities, terminals and service stations in Malaysia every two years. The Company has a corporate safety, security, health and environment department that is responsible for formulating, implementing and enforcing the Company’s safety, health and environmental policies in Malaysia, coordinating and conducting relevant programs to raise the level of awareness of SSHE and ensuring compliance with applicable laws and regulations. In 2018, Port Dickson Refinery received the Grand Award, the highest accolade by Malaysian Society for Occupational Safety and Health (“MSOSH”) and the Prime Minister’s Hibiscus Award for “Exceptional Achievement in Environmental Performance 2017/2018.” As prescribed by local regulatory requirements, the Port Dickson Refinery and the distribution terminals have established emergency response and oil spill contingency plans and regularly conduct drills and exercises. For more than 15 years, the Company’s Malaysian operations have actively participated in local and regional oil spill response consortiums, such as the Petroleum Industries of Malaysia Mutual-Aid Group and Oil Spill Response Ltd. The Company strives to achieve and sustain good SSHE performance in Malaysia through the implementation of various key programs including (i) the SMS, which provides a structured approach to the management of work-related personal and operational risks, including the selection, recruitment and training of employees and contractors, equipment design, maintenance and servicing, emergency preparedness and response as well as to ensuring regulatory compliance, and (ii) the Loss Prevention System, which was adopted to prevent or reduce losses and incidents using behavior-based tools and other safety management techniques.

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LEGAL PROCEEDINGS

As set forth below, the Company is involved in ongoing legal cases the outcome of which may or may not have a material adverse effect on its operations and profitability. While the final outcomes of these legal proceedings are not certain, the Company believes it has strong legal grounds in each of these legal proceedings, In certain cases, the Company has made provisions in its financial statements for possible liabilities arising from adverse results of these legal proceedings. Tax Credit Certificates Related Matters In 1998, the Philippine Bureau of Internal Revenue (“BIR”) issued a deficiency excise tax assessment against the Company relating to the Company’s use of ₱659 million worth of Tax Credit Certificates (“TCCs”) to pay certain excise tax obligations from 1993 to 1997. The TCCs were transferred to the Company by suppliers as payment for fuel purchases. The Company contested the BIR’s assessment before the Court of Tax Appeals (“CTA”). In July 1999, the CTA ruled that, as a fuel supplier of Board of Investments-registered companies, the Company was a qualified transferee of the TCCs and that the collection by the BIR of the alleged deficiency excise taxes was contrary to law. On March 21, 2012, the Court of Appeals (“CA”) promulgated a decision in favor of the Company and against the BIR affirming the ruling of the CTA striking down the assessment issued by the BIR for deficiency excise taxes in 1998 based on a finding by the BIR that the TCCs used by the Company as payment were fraudulent. On April 19, 2012, a motion for reconsideration was filed by the BIR, which was denied by the CA in as resolution dated October 10, 2012. The BIR elevated the case to the Supreme Court through a petition for review on certiorari dated December 5, 2012. The Supreme Court issued a decision in favor of the Company dated July 9, 2018. No motion for reconsideration was filed by the BIR. Pandacan Terminal Operations In November 2001, the City of Manila enacted Ordinance No. 8027 (“Ordinance 8027”) reclassifying the areas occupied by the oil terminals of the Company, Pilipinas Shell Petroleum Corporation (“Shell”) and Chevron Philippines Inc. (“Chevron”) from industrial to commercial. This reclassification made the operation of the oil terminals in Pandacan, Manila illegal. In December 2002, the Social Justice Society (“SJS”) filed a petition with the Supreme Court against the Mayor of Manila asking that the latter be ordered to enforce Ordinance 8027. In April 2003, the Company filed a petition with the Regional Trial Court (“RTC”) to annul Ordinance 8027 and enjoin its implementation. On the basis of a status quo order issued by the RTC, Mayor of Manila ceased implementation of Ordinance 8027. The City of Manila subsequently issued the Comprehensive Land Use Plan and Zoning Ordinance (“Ordinance 8119”), which applied to the entire City of Manila. Ordinance 8119 allowed the Company (and other non-conforming establishments) a seven-year grace period to vacate. As a result of the passage of Ordinance 8119, which was thought to effectively repeal Ordinance 8027, in April 2007, the RTC dismissed the petition filed by the Company questioning Ordinance 8027. However, on March 7, 2007, in the case filed by SJS, the Supreme Court rendered a decision (the “March 7 Decision”) directing the Mayor of Manila to immediately enforce Ordinance 8027. On March 12, 2007, the Company, together with Shell and Chevron, filed motions with the Supreme Court seeking intervention and reconsideration of the March 7 Decision. In the same year, the Company also filed a petition before the RTC of Manila praying for the nullification of Ordinance 8119 on the grounds that the reclassification of the oil terminals was arbitrary, oppressive and confiscatory, and thus unconstitutional, and that the said Ordinance contravened the provisions of the Water Code of the Philippines (the “Water Code”). On February 13, 2008, the Company, Shell and Chevron were allowed by the Supreme Court to intervene in the case filed by SJS but their motions for reconsideration were denied. The Supreme Court declared Ordinance 8027 valid and dissolved all existing injunctions against the implementation of the Ordinance 8027. In May 2009, Manila City Mayor Alfredo Lim approved Ordinance No. 8187 (“Ordinance 8187”), which amended Ordinance 8027 and Ordinance 8119 and permitted the continued operations of the oil terminals

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in Pandacan. On August 24, 2012, the RTC of Manila ruled that Section 23 of Ordinance 8119 relating to the reclassification of subject oil terminals had already been repealed by Ordinance 8187; hence any issue pertaining thereto had become moot and academic. The RTC of Manila also declared Section 55 of Ordinance 8119 null and void for being in conflict with the Water Code. Nonetheless, the RTC upheld the validity of all other provisions of Ordinance 8119. The Company filed with the RTC a Notice of Appeal to the Court of Appeals on January 23, 2013. In a decision dated September 19, 2017, the Court of Appeals denied the appeal of the Company, finding that Manila’s Comprehensive Land Use Plan was valid, except for Section 55 of Ordinance 8119. Section 55, which imposed an easement of 10 meters from the riverbank to serve as a linear park, was struck down as invalid because it violated the Water Code which required only a three-meter easement. The Company no longer filed a motion for reconsideration or elevated the matter to the Supreme Court since the issue has already become moot following the cessation by the Company of the operations of its petroleum storage facilities in Pandacan in August 2015. With regard to Ordinance 8187, petitions were filed before the Supreme Court, seeking its nullification and the enjoinment of its implementation. The Company filed a manifestation on November 30, 2010 informing the Supreme Court that, without prejudice to its position in the cases, it had decided to cease operation of its petroleum product storage facilities in Pandacan within five years or not later than January 2016 due to the many unfounded environmental issues being raised that tarnish the image of the Company and the various amendments being made to the zoning ordinances of the City of Manila when the composition of the local government changes that prevented the Company from making long-term plans. In a letter dated July 6, 2012 (with copies to the offices of the Vice Mayor and the City Council of Manila), the Company reiterated its commitment to cease the operation of its petroleum product storage facilities and transfer them to another location by January 2016. On November 25, 2014, the Supreme Court issued a Decision (“November 25 Decision”) declaring Ordinance 8187 unconstitutional and invalid with respect to the continued stay of the oil terminals in Pandacan. The Company, Shell and Chevron were given 45 days from receipt of the November 25 Decision to submit a comprehensive plan and relocation schedule to the RTC of Manila and implement full relocation of their fuel storage facilities within six months from the submission of the required documents. On March 10, 2015, acting on a Motion for Reconsideration filed by Shell, a Motion for Clarification filed by Chevron, and a Manifestation filed by the Company, the Supreme Court denied Shell’s motion with finality, clarified that relocation and transfer necessarily include removal of the facilities in the Pandacan terminals and should be part of the required comprehensive plan and relocation schedule. On May 14, 2015, the Company filed its submission in compliance with the November 25 Decision. In a decision dated September 19, 2017, the Court of Appeals denied the appeal of the Company, finding that Ordinance 8119 was valid, except for its Section 55. Section 55, which imposed an easement of 10 meters from the riverbank to serve as a linear park, was struck down as invalid because it violated the Water Code which required only a three-meter easement. The Company no longer filed a motion for reconsideration or elevated the matter to the Supreme Court since the issue had already become moot following the cessation by the Company of the operations of its petroleum storage facilities in Pandacan in August 2015. Guimaras Oil Spill Incident On August 11, 2006, M/T Solar I, a third party vessel contracted by the Company to transport approximately two million liters of industrial fuel oil, sank 13 nautical miles southwest of Guimaras, an island province in the Western Visayas region of the Philippines. In separate investigations by the Philippine Department of Justice (“DOJ”) and the Special Board of Marine Inquiry (“SBMI”), both agencies found the owners of M/T Solar I liable. The DOJ found the Company not criminally liable, but the SBMI found that the Company to have overloaded the vessel. The Company has appealed the findings of the SBMI to the Philippine Department of Transportation and Communication and is awaiting its resolution. The Company believes that the SBMI can impose administrative penalties on vessel owners and crew, but has no authority to penalize other parties, such as the Company, which are charterers.

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Other complaints for non-payment of compensation for the clean-up operations during the oil spill were filed by a total of 1,063 plaintiffs who allegedly did not receive any payment of their claims for damages arising from the oil spill. The total aggregate claims for both cases amount to ₱292 million. The cases are still pending. Pursuant to DENR Memorandum Circular No. 2012-01, the DENR declared that the Guimaras coastal water was already compliant with applicable water quality standards. Leases with PNOC On October 20, 2017, the Company filed with the Regional Trial Court of Mandaluyong City a complaint against PNOC for Resolution and Reconveyance, and Damages, with Verified Ex-Parte Application for 72-hour Temporary Restraining Order and Verified Applications for 20-day Temporary Restraining Order and Writ of Preliminary Injunction. In its complaint, the Company seeks the reconveyance of the various landholdings it conveyed to PNOC in 1993 as a result of the government-mandated privatization of the Company. These landholdings consist of the refinery lots in Limay, Bataan, 23 bulk plant sites and 66 service station lots located in different parts of the country. The Deeds of Conveyance covering the landholdings provide that the transfer of these lots to PNOC was without prejudice to the continued long-term use by the Company of the conveyed lots for its business operation. Thus, PNOC and the Company executed three lease agreements covering the refinery lots, the bulk plants, and the service station sites, all with an initial lease term of 25 years to expire in August 2018, with a provision for automatic renewal for another 25 years. Earlier in 2009, the Company, through its realty subsidiary, NVRC, had an early renewal of the lease agreement for the refinery lots with an initial lease term of 30 years, renewable for another 25 years. The complaint stemmed from PNOC’s refusal to honor both the automatic renewal clause in the lease agreements for the bulk plants and the service station sites and the renewed lease agreement for the refinery lots on the alleged ground that all such lease agreements were grossly disadvantageous to PNOC, a government-owned and -controlled corporation. The Company alleged that by unilaterally setting aside both the renewal clauses of the lease agreements for the bulk plants and the service station sites and the renewed lease agreement for the refinery lots, and by categorically declaring its refusal to honor them, PNOC committed a fundamental breach of such lease agreements with the Company. On December 11, 2017, the trial court granted the Company’s prayer for a writ of preliminary injunction, enjoining PNOC from committing any act aimed at ousting the Company of possession of the subject properties until the case is decided, conditioned upon the posting by the Company of a bond in the amount of ₱100 million. The Company has posted the required bond. On December 29, 2017, the trial court mandated the conduct of mediation proceedings. The court-mandated mediation conference held on February 5, 2018 was terminated without any agreement between the parties. The case is currently undergoing judicial dispute resolution (“JDR”) proceedings before the courts. The next JDR conference is scheduled on March 28, 2019, without prejudice to any discussion between the parties regarding the settlement of the case. Other Proceedings The Company is also party to certain other proceedings arising out of the ordinary course of its business, including legal proceedings with respect to tax, regulatory and other matters. While the results of litigation cannot be predicted with certainty, the Company believes that the final outcome of these other proceedings will not have a material adverse effect on its business, financial condition or results of operations.

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As of the date of this Prospectus, the Company and its subsidiaries have not been the subject of any receivership or similar proceedings.

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REGULATORY AND ENVIRONMENTAL MATTERS

The statements herein are based on the laws in force as of the date of this Prospectus and are subject to any changes in law occurring after such date, which changes could be made on a retroactive basis. The following summary does not purport to be a comprehensive description of all of the regulatory and environmental considerations that may be relevant to the Company or the offering. Philippines Downstream Oil Industry Deregulation Law Republic Act No. 8479, otherwise known as the Downstream Oil Industry Deregulation Act of 1998 (the “Oil Deregulation Law”), provides the regulatory framework for the downstream oil industry in the Philippines. Under the Oil Deregulation Law, any person may import or purchase any quantity of crude oil and petroleum products from foreign and domestic sources, lease or own and operate refineries and other downstream oil facilities, and market such crude oil and petroleum products either in a generic name or in its own trade name, or use the same for its own requirement. The same law declared as policy of the state the liberalization and deregulation of the downstream oil industry in order to ensure a truly competitive market under a regime of fair prices, adequate and continuous supply of environmentally clean and high quality petroleum products. To ensure the attainment of these objectives, the DOE, in consultation with relevant government agencies, promulgated the Implementing Rules and Regulations of the Oil Deregulation Law in March 1998 through Department Circular No. 98-03-004 and the Supplementing Rules and Regulations of the Oil Deregulation Law in June 1998 through Department Circular No. 98-06-009. The rules require any person or entity engaged in any activity in the downstream oil industry to comply with the notice, reportorial, quality, health, safety and environmental requirements set forth therein. The DOE is the lead government agency overseeing the oil sector. With the enactment of the Oil Deregulation Law, the regulatory functions of the DOE were significantly reduced. Deregulating the downstream oil industry effectively removed the rate-setting function of the then Energy Regulatory Board, leaving price-setting to market forces. DOE’s current function is solely to monitor prices and violations under the law, which includes prohibited acts such as cartelization and predatory pricing. Other functions of the DOE under the Oil Deregulation Law include the following:

a. monitoring and publishing the daily international crude oil prices, following the movements of domestic oil prices, monitoring the quality of petroleum and stopping the operation of businesses involved in the sale of petroleum products which do not comply with national standards of quality;

b. monitoring the refining and manufacturing processes of local petroleum products to ensure that

clean and safe technologies are applied;

c. maintaining a periodic schedule of present and future total industry inventory of petroleum products to determine the level of supply;

d. immediately acting upon any report from any person of an unreasonable rise in prices of petroleum

products; and

e. in times of national emergency, when the public interest so requires, during the emergency and under reasonable terms, temporarily taking over or directing the operations of any person or entity engaged in the industry.

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Promotion of Retail Competition Pursuant to the Oil Deregulation Law’s objective to promote a competitive petroleum product market at the retail level, the DOE is mandated to promote and encourage the active and direct participation of the private sector and cooperatives in the retailing of petroleum products through joint venture or supply agreements with new industry participants for the establishment and operation of gasoline stations. Under prevailing rules and regulations, new industry participants are given preference in the (i) formulation and implementation on management and skills training for the establishment, operation, management and maintenance of gasoline stations and (ii) grant of gasoline station training and loans to be used as capital for the establishment and operation of gasoline stations. Rules Relating to Retailing of Liquid Petroleum Products In November 2017, the DOE promulgated Department Circular No. 2017-11-0011 or the Revised Rules and Regulations Governing the Business of Retailing Liquid Fuels (the “Revised Retail Rules”). The Revised Retail Rules apply to all persons engaged or intending to engage in the business of Retailing Liquid Fuels. Liquid Fuels refer to gasoline, diesel, and kerosene. A person intending to engage in the business of retailing liquid petroleum products must notify the Oil Industry Management Bureau (“OIMB”) of its intention to engage in such activity and, upon compliance with the requirements under the Liquid Petroleum Products Retail Rules, secure a certificate of compliance (“Certificate of Compliance”) from the OIMB. The certificate shall be valid for a period of five (5) years. The owner or operator of a retail outlet shall be deemed to be engaged in illegal trading of liquid petroleum products if such owner or operator operates a retail outlet without a Certificate of Compliance. Storage and dispensing of liquid fuels that are for own-use operation shall not be covered by the Revised Retail Rules only upon issuance of a Certificate of Non-Coverage (“CNC”) by the DOE. The Revised Retail Rules likewise imposes: (i) mandatory standards and requirements for new retail outlets and minimum facility requirements for existing retail outlets; (ii) rules and procedures relating to fuel storage, handling, transfer and/or dispensing of liquid fuels; (iii) requirements of other types of retail outlets; (iv) the conduct of inspection and monitoring by the OIMB; (v) rules and procedures relating to liquid fuels quantity and quality; and (vi) fines and/or sanctions against prohibited acts. Liquid petroleum products dispensed at retail outlets must comply with the Philippine National Standards. The Prohibited Acts include illegal trading, adulteration, underdelivering, refusal/ obstruction of inspection and sampling, hoarding, and continuing to operate after an order or notice of cessation of operation has been issued by the DOE. The refusal of inspection shall constitute prima facie evidence of the commission of Prohibited Acts under the Revised Retail Rules. Environmental Laws Development projects that are classified by law as environmentally critical or projects within statutorily defined environmentally critical areas are required to obtain an Environmental Compliance Certificate (the “ECC”) prior to commencement. The DENR, through its regional offices or through the Environmental Management Bureau (the “EMB”), determines whether a project is environmentally critical or located in an environmentally critical area. As a requirement for the issuance of an ECC, an environmentally critical project must submit an Environment Impact Statement (“EIS”) to the EMB while a project in an environmentally critical area is generally required to submit an Initial Environmental Examination (“IEE”) to the proper EMB regional office. In the case of an environmentally critical project within an environmentally critical area, an EIS is mandatory. The construction of major roads and bridges are considered environmentally critical projects for which EIS and ECC are mandatory. Presidential Proclamation No. 2146 also classified petroleum and petro-chemical industries as environmentally critical projects. The EIS refers to both the document and the study of a project’s environmental impact, including a discussion of the scoping agreement identifying critical issues and concerns as validated by the EMB, environmental risk assessment if determined necessary by the EMB during the scoping, environmental

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management program, direct and indirect consequences to human welfare and the ecological as well as environmental integrity. The IEE refers to the document and the study describing the environmental impact, including mitigation and enhancement measures, for projects in environmentally critical areas. While the terms and conditions of an EIS or an IEE may vary from project to project, as a minimum it contains all relevant information regarding the project’s environmental effects. The entire process of organization, administration and assessment of the effects of any project on the quality of the physical, biological and socio-economic environment as well as the design of appropriate preventive, mitigating and enhancement measures is known as the EIS System. The EIS System successfully culminates in the issuance of an ECC. The issuance of an ECC is a Philippine government certification that the proposed project or undertaking will not cause a significant negative environmental impact; that the proponent has complied with all the requirements of the EIS System; and that the proponent is committed to implementing its approved Environmental Management Plan in the EIS or, if an IEE was required, that it shall comply with the mitigation measures provided therein before or during the operations of the project and in some cases, during the project’s abandonment phase. Project proponents that prepare an EIS are required to establish an Environmental Guarantee Fund when the ECC is issued for projects determined by the DENR to pose a significant public risk to life, health, property and the environment or where the project requires rehabilitation or restoration. The Environmental Guarantee Fund is intended to meet any damage caused by such a project as well as any rehabilitation and restoration measures. Project proponents that prepare an EIS are required to include a commitment to establish an Environmental Monitoring Fund when an ECC is eventually issued. In any case, the establishment of an Environmental Monitoring Fund must not occur later than the initial construction phase of the project. The Environmental Monitoring Fund must be used to support the activities of a multi-partite monitoring team, which will be organized to monitor compliance with the ECC and applicable laws, rules and regulations. The Biofuels Act of 2006 Republic Act No. 9367, also known as “The Biofuels Act of 2006”, aims to reduce the dependence of the transport sector on imported fuel and, pursuant to such law, regulations mandate that all premium gasoline fuel sold by every oil company in the Philippines should contain a minimum 10% blend of bioethanol starting August 6, 2011. For diesel engines, the mandated biodiesel blend in the country was increased from 1% to 2% starting February 2009. In June 2015, the DOE issued Department Circular No. DC 2015-06-005, or the Amended Guidelines on E-10 Implementation, which temporarily waives compliance by oil companies with the required bioethanol blend for premium plus grade gasoline products when supply of locally produced bioethanol products are insufficient to meet demand. In 2008, a Joint Administrative Order known as the “Guidelines Governing the Biofuel Feedstock Production and Biofuel Blends Production, Distribution and Sale” (the “Guidelines”) was issued by various Philippine government agencies. The Guidelines mandate oil companies to blend biodiesel with diesel and bioethanol with gasoline. The Guidelines further require oil companies to source biofuels only from biofuel producers accredited by the DOE or from biofuel distributors registered with the DOE. Moreover, unless authorized by DOE to import in case of shortage of supply of locally-produced bioethanol as provided for under the Act, an oil company’s failure to source its biofuels from accredited biofuels producers and/or registered biofuel distributors would constitute a prohibited act. In June 2015, the DOE issued Department Circular No. DC 2015-06-007, or the Revised Guidelines on the Utilization of Locally-Produced Bioethanol (“Revised Guidelines”), which repealed Department Circular No. 2011-12-0013, or the “Guidelines on the Utilization of Locally-Produced Bioethanol in the Production of E-Gasoline Consistent with the Biofuels Act of 2006”. The Revised Guidelines require oil companies operating within the Philippines to secure and maintain a DOE accreditation as an “Oil Industry Participant in the Fuel Bioethanol Program” and submit to the OIMB certain

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reports in order for the OIMB to monitor the oil companies’ compliance with the Revised Guidelines, including an annual performance compliance report relating to the oil companies’ compliance with the minimum biofuel blends and monthly reports on compliance with local monthly allocations for the use of locally-sourced bioethanol. The Revised Guidelines further require oil companies to strictly comply with the Local Monthly Allocation (“LMA”). The LMA refers to the local bioethanol volume imposed on oil companies based on the committed volume by the local bioethanol producers of bioethanol available for lifting by the oil companies and computed and circulated by the OIMB. In February 2016, the Congress of the Philippines promulgated Republic Act No. 10745, amending The Biofuels Act of 2006. The law allows natural gas power generation plants to use neat diesel (instead of the mandated biofuel blend) as alternative fuel during shortages of natural gas supply. The DOE issued Department Order No. 2016-07-0012 or the implementing rules and regulations for Republic Act No. 10745. This provides that the natural gas power generating plants with duly issued Certificate of Compliance from the Energy Regulatory Commission can avail of the use of neat diesel in the following instances:

1. During maintenance and/or shutdown of facilities used for the supply of natural gas such as pipelines, terminal, etc.

2. During force majeure which adversely affect the supply of natural gas to natural gas power plants, or

3. Other analogous instances. All suppliers of natural gas shall submit to the DOE their preventive maintenance schedule indicating the dates when the suppliers of natural gas would be critical. During force majeure events, the DOE shall determine the affected facilities for proper issuance of certification of the shortage of natural gas supplies. Philippine Clean Air Act of 1999 Republic Act No. 8749, otherwise known as the “Philippine Clean Air Act”, provides more stringent fuel specifications over a period of time to reduce emission that pollutes the air. The Philippine Clean Air Act specifies the allowable sulfur and benzene content for gasoline and automotive diesel. Under the law, oil firms are mandated to lower the sulfur content of automotive diesel oils to 0.05% by weight by January 1, 2004 nationwide. The law also prohibits a manufacturer, processor or trader of any fuel or additive to import, sell, offer for sale, or introduce into commerce such fuel or fuel additive unless these have been registered with the DOE. All the requirements of the said law have been implemented, starting with the phase-out of leaded gasoline in Metro Manila in April 2000 and all over the country in December 2000. The Technical Committee on Petroleum Products and Additives sets the standards for all types of fuel and fuel related products, to improve fuel consumption for increased efficiency and reduced emissions. The committee is guided by strict time-bound and quality-specific targets under the mandate of the Philippine Clean Air Act and the DOE initiative on alternative fuels. Philippine Clean Water Act of 2004 In 2004, Republic Act No. 9275, or the “Philippine Clean Water Act”, was enacted to streamline processes and procedures in the prevention, control, and abatement of pollution in the country’s water resources and provide for a comprehensive water pollution management program focused on pollution prevention. The law primarily applies to the abatement and control of water pollution from land based sources. The EMB, in partnership with other Philippine government agencies and the respective local government units, is tasked by the Implementing Rules of the Philippine Clean Water Act to identify existing sources of water pollutants and strictly monitor pollution sources which are not in compliance with the effluent standards provided in the law. The Philippine Clean Water Act also authorizes the DENR to formulate water quality criteria and standards for oil and gas exploration which encounter re-injection constraints.

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LPG Laws and Regulations B.P. 33 B.P. 33, as amended by PD 1865, provides for certain prohibited acts inimical to public interest and national security involving petroleum and/or petroleum products. These prohibited acts include, among others, (i) illegal trading in petroleum and/or petroleum products, and (ii) under delivery or underfilling beyond authorized limits in the sale of petroleum products or possession of underfilled liquefied petroleum gas cylinder for the purpose of sale, distribution, transportation, exchange or barter. For this purpose, the existence of the facts hereunder gives rise to the following presumptions:

1. That cylinders containing less than the required quantity of liquefied petroleum gas which are not property identified, tagged and set apart and removed or taken out from the display area and made accessible to the public by marketers, dealers, sub-dealers or retail outlets are presumed to be for sale;

2. In the case of a dispensing pump in a petroleum products retail outlet selling such products to the public, the absence of an out-of-order sign, or padlocks, attached or affixed to the pump to prevent delivery of petroleum products therefrom shall constitute a presumption of the actual use of the pump in the sale or delivery of such petroleum products; and

3. When the seal, whether official or of the oil company, affixed to the dispensing pump, tank truck or liquefied petroleum gas cylinder, is broken or is absent or removed, it shall give rise to the presumption that the dispensing pump is underdelivering, or that the liquefied petroleum gas cylinder is underfilled, or that the tank truck contains adulterated finished petroleum products or is underfilled.

The use of such pumps, cylinders or containers referred to in sub-paragraph (a), (b), and (c) above, to deliver products for sale or distribution shall constitute prima facie evidence of intent of the hauler, marketer, refiller, dealer or retailer outlet operator to defraud. Under the said law, “illegal trading in petroleum and/or petroleum products” is understood to mean, among others, (1) the sale or distribution of petroleum products without license or authority from the OIMB, (2) non-issuance of receipts by licensed oil companies, marketers, distributors, dealers, subdealers and other retail outlets, to final consumers; provided: that such receipts, in the case of gas cylinders, shall indicate therein the brand name, tare weight, gross weight, and price thereof, (3) refilling of liquefied petroleum gas cylinders without authority from the OIMB, or refilling of another company’s or firm’s cylinders without such company’s or firm’s written authorization, and (4) marking or using in such cylinders a tare weight other than the actual or true tare weight thereof. “Underfilling” or “under delivery” refers to a sale, transfer, delivery or filling of petroleum products of a quantity that is actually beyond authorized limits than the quantity indicated or registered on the metering device of container. This refers, among others, to the quantity of petroleum retail outlets or to liquefied petroleum gas in cylinder or to lube oils in packages. R.A. 9514 - IRR The Implementing Rules and Regulations of Republic Act No. 9514 or the Fire Code of 2008 also outlines requirements for storage and handling of LPG by outside bulk LPG stores and filling stations and the transportation of LPG which require among others, that during the unloading or transfer of LPG, the tank truck shall be located or parked clear of a public thoroughfare, unless the failure to transfer would create a hazard or it is impossible due to topography. LPG Industry Rules In January 2014, the Department of Energy issued Department Circular 2014-01-0001, or the Rules and

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Regulations Governing the Liquefied Petroleum Gas Industry (the “LPG Industry Rules”). The LPG Industry Rules apply to all persons engaged or intending to engage in the business of importing, refining, refilling, marketing, distributing, handling, storing, retailing, selling and/or trading of LPG. A Standards Compliance Certificate (“SCC”) from the OIMB is required before engaging in any LPG Industry Activity. The SCC is valid for a maximum of three calendar years from date of issue and may be renewed. LPG Industry participants must also submit certain reports to the OIMB. The LPG Industry Rules also imposes (i) minimum standards and requirements for refilling and transportation of LPG; (ii) qualifications and responsibilities for LPG Industry participants such as bulk suppliers, refillers, marketers, dealers, and retail outlets. Brand owners whose permanent mark appears on the LPG cylinder are presumed under the rules as the owner thereof, irrespective of their custody, and shall ensure that its cylinders comply with all required quality and safety standards. The owner of the cylinders is also required to secure product liability insurance for any liability that may result from an unsafe condition of LPG cylinders. Rules Pertinent to Auto-LPG Motor Vehicles On February 13, 2007, the DOE issued DOE Circular No. DC 2007-02-0002 entitled “Providing for the Rules and Regulations Governing the Business of Supplying, Hauling, Storage, Handling, Marketing and Distribution of Liquefied Petroleum Gas (LPG) for Automotive Use” (the “Auto-LPG Rules”). The Auto-LPG Rules govern the business of supplying, hauling, storage, handling, marketing and distribution of LPG for automotive use. Under the rules, an Auto-LPG Industry Participant is required to secure from the DOE through the OIMB an SCC before it can operate. The Auto-LPG also mandates all participants to observe a code of practice consisting of operational guidelines and procedures to ensure the safe operation in the auto LPG business. Illegal trading, adulteration and hoarding are likewise prohibited. Under the Auto-LPG Rules, the following shall constitute prima facie evidence of hoarding: (i) the refusal of Auto-LPG Dispensing Stations to sell LPG products for automotive use shortly before a price increase or in times of tight supply, and in both instances if the buyer or consumer has the ability to pay in cash for the product; (ii) the undue accumulation of Auto-LPG Dispensing Stations of LPG products for automotive use in times of tight supply or shortly before a price increase. For purposes of this Auto LPG Rules, “undue accumulation” shall mean the keeping or stocking of quantities of LPG products for automotive use beyond the inventory levels as required to be maintained by the Auto-LPG Dispensing Stations, for a period of thirty (30) days immediately preceding the period of tight supply or price increase. The Land Transportation Office (“LTO”) also issued Memorandum Circular No. RIB-2007-891 or the “Implementing Rules and Regulations in the Inspection and Registration of Auto-LPG Motor Vehicles.” The Circular requires the device for the use of LPG as fuel by any motor vehicle to be installed only by the conversion/installing shop duly certified by the Bureau of Product and Standards (“BPS”) of the Philippine Department of Trade and Industry (“DTI”) under its Philippine Standards Certification Mark scheme. The converted vehicle shall be subjected to an annual maintenance and inspection by the BPS certified conversion/installing shop. The BPS certified conversion/installing shop shall issue a corresponding Certificate of Inspection and Maintenance Compliance. Oil Pollution Compensation Act of 2007 Republic Act No. 9483, otherwise known as the Oil Pollution Compensation Act of 2007, imposes strict liability on the owner of the ship for any pollution damage caused within the Philippine territory. Pollution damage is the damage caused outside the ship by contamination due to the discharge of oil from the ship, as well as the cost of preventive measures to protect it from further damage. The law also provides that any person who has received more than 150,000 tons of “contributing oil” (as explained below) in a calendar year in all ports or terminal installations in the Philippines through carriage

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by sea shall pay contributions to the International Oil Pollution Compensation Fund in accordance with the provisions of the 1992 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage. For this purpose, “oil” includes any persistent hydrocarbon mineral oil such as crude oil, fuel oil, heavy diesel oil and lubricating oil, whether carried on board a ship as cargo or in bunkers of such a ship. A person shall be deemed to have received “contributing oil,” for purposes of determining required contributions, if he received such oil from another country or from another port or terminal installation within the Philippines, notwithstanding that this oil had already been previously received by him. Where the quantity of contributing oil received by any person in the Philippines in a calendar year, when aggregated with the quantity of contributing oil received in the Philippines in that year by such person’s subsidiaries or affiliates, exceeds 150,000 tons, such person, including its subsidiaries and affiliates, shall pay contributions in respect of the actual quantity received by each, notwithstanding that the actual quantity received by each did not exceed 150,000 tons. Persons who received contributing oil are required to report to the DOE. Contributing oil means crude oil and fuel oil as defined under Republic Act No. 9483. Republic Act No. 9483 provides for the establishment of a fund to be constituted from, among others, an impost amounting to ten centavos per liter levied on owners and operators and tankers and barges hauling oil and/or petroleum products in Philippine waterways and coast wise shipping routes. This new fund, named the Oil Pollution Management Fund, will be in addition to the requirement under the 1992 Civil Liability Convention and 1992 Fund Convention and will be administered by the Maritime Industry Authority (“MARINA”). In April 2016, the Department of Transportation (then the Department of Transportation and Communications) promulgated the implementing rules and regulations of Republic Act No. 9483. Under the rules, oil companies are required to submit (a) reports on the amount of contributing oil received and (b) sales and delivery reports of persistent oil. Other Regulations on Water Pollution Philippine maritime laws and regulations are enforced by two Philippine government agencies: the MARINA and the Philippine Coast Guard. Both are agencies under the Philippine Department of Transportation. The MARINA is responsible for integrating the development, promotion, and regulation of the maritime industry in the Philippines. It exercises jurisdiction over the development, promotion, and regulation of all enterprises engaged in the business of designing, constructing, manufacturing, acquiring, operating, supplying, repairing, and/or maintaining vessels, or component parts thereof, of managing and/or operating shipping lines, shipyards, dry docks, marine railways, marine repair ships, shipping and freight forwarding agencies, and similar enterprises. To address issues on marine pollution and oil spillage, the MARINA issued: (i) Circular No. 2007-01 which mandated the use of double-hull vessels including those below 500 tons deadweight tonnage by the end of 2008 for transporting Black Products; and (ii) Circular No. 2010-01 for transporting White Products in certain circumstances by 2011. The Philippine Coast Guard, in a 2005 Memorandum Circular, provided implementing guidelines based on the International Convention for the Prevention of Pollution from Ships, MARPOL 73/78. The guidelines provide that oil companies in major ports or terminals/depots are required to inform the Philippine Coast Guard through its nearest station of all transfer operations of oil cargoes in their respective areas. Furthermore, oil companies and tanker owners are required to conduct regular team trainings on managing oil spill operations including the handling and operations of MARPOL combating equipment. A dedicated oil spill response team is required to be organized to react to land and ship-originated oil spills. Oil companies, oil explorers, natural gas explorers, power plants/barges and tanker owners are also required to develop shipboard oil pollution emergency plans to be approved by the Philippine Coast Guard. Moreover, both the Philippine Clean Water Act and the Philippine Coast Guard Guidelines provide that the

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spiller or the person who causes the pollution have the primary responsibility of conducting clean-up operations at its own expense. Foreign Investment Laws and Restrictions Land Ownership The ownership of land by foreign nationals is subject to restrictions provided under the Philippine constitution and related statutes. Under Section 7, Article XII of the Philippine Constitution, in relation to Section 2, Article XII thereof, and Chapter 5 of Commonwealth Act No. 141, private land shall not be transferred or conveyed except to Filipino nationals or to corporations or associations organized under the law of the Philippines and whose capital is least 60% owned by Filipino nationals. Retail Trade Liberalization Act Republic Act No. 8762, otherwise known as the Retail Trade Liberalization Act of 2000 (“R.A. 8762”), was enacted into law on March 7, 2000. R.A. 8762 liberalized the Philippine retail industry to encourage Filipino and foreign investors to forge an efficient and competitive retail trade sector in the interest of empowering the Filipino consumer through lower prices, high quality goods, better services, and wider choices. Prior to the passage of R.A. 8762, retail trade was limited to Filipino citizens or corporations that are 100% Filipino-owned. “Retail Trade” is defined by R.A. 8762 to cover any act, occupation, or calling of habitually selling direct to the general public any merchandise, commodities, or goods for consumption. The law provides that foreign-owned partnerships, associations and corporations formed and organized under the laws of the Philippines may, upon registration with the SEC and the DTI or in case of foreign- owned single proprietorships, with the DTI, engage or invest in the retail trade business, in accordance with the following categories:

• Category A — Enterprises with paid-up capital of the equivalent in Philippine Pesos of less than US$2.5 million shall be reserved exclusively for Filipino citizens and corporations wholly owned by Filipino citizens

• Category B — Enterprises with a minimum paid-up capital of the equivalent in Philippine Pesos of US$2.5 million but less than US$7.5 million may be wholly owned by foreigners except for the first two years after the effectiveness of R.A. 8762 wherein foreign participation shall be limited to not more than 60% of total equity.

• Category C — Enterprises with a paid-up capital of the equivalent in Philippine Pesos of US$7.5 million or more may be wholly owned by foreigners, provided, that in no case shall the investments for establishing a store in Categories B and C be less than the equivalent in Philippine Pesos of US$830,000;15 and

• Category D — Enterprises specializing in high-end or luxury products with a paid up capital of the equivalent in Philippine Pesos of US$250,000 per store may be wholly owned by foreigners.

No foreign retailer is allowed to engage in retail trade in the Philippines unless all the following qualifications are met:

• A minimum of US$200 million net worth in its parent corporation for categories B and C, and US$50 million net worth in its parent corporation for category D;

• Five retail branches or franchises in operation anywhere around the world unless such retailers has at least one store capitalized at a minimum of US$25 million;

15 Category C ceased to be available as a permitted category with effect from March 25, 2002

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• Five-year track record in retail; and

• Only nationals from, or judicial entities formed or incorporated in, countries which allow the entry of Filipino retailers, shall be allowed to engage in retail trade in the Philippines.

The implementing rules of R.A. 8762 define a foreign retailer as an individual who is not a Filipino citizen, or a corporation, partnership, association, or entity that is not wholly owned by Filipinos, engaged in retail trade. The DTI is authorized to pre-qualify all foreign retailers, subject to the provisions of R.A. 8762, before they are allowed to conduct business in the Philippines. Foreign Investments Act of 1991 The Foreign Investments Act of 1991 (“FIA”) liberalized the entry of foreign investment into the Philippines. Under the FIA, foreigners can own as much as 100% equity in domestic market enterprises, except in areas specified in the Foreign Investment Negative List. This Negative List enumerates industries and activities which have foreign ownership limitations under the FIA and other existing laws. The oil refining and distribution business is not found in the latest (10th) Negative List of the FIA. In connection with the ownership of private land, however, the Philippine Constitution states that no private land shall be transferred or conveyed except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least 60% of whose capital is owned by such citizens. For the purpose of complying with nationality laws, the term “Philippine National” is defined under the FIA as any of the following:

• a citizen of the Philippines;

• a domestic partnership or association wholly owned by citizens of the Philippines;

• a corporation organized under the laws of the Philippines of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines;

• a corporation organized abroad and registered to do business in the Philippines under the Revised Corporation Code of the Philippines, of which 100% of the capital stock outstanding and entitled to vote is wholly owned by Filipinos; or

• a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine National and at least 60% of the fund will accrue to the benefit of Philippine Nationals.

For as long as the percentage of Filipino ownership of the capital stock of the corporation is at least 60% of the total shares outstanding and voting, the corporation shall be considered as a 100% Filipino-owned corporation. A corporation with more than 40% foreign equity may be allowed to lease private land for a period of 25 years, renewable for another 25 years.

Land Ownership

The Philippine Constitution and related statutes set forth restrictions on foreign ownership of owning land in the Philippines. Article XII, Section 7 of the Philippine Constitution, in relation to Article XII, Section 2 of the Philippine Constitution and Chapter 5 of Commonwealth Act No. 141, states that no private land shall be transferred or conveyed except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least 60% of whose capital is owned by such citizens.

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Consumer Act of the Philippines Republic Act No. 7394, otherwise known as the Consumer Act of the Philippines (“Consumer Act”), the provisions of which are principally enforced by the DTI, seeks to: (a) protect consumers against hazards to health and safety, (b) protect consumers against deceptive, unfair and unconscionable sales acts and practices; (c) provide information and education to facilitate sound choice and the proper exercise of rights by the consumer; (d) provide adequate rights and means of redress; and (e) involve consumer representatives in the formulation of social and economic policies. This law imposes rules to regulate such matters as: (a) consumer product quality and safety; (b) the production, sale, distribution and advertisement of food, drugs, cosmetics and devices as well as substances hazardous to the consumer’s health and safety; (c) fair, honest consumer transactions and consumer protection against deceptive, unfair and unconscionable sales acts or practices; (d) practices relative to the use of weights and measures; (e) consumer product and service warranties; (f) compulsory labeling and fair packaging; (g) liabilities for defective products and services; (h) consumer protection against misleading advertisements and fraudulent sales promotion practices; and (i) consumer credit transactions. The Consumer Act establishes quality and safety standards with respect to the composition, contents, packaging, labeling and advertisement of products and prohibits the manufacture for sale, offer for sale, distribution, or importation of products which are not in conformity with applicable consumer product quality or safety standards promulgated thereunder. Local Government Code The Local Government Code (“LGC”) establishes the system and powers of provincial, city, municipal, and barangay governments in the country. The LGC general welfare clause states that every local government unit (“LGU”) shall exercise the powers expressly granted, those necessarily implied, as well as powers necessary, appropriate, or incidental for its efficient and effective governance, and those which are essential to the promotion of the general welfare. LGUs exercise police power through their respective legislative bodies. Specifically, the LGU, through its legislative body, has the authority to enact such ordinances as it may deem necessary and proper for sanitation and safety, the furtherance of the prosperity, and the promotion of the morality, peace, good order, comfort, convenience, and general welfare of the locality and its inhabitants. Ordinances can reclassify land, order the closure of business establishments, and require permits and licenses from businesses operating within the territorial jurisdiction of the LGU. Other Regulatory Requirements Governmental approval of the Company’s products and services is generally not required. However, petroleum products refined at the Limay Refinery are subject to Philippine National Standards (“PNS”) specifications. The DTI, through the Bureau of Products Standards, ensures that all products comply with the specifications of the PNS. The Oil Deregulation Law also requires the registration with the DOE of any fuel additive prior to its use in a product. On September 7, 2010, the DENR issued Department Order No. 2010-23 on the Revised Emission Standards for Motor Vehicles Equipped with Compression Ignition and Spark Ignition Engines, mandating compliance of all new passenger and light duty motor vehicles with Euro IV (PH) emission limits subject to fuel availability, starting on January 1, 2016. Euro IV vehicle emission technology requires a more stringent fuel quality of 0.005% sulfur content for both diesel and gasoline. Philippine government regulations also require the following: fire safety inspection certificates; certificates of conformance of facilities to national or accepted international standards on health, safety and environment; product liability insurance certificates or product certificate of quality; and the ECC issued by the DENR for service stations and for environmentally-critical projects. These certificates have to be

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submitted to the DOE for monitoring (not regulation) purposes. Reports to the DOE are required for the following activities/projects relating to petroleum products: (a) refining, processing, including recycling and blending; (b) storing/ transshipment; (c) distribution/operation of petroleum carriers; (d) gasoline stations; (e) LPG refilling plant; (f) bunkering from freeports and special economic zones; and (g) importations of petroleum products and additives. In addition, importations of restricted goods require clearances from the proper governmental authorities. Other Relevant Tax-related Regulations Taxes and duties applicable to the oil industry have had periodic and unpredictable changes over the last several years. The import duty on crude oil was increased on January 1, 2005 from 3% to 5%, but was later reduced to 3% effective as of November 1, 2005. Under Executive Order No. 527 dated May 12, 2006, upon certification by the DOE that the trigger price levels provided therein have been reached, the 3% import duty on crude oil shall be adjusted to 2%, 1% or 0%. Subsequently, Executive Order No. 850, which took effect on January 1, 2010, modified the rates of duty on certain imported articles in order to implement the Philippines’ commitment to eliminate the tariff rates on certain products under the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area ASEAN Trade in Goods Agreement (“ATIGA”). Under the ATIGA, crude oil and refined petroleum products imported from Association of Southeast Asian Nations (“ASEAN”) Member States are levied zero rates. To address the tariff distortion between ASEAN and non-ASEAN Member States brought about by the implementation of the zero duty under Executive Order No. 850 and to provide a level playing field for local refiners to compete with importers, the President of the Philippines issued Executive Order No. 890, which also imposed zero duty effective as of July 4, 2010 for imported crude oil and refined petroleum products, except certain types of aviation gas, from Non-ASEAN Member States. Republic Act No. 9337, also known as the “Expanded VAT Law”, imposed a VAT of 10% on certain goods and services, including petroleum products and its raw materials, particularly the sale and importation thereof. The rate was further increased to 12% effective February 1, 2006. The Expanded VAT Law also limited the input VAT tax credit to only 70% of the output VAT. Subsequently, however, Republic Act No. 9361, which was approved on November 21, 2006, removed the 70% ceiling on the credit of input VAT to output VAT. As of November 1, 2005, the implementation date of the Expanded VAT Law, excise taxes on diesel, bunker fuel and kerosene were lifted and excise taxes for regular gasoline were lowered to P4.35 per liter of volume capacity. On January 1, 2018, Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion (“TRAIN”) took into effect. The TRAIN amended provisions of the Philippine Tax Code, among others, increasing excise tax rates of petroleum products. Excise tax rates on gasoline products were increased from P4.35 per liter to P7.00 per liter effective January 1, 2018, P9.00 per liter on January 1, 2019 and P10.00 per liter in January 1, 2020. Diesel and bunker fuel products which were previously not subject to excise taxes were imposed excise taxes at P2.50 per liter effective January 1, 2018 and increased further to P4.50 per liter on January 1, 2019 and P6.00 per liter on January 1, 2020. Also in compliance with the TRAIN, the Philippine government intends to implement a Philippine Fuel Marking Program in 2019 to mark imported and refined petroleum products such as gasoline, diesel and kerosene to ensure that all downstream fuels are tax and duty paid. Under the latest advisory of the Department of Finance, the Fuel Marking fee will be paid by the government to the Fuel Marking Service Provider for the first year of implementation. For the second to fifth year of implementation, said fee shall be borne by petroleum companies on top of duties and taxes to be collected by the Bureau of Customs or the Bureau of Internal Revenue. Republic Act No. 9136, or the Electric Power Industry Reform Act of 2001, provides for parity tax treatment among imported oil and indigenous fuels. Prior to the enactment of this law, indigenous fuels were imposed with higher taxes due to royalties to the Philippine government.

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Malaysia Petroleum Development Act, 1974 The Petroleum Development Act, 1974 (the “PDA”), which took effect on October 1, 1974, and the Petroleum Regulation 1974, which was enacted pursuant to the PDA (the “Petroleum Regulation”), are the primary legislation governing downstream oil activities in Malaysia. Pursuant to the Petroleum Regulation, two government bodies are vested with powers to regulate all downstream activities, namely:

a. the Ministry of International Trade and Industry (“MITI”), which is responsible for the issuance of licenses for the processing and refining of petroleum and the manufacture of petrochemical products; and

b. the Ministry of Domestic Trade, Cooperative and Consumerism (“MDTCC”), which is responsible

for regulating the marketing and distribution of petroleum products. The Company has obtained specific licenses from the MITI for the production of the Company’s products. Specific licenses are required pursuant to Section 6 of the PDA for the business of processing or refining petroleum or manufacturing petrochemical products from petroleum at the Port Dickson Refinery. Contravention of the provisions of the PDA or failure to comply with any term or condition of any permission granted thereunder is an offense and is subject to a fine not exceeding RM1 million or imprisonment for a term not exceeding five years or both. Petroleum (Safety Measures) Act, 1984 The storage and handling of crude oil and oil products and the utilization of equipment and/or appliances used in the downstream oil industry in Malaysia are controlled and governed by the Petroleum (Safety Measures) Act, 1984 (the “PSMA”) and the regulations made thereunder. The PSMA also regulates the transportation of petroleum by road, railway, water, air and pipeline. A unit of the MDTCC known as The Petroleum Safety Unit was established to administer the PSMA. Biofuel Industry Act, 2007 The Biofuel Industry Act, 2007 (the “MBIA”) was enacted on July 18, 2007. The MBIA provides for the mandatory use of biofuel, the licensing of activities relating to biofuel and other matters connected and incidental thereto. The MBIA is designed to regulate the biofuel industry in Malaysia and to promote the mandatory use of Malaysia’s domestic palm biodiesel, which is a blend of 5% POME and 95% diesel. The MBIA empowers the Minister of Plantation Industries and Commodities to prescribe (a) the percentage by volume of palm oil and/or methyl ester to be blended in any fuel or (b) the activities in which the use of (i) palm oil and/or methyl ester, (ii) palm oil and/or methyl ester blended with any other fuel or (iii) any other biofuel is to be made mandatory. The MBIA limits the percentage of POME that can be used in a biodiesel mix to a maximum of 5%. In October 2014, the Malaysian Government announced the implementation of the B7 programme (blending of 7% POME and 93% diesel) for the subsidized sector. Implementation was completed in the second quarter of 2015. The use of B7 Bio-Diesel is expected to be implemented in the 3rd quarter of 2019 for use in industrial sector, with an exception being given to power generation companies or other industries where the use of Bio-Diesel would not be possible due to mechanical specifications. In February 2019, the Government implemented the sale of B10 Bio-Diesel (blending of 10% POME and 90% diesel) from the current B7 Bio-Diesel in service stations. Sale and Pricing of Refined Petroleum Products Control of Supplies Act, 1961 The Control of Supplies Act, 1961 (the “CSA”) was enacted primarily to regulate, prohibit and control the

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movement of controlled articles in Malaysia. The CSA also regulates the distribution of any controlled article and limits the quantity of any controlled article that may be acquired or held by any person. Petrol, motor spirit, or motor gasoline of all grades, diesel fuel and LPG have all been classified as controlled articles under the CSA. Pursuant to the Control of Supplies Regulations 1974, issued pursuant to the CSA, a license is required for any person to deal, by wholesale or retail, in any scheduled article (including petrol, motor spirit, or motor gasoline of all grades, diesel fuel and LPG) or to manufacture any scheduled article. A separate license is required for each place of business where the scheduled article is manufactured or sold. The Controller of Supplies has the authority to enforce the rules and regulations provided in the CSA and related regulations. Price Control and Anti Profiteering Act, 2011 The Price Control and Anti Profiteering Act, 2011 (the “PCAPA”) replaced the Price Control Act, 1946 and came into force on April 1, 2011. The PCAPA provides for the control of prices of goods, whereby the Malaysian government may, among other things, determine the maximum, minimum or fixed prices for the manufacture, production, wholesale or retail of goods. The Malaysian government generally mandates fixed prices for (a) sales of formulated unleaded gasoline fuel with an octane index of 95 (“Mogas 95”), (b) diesel to retail customers, as well as to the commercial transportation and fisheries sectors, and (c) LPG to retail customers, to ensure that increases in international crude oil prices are not borne fully by consumers of such products in Malaysia. Subject to a quota, the Malaysian government subsidizes sales of these products using a formula known as the APM. A subsidy is payable to the seller pursuant to the APM if the mandated price of the relevant product is less than the total built-up cost (as described below) of such product. Conversely, a balancing figure is payable by the seller if the mandated price of the relevant product exceeds the total built-up cost of such product. As of June 2015, the total built-up cost is determined by aggregating the cost of the relevant product and certain predetermined government-specified amounts, as follows:

Mogas 95 Mogas 97 Diesell Retail LPG

Cost of

Product Based on MOPS Based on MOPS Based on MOPS Based on Saudi CP

Alpha 5 sen/liter 15 sen/liter 4 sen/liter USD80.00/MT

Freight,

Distribution

and

Marketing

Cost

Peninsular Malaysia:

9.54 sen/liter

Sabah: 8.98 sen/liter

Sarawak: 8.13 sen/liter


9.54 sen/liter




9.54 sen/liter




38.95 sen/kg

Sabah: 72.10 sen/kg

Sarawak: 71.26 sen/kg

Oil

company

margin

5 sen/liter 5 sen/liter 2.25 sen/liter 11.35 sen/kg

Dealer

Margin 12.19 sen/liter 12.19 sen/liter 7 sen/liter


35.00 sen/kg

Sabah: 35.00 sen/kg

Sarawak: 35.00 sen/kg

The specified amounts for alpha, freight, distribution and marketing cost, oil company margin and dealer margin are fixed by the Malaysian government and subject to change. The Malaysian government last revised the dealer margin in June 2008, while the alpha, freight, distribution and marketing cost, and oil company margin were last revised in June 2015. For retail LPG, the alpha and dealer margin for all states, and the freight, distribution and marketing costs for the states of Sabah and Sarawak, were revised upwards

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in June 2015. Effective March 30, 2017, the Malaysian government implemented a managed float system under which the government fixes the government-mandated retail prices for RON 95 and RON 97 petroleum and diesel on a weekly basis based on MOPS. The amount of the subsidies or duties varies from month to month for Mogas 95 and diesel. There are no duties on LPG and no limit on the subsidies for retail LPG. The sale of diesel in Malaysia is subject to a quota system to ensure that subsidized diesel is not sold illegally to industrial customers at unregulated prices. Accordingly, the Company is required to manage its subsidized diesel sales on a monthly basis to ensure that such sales do not exceed the amount permitted under the approved quotas. The Company has a quota to sell diesel at all of its retail service stations in Malaysia. Customers in the selected transportation sectors are required to obtain their own quotas in order to be able to purchase diesel from the Company. The Company has also been licensed to supply distributors that are appointed by the Malaysian government to sell diesel to unbranded mini stations and to collect subsidies in respect of such sales. The Company’s quotas for subsidized diesel sales are provided and regulated by the MDTCC, which reviews the quotas on a quarterly basis. If the Company requires an increase in its approved quota during any quarter as a result of an increase in demand, it may apply to the MDTCC for a quota increase in respect of a specific month during that quarter. If the Company sells more subsidized diesel than is permitted under the approved quotas, it will not be eligible to receive a government subsidy in respect of the sales that exceed the approved quotas. Environmental Laws Environmental Quality Act, 1974 The Environmental Quality Act, 1974 (the “EQA”) governs the prevention, abatement and control of pollution and enhancement of the environment in Malaysia and covers, among other things, oil spills and pollutants on land and in Malaysian waters. The EQA, which was introduced by the Malaysian government to promote environmentally sound and sustainable development restricts atmospheric, noise, soil and inland-water pollution without a license, prohibits the discharge of oil and waste into Malaysian waters without a license and prohibits open burning. The Department of Environment (the “MDOE”) is the regulatory body responsible for administering the EQA and any regulations and orders made thereunder. The MDOE will also have responsibility for monitoring the implementation of and compliance with Euro 4M and Euro 5M standards in Malaysia, which are the Malaysian equivalent of Euro IV and Euro V-standards. The main change from the current Euro 2M standards to Euro 4M and Euro 5M standards for Mogas and diesel will be the reduction in sulfur content, consistent with Euro IV and Euro V standards. Euro 4M for RON 97 was implemented in September 2015. The implementation of Euro 4M and Euro 5M fuels will be in phases: Euro 4M for RON 95 by January 1, 2020, Euro 5M (sulfur specification only) for Diesel by September 1, 2020, Euro 5M (sulfur specification only) for RON 95 and RON 97 by September 1, 2025, and Euro 5M (of all other parameters) for Diesel, RON 95 and RON 97 by the year 2027. The Malaysian government has mandated that Diesel, RON 95 and RON 97 sold in Malaysia must comply with Euro 5M specifications by 2027. The Malaysian government, however, has proposed to accelerate the date of implementation, subject to the agreement of all stakeholders, to 2025. This is in line with the move by downstream oil companies in Malaysia, including the Company, that introduced and supplied Euro 5M standards earlier in service stations. The facilities at the Port Dickson Refinery are being enhanced to comply with Euro 4M standards, and these enhancements are expected to be completed before Euro 4M standards come into force. The current configuration of the facilities will allow the Port Dickson Refinery to produce gasoline compliant with Euro 4M standards. The formulation of Euro 4M specifications was carried out by SIRIM Berhad in conjunction

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with other interested parties, including Malaysian oil companies, the Malaysian car manufacturers’ association, and regulatory bodies, such as the MDTCC and the MDOE. SIRIM Berhad is a wholly owned company of the Malaysian government incorporated under the Malaysian Ministry of Finance. The Port Dickson Refinery plans to implement Euro 5M standards by the fourth quarter of 2020. Other Laws Companies Act, 2016 The Companies Act of 1965 was repealed and the new Companies Act of 2016 came into effect in January 2017. It governs the incorporation, registration, administration and dissolution of companies and corporations in Malaysia. The agency that oversees such incorporation is the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia) (“CCM”). Under the Companies Act, a corporation’s existence does not have an expiration but may be terminated through dissolution by: (i) the winding up of the company, either voluntarily or pursuant to an order of the court; or (ii) the striking out by the Registrar, in the exercise of its discretionary powers, of the name of the company based on any of the grounds provided under the Companies Act. Malaysian Corporate Governance Code The Securities Commission Malaysia released the new Malaysian Code on Corporate Governance (“MCCG”) on April 26, 2017, which takes effect immediately. The MCCG is a set of best practices to strengthen corporate culture anchored on accountability and transparency. The Company is moving to adopt the principles and recommendations elaborated in the MCCG and as required, report the same in the Company’s 2017 Annual Report (to be released in 2018). Other Regulatory Requirements The Company has a general duty pursuant to the Occupational Safety and Health Act, 1994 and the regulations made thereunder to (a) provide and maintain plants and systems of work that are, to the extent practicable, safe and without risks to health, (b) provide information, instruction, training and supervision to ensure, to the extent practicable, the safety and health of the Company’s employees at work and (c) provide a working environment that is, to the extent practicable, safe, without risk to health and adequate with respect to facilities related to employee welfare at work. The Company also has a duty to ensure, to the extent practicable, that other persons who are not employees of the Company are not affected by, and are not exposed to risks to their safety or health by, the conduct of the Company’s business. As the Company employs more than 100 employees in Malaysia, it must employ a safety and health officer, who is tasked with ensuring the due observance of statutory obligations with respect to workplace health and safety and the promotion of safe work conduct at the workplace.

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CORPORATE GOVERNANCE AND MANAGEMENT

On May 8, 2017, the Board of Directors approved the new Corporate Governance Manual of the Company, which was primarily based on the Code of Corporate Governance for Publicly-Listed Companies approved by the SEC pursuant to its Memorandum Circular No. 19 (2016) (the “Company Corporate Governance Manual”). The Company Corporate Governance Manual institutionalizes the principles, programs, and procedures of good corporate governance in the entire organization. The Company Corporate Governance Manual sets forth policies and guidelines with respect to the following, among others:

• Appointment of a Compliance Officer to ensure adherence to corporate principles and best practices;

• Protection and enforcement of the shareholders’ right to vote, right to information, right to dividends, appraisal right, pre-emptive right and participation right;

• Composition, qualifications, responsibilities, specific duties and functions of the Board of Directors;

• Establishment of board committees to support the effective performance of the functions of the Board of Directors, particularly with respect to audit, risk management, related party transactions, and other key corporate governance concerns such as nomination and remuneration;

• Adoption of an annual evaluation system to assess the performance of the Board of Directors, board committees and individual directors; and

• Requirement for all directors to attend a seminar or training program on corporate governance at least once a year or as often as may be legally required.

With the election of four (4) independent directors to the Company’s Board of Directors; the election of the members of the Audit, Risk Oversight, Related Party Transaction and Corporate Governance Committees; the conduct of regular board meetings and committee meetings, and the faithful attendance of the directors at such meetings; the proper discharge of duties and responsibilities by the directors; the conduct of a regular training/seminar for corporate governance for directors and key officers; and adherence to national and local laws pertaining to its business operations, including applicable accounting standards and disclosure requirements, the Company is in compliance with its Company Corporate Governance Manual. Aside from the Company Corporate Governance Manual, several other manuals and policies have been instituted by Management to guide the employees in carrying out their respective functions and duties, address business operations, set contracting and bidding procedures, and promote and further business ethics, office decorum and employee discipline. In addition to the foregoing, to instill a stable and transparent process of conducting business and to identify accountability at all times, the Company has a system of approvals set out in a resolution that is yearly reviewed and endorsed by the Audit Committee and approved by the Board of Directors (and amended with the approval by the Board of Directors as exigencies arise) whereby only authorized individual(s) can approve a particular business transaction based on an authorized amount.

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BOARD OF DIRECTORS AND MANAGEMENT OF THE COMPANY Directors The Board of Directors of Petron is composed of 15 members, four (4) of whom are independent directors. Currently, only two (2) of the members are executive directors, occupying the positions of the President and Chief Executive Officer and the General Manager of the Company. Set out below are the name, position and year of appointment of members of the Board of Directors of the Company as of the date of this Prospectus.

Name

Position

Year Appointed

as Director

Eduardo M. Cojuangco, Jr. Chairman of the Board of Directors 2009

Ramon S. Ang President and Chief Executive Officer and Director 2009

Lubin B. Nepomuceno General Manager and Director 2013

Ron W. Haddock Director 2008

Estelito P. Mendoza Director 2009

Aurora T. Calderon Director 2010

Mirzan Mahathir Director 2010

Virgilio S. Jacinto Director 2010

Nelly F. Villafuerte Director 2011

Jose P. de Jesus Director 2014

Horacio C. Ramos Director 2018

Reynaldo G. David Lead Independent Director 2009

Artemio V. Panganiban Independent Director 2010

Margarito B. Teves Independent Director 2014

Carlos Jericho L. Petilla Independent Director 2018

Certain information on the business and working experiences of each Director is set out below. Eduardo M. Cojuangco, Jr., Filipino, born 1935, has served as the Chairman of the Company since February 10, 2015 and a Director since January 8, 2009. He is also the Chairman of the Executive Committee of the Company. Mr. Cojuangco is also the Chairman of ECJ & Sons Agricultural Enterprises Inc., Eduardo Cojuangco Jr. Foundation Inc., Northern Cement Corporation and San Miguel Northern Cement, Inc., and a Director of Caiñaman Farms Inc. He attended the College of Agriculture at the University of the Philippines Los Baños, and the California Polytechnic College in San Luis Obispo, United States of America. Mr. Cojuangco also holds the following positions in other publicly listed companies: Chairman and Chief Executive Officer of San Miguel Corporation (“SMC”) and Ginebra San Miguel, Inc. (“GSMI”), and Chairman of San Miguel Food and Beverage, Inc. (“SMFB”). Ramon S. Ang, Filipino, born 1954, has served as the Chief Executive Officer and an Executive Director of the Company since January 8, 2009 and the President of the Company since February 10, 2015. He is also a member of the Company’s Executive Committee. In relation to the oil and gas industry, Mr. Ang holds the following positions, among others: Chairman and President of SEA Refinery Corporation (“SEA Refinery”), Mariveles Landco Corporation, Petrochemical Asia (HK) Ltd. (“PAHL”), and Robinson International Holdings Ltd. (Cayman Islands); Chairman of Petron Marketing Corporation (“PMC”), New Ventures Realty Corporation (“NVRC”), Petron Freeport Corporation, Petron Fuel International Sdn. Bhd.

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(Malaysia) (“PFISB”), Petron Malaysia Refining & Marketing Bhd. (Malaysia), Petron Oil (M) Sdn. Bhd. (“POMSB”) (Malaysia), and Philippine Polypropylene Inc. (“PPI”); Director of Las Lucas Construction and Development Corporation (“LLCDC”), Petron Oil & Gas Mauritius Ltd. (“POGM”) and Petron Oil & Gas International Sdn Bhd. (“POGI”). He also holds the following positions, among others: Chairman and President of SMC Global Power Holdings Corp., San Miguel Holdings Corp., San Miguel Equity Investments Inc., and San Miguel Properties, Inc.; Chairman of San Miguel Brewery Inc. (“SMB”), San Miguel Foods, Inc., San Miguel Yamamura Packaging Corporation, Clariden Holdings, Inc., Anchor Insurance Brokerage Corporation, Philippine Diamond Hotel and Resort, Inc., andPrivado Holdings, Corp.; President and Chief Executive Officer of Northern Cement Corporation; and President of Ginebra San Miguel, Inc., and San Miguel Northern Cement, Inc. He is also the sole director and shareholder of Master Year Limited; Mr. Ang formerly held the following positions, among others: Chairman of Liberty Telecoms Holdings, Inc.; President and Chief Operating Officer of PAL Holdings, Inc., and Philippine Airlines, Inc.; Director of Air Philippines Corporation; Chairman of Cyber Bay Corporation; Vice Chairman of MERALCO, and Chairman of Manila North Harbour Port Inc. (“MNHPI”) (2015 - 2017) Mr. Ang has held directorships in various domestic and international subsidiaries of SMC in the last five (5) years. He has a Bachelor of Science degree in Mechanical Engineering from the Far Eastern University. Mr. Ang also holds the following positions in other publicly listed companies: Vice Chairman, President and Chief Operating Officer of SMC; President and Chief Executive Officer of Top Frontier Investment Holdings Inc. (“Top Frontier”), and San Miguel Brewery Hong Kong Limited (a company publicly listed in Hong Kong); Chairman of Petron Malaysia Refining & Marketing Berhad (“PMRMB”) (a company publicly listed in Malaysia), and Eagle Cement Corporation; and Vice Chairman of SMFB. Lubin B. Nepomuceno, Filipino, born 1951, has served as a Director of the Company since February 19, 2013 and the General Manager of the Company since February 10, 2015. He is also a member of the Company’s Executive Committee. He holds the following positions, among others: President and Chief Executive Officer of PMC; Director and Chief Executive Officer of PMRMB; Director of POGI, PFISB, POMSB, LLCDC, NVRC, PFC, PPI, PAHL, Mariveles Landco Corporation, Robinson International Holdings, Ltd. and Petron Singapore Trading Pte. Ltd. (“PSTPL”); Chairman of Petrogen Insurance Corporation (“Petrogen”); Chairman and Chief Executive Officer of Petron Foundation, Inc. (“PFI”); Chairman of Overseas Ventures Insurance Corporation Ltd. (“Ovincor”); Director of San Miguel Paper Packaging Corporation and Mindanao Corrugated Fibreboard Inc.; President of Archen Technologies, Inc. Mr. Nepomuceno has held various board and executive positions in the San Miguel Group. He started with SMC as a furnace engineer at the Manila Glass Plant in 1973 and rose to the ranks to become the General Manager of the San Miguel Packaging Group in 1998. He was also formerly the Senior Vice President and General Manager of the Company (September 2009 - February 2013) and the President of the Company (February 2013 - February 2015). He also served as a Director of MNHPI (2012 - 2014). Mr. Nepomuceno holds a Bachelor of Science degree in Chemical Engineering and master’s degree in Business Administration from the De La Salle University. He also attended the Advanced Management Program at the University of Hawaii, University of Pennsylvania and Japan’s Sakura Bank Business Management. Mr. Nepomuceno does not hold a directorship in any company listed with the PSE other than Petron. Ron W. Haddock, American, born 1940, has served as a Director of the Company since December 2, 2008. He holds the following positions, among others: Chairman and Chief Executive Officer of AEI Services, L.L.C.; and member of the board of Alon Energy USA. Mr. Haddock was formerly Honorary Consul of Belgium in Dallas, Texas. He also served as Chairman of Safety-Kleen Systems; Chairman and Chief Executive Officer of Prisma Energy International and FINA, and held various management positions in Exxon Mobil Corporation including as Manager of Baytown Refinery, Corporate Planning Manager, Vice President for Refining, and Executive Assistant to the Chairman; and Vice President and Director of Esso Eastern, Inc. He holds a degree in Mechanical Engineering from Purdue University. Mr. Haddock does not hold a directorship in any company listed with the PSE other than Petron.

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Estelito P. Mendoza, Filipino, born 1930, served as a Director of the Company from 1974 to 1986; thereafter, since January 8, 2009. He is a member of the Corporate Governance Committee and the Audit Committee. He is likewise a member of the Board of Directors of SMC, Philippine National Bank (“PNB”) and Philippine Airlines, Inc. He has now been engaged in the practice of law for more than 60 years, and presently under the firm name Estelito P. Mendoza and Associates. He has been consistently listed for several years as a “Leading Individual in Dispute Resolution” among lawyers in the Philippines in the following directories/journals: “The Asia Legal 500”, “Chambers of Asia” and “Which Lawyer?” yearbooks. He has also been a Professorial Lecturer of law at the University of the Philippines and served as Solicitor General, Minister of Justice, Member of the Batasang Pambansa and Provincial Governor of Pampanga. He was also the Chairman of the Sixth (Legal) Committee, 31st Session of the UN General Assembly and the Special Committee on the Charter of the United Nations and the Strengthening of the Role of the Organization. He holds a Bachelor of Laws degree from the University of the Philippines (cum laude) and Master of Laws degree from Harvard University. He is the recipient on June 28, 2010 of a Presidential Medal of Merit as Special Counsel on Marine and Ocean Concerns and was also awarded by the University of the Philippines Alumni Association its 1975 “Professional Award in Law” and in 2013 its “Lifetime Distinguished Achievement Award”. Of the companies in which Atty. Mendoza currently holds directorships other than Petron, SMC and PNB are also listed with the PSE. Aurora T. Calderon, Filipino, born 1954, has served as a Director of the Company since August 13, 2010. She is a member of the Audit Committee, the Risk Oversight Committee and the Related Party Transaction Committee. She holds the following positions, among others: Senior Vice President and Senior Executive Assistant to the President and Chief Operating Officer of SMC; Director of SMC, PMRMB, POGM, POGI, PMC, PFC, PSTPL, SEA Refinery, NVRC, LLCDC, Thai San Miguel Liquor Co., Ltd., SMC Global Power Holdings Corp., Rapid Thoroughfares Inc., Trans Aire Development Holdings Corp., Vega Telecom, Inc., Bell Telecommunications Company, Inc., A.G.N. Philippines, Inc. and various subsidiaries of SMC; and Director and Treasurer of Petron-affiliate Top Frontier. She has served as a Director of MERALCO (January 2009 - May 2009), Senior Vice President of Guoco Holdings (1994 - 1998), Chief Financial Officer and Assistant to the President of PICOP Resources (1990-1998) and Assistant to the President and Strategic Planning at the Elizalde Group (1981 - 1989). A certified public accountant, Ms. Calderon graduated magna cum laude from the University of the East in 1973 with a degree in Business Administration major in Accounting and earned her master’s degree in Business Administration from the Ateneo de Manila University in 1980. She is a member of the Financial Executives and the Philippine Institute of Certified Public Accountants. Of the companies in which Ms. Calderon currently holds directorships other than Petron, SMC and Petron-affiliate Top Frontier are also listed with the PSE. Mirzan Mahathir, Malaysian, born 1958, has served as a Director of the Company since August 13, 2010. He is the Chairman and Chief Executive Officer of Crescent Capital Sdn. Bhd., an investment holding and independent strategic and financial advisory firm based in Malaysia. He currently manages his investments in Malaysia and overseas while facilitating business collaboration in the region. He holds directorships in several public and private companies in South East Asia. He is the Chairman of several charitable foundations, a member of the Wharton School Executive Board for Asia and the Business Advisory Council of United Nations ESCAP, and President of the Lawn Tennis Association of Malaysia. He was formerly the Executive Chairman and President of Konsortium Logistik Berhad (1992 - 2007), Executive Chairman of Sabit Sdn. Bhd. (1990 - 1992), Associate of Salomon Brothers in New York, USA (1986 - 1990) and Systems Engineer at IBM World Trade Corporation (1982 - 1985). Mirzan graduated with a Bachelor of Science (Honours) degree in Computer Science from Brighton Polytechnic, United Kingdom and obtained his master’s degree in Business Administration from the Wharton School, University of Pennsylvania, USA. Mr. Mirzan does not hold a directorship in any company listed with the PSE other than Petron. Virgilio S. Jacinto, Filipino, born 1956, has served as a Director of the Company since August 13, 2010. He is a member of the Corporate Governance Committee of the Company. He is also an alternate member

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of the Executive Committee. He holds the following positions, among others: Corporate Secretary, Compliance Officer, Senior Vice President and General Counsel of SMC; Corporate Secretary and Compliance Officer of Top Frontier; Corporate Secretary of GSMI and the other subsidiaries and affiliates of SMC; and Director of various other local and offshore subsidiaries of SMC. Mr. Jacinto has served as a Director and Corporate Secretary of United Coconut Planters Bank, a Director of SMB, and San Miguel Northern Cement, Inc., a Partner of the Villareal Law Offices (June 1985 - May 1993) and an Associate of Sycip, Salazar, Feliciano & Hernandez Law Office (1981 - 1985). Atty. Jacinto is an Associate Professor of Law at the University of the Philippines. He obtained his law degree from the University of the Philippines (cum laude) where he was the class salutatorian and placed sixth in the 1981 bar examinations. He holds a Master of Laws degree from Harvard University. Atty. Jacinto does not hold a directorship in any company listed with the PSE other than Petron. Nelly F. Villafuerte, Filipino, born 1937, has served as a Director of the Company since December 1, 2011. She is also a columnist for the Manila Bulletin and was a former Member of the Monetary Board of the Bangko Sentral ng Pilipinas from 2005 until July 2011. She is the President and General Manager of LRV Agri-Science Farm, Inc. (a family-owned corporation). She is an author of business handbooks on microfinance, credit card transactions, exporting and cyberspace and a four (4)-volume series on the laws on banking and financial intermediaries (Philippines). Atty. Villafuerte has served as Governor of the Board of Investments (1998 - 2005), Undersecretary for the International Sector (Trade Promotion and Marketing Group) of the Department of Trade and Industry (“DTI”) (July 1998 - May 2000), Undersecretary for the Regional Operations Group of the DTI (May 2000 - 2005) and Director of Top Frontier (2013 - February 2019). She holds a master’s degree in Business Management from the Asian Institute of Management (“AIM”) and was a professor of international law/trade/marketing at the graduate schools of AIM, Ateneo Graduate School of Business and De La Salle Graduate School of Business and Economics. Atty. Villafuerte obtained her Associate in Arts and law degrees from the University of the Philippines and ranked within the top 10 in the bar examinations. Atty. Villafuerte does not hold a directorship in any company listed with the PSE other than Petron. Jose P. de Jesus, Filipino, born 1934, has served as a Director of the Company since May 20, 2014. He is also the Chairman of Clark Development Corporation, Converge ICT Solutions, Inc. and Metroworks ICT Construction, Inc. (May 2014 - present). He was the President and Chief Executive Officer of Nationwide Development Corporation (September 2011 - December 2015), the Secretary of the Department of Transportation and Communications (July 2010 - June 2011), the President and Chief Operating Officer of MERALCO (February 2009 - June 2010), the President and Chief Executive Officer of Manila North Tollways Corporation (January 2000 - December 2008), Executive Vice President of the Philippine Long Distance Telephone Company (1993 - December 1999), Chairman of the Manila Waterworks & Sewerage System (1992 - 1993) and the Secretary of the Department of Public Works and Highways (January 1990 - February 1993). He was awarded the Philippine Legion of Honor, Rank of Commander in June 1992 by then President Corazon C. Aquino. He was Lux in Domino Awardee (Most Outstanding Alumnus) of the Ateneo de Manila University in July 2012. He is also a Director of Citra Metro Manila Tollways Corporation, Private Infra Development Corporation and South Luzon Tollway Corporation. He is a Trustee of Bantayog ng mga Bayani Foundation, Kapampangan Development Foundation and Holy Angel University. Mr. de Jesus earned his Bachelor of Arts degree in Economics and holds a Master of Arts in Social Psychology from the Ateneo de Manila University. He also finished Graduate Studies in Human Development from the University of Chicago. Mr. de Jesus does not hold a directorship in any company listed with the PSE other than Petron. Horacio C. Ramos, Filipino, born 1945, has served as a Director of the Company since May 2018. He is also the President of Clariden Holdings, Inc. (2012 - present). He was previously a Director of SMC (2014 to 2016), the Secretary of the Department of Environment and Natural Resources (February 12 - June 30, 2010), and the Director of Mines and Geosciences Bureau (June 1996 - February 2010). Mr. Ramos has a Bachelor of Science degree in Mining Engineering from the Mapua Institute of Technology obtained in 1967, and has a Graduate Diploma in Mining and Mineral Engineering from the University of New South Wales,

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Australia in 1976, and a Master of Engineering in Mining Engineering also from the University of New South Wales, Australia in 1978. Mr. Ramos does not hold a directorship in any company listed with the PSE other than Petron. Reynaldo G. David, Filipino, born 1942, has served as an Independent Director of the Company since May 12, 2009. He is the Chairman of the Audit Committee and likewise a member of the Risk Oversight Committee, the Corporate Governance Committee and the Related Party Transaction Committee. He is also an Independent Director and a member of the Audit Committee, Nomination and Compensation Committee of SMC. He has previously held, among others, the following positions: Philippine Special Trade Representative with the rank of Special Envoy, President and Chief Executive Officer of the Development Bank of the Philippines; Chairman of NDC Maritime Leasing Corporation; Director of DBP Data Center, Inc. and Al-Amanah Islamic Bank of the Philippines. Other past positions include: Independent Director of ISM and Atok Big Wedge Corporation (“Atok”), Chairman of LGU Guarantee Corporation, Vice Chairman, Chief Executive Officer and Executive Committee Chairman of Export and Industry Bank (September 1997 - September 2004), Director and Chief Executive Officer of Unicorp Finance Limited and Consultant of PT United City Bank (concurrently held from 1993 - 1997), Director of Megalink Inc., Vice President and FX Manager of the Bank of Hawaii (April 1984 - August 1986), various directorships and/or executive positions with The Pratt Group (September 1986 - December 1992), President and Chief Operating Officer of Producers Bank of the Philippines (October 1982 - November 1983), President and Chief Operation Officer of International Corporation Bank (March 1979 - September 1982), and Vice President and Treasurer of Citibank N. A. (November b1964 - February 1979). He was conferred with the Presidential Medal of Merit in 2010. A Ten Outstanding Young Men awardee for Offshore Banking in 1977, he was also awarded by the Association of Development Financing Institutions in Asia & the Pacific as the Outstanding Chief Executive Officer in 2007. A certified public accountant since 1964, he graduated from the De La Salle University with a combined Bachelor of Arts and Bachelor of Science in Commerce degrees in 1963 and attended the Advanced Management Program of the University of Hawaii (1974). He was conferred with the title Doctor of Laws, honoris causa, by the Palawan State University in 2005 and the title Doctor of Humanities, honoris causa, by the West Visayas State University in 2009. Other than Petron and SMC, Mr. David does not hold a directorship in any other company listed with the PSE. Artemio V. Panganiban, Filipino, born 1936, has served as an Independent Director of the Company since October 21, 2010. He is the Chairman of the Risk Oversight Committee and a member of the Audit and Corporate Governance Committees. He is a columnist for the Philippine Daily Inquirer and officer, adviser or consultant to several businesses, civic, educational and religious organizations. He is also an adviser of Metropolitan Bank and Trust Company and Bank of the Philippine Islands. He was formerly the Chief Justice of the Supreme Court of the Philippines (2005 - 2006); Associate Justice of the Supreme Court (1995 - 2005); Chairperson of the Philippine House of Representatives Electoral Tribunal (2004 - 2005); Senior Partner of Panganiban Benitez Parlade Africa & Barinaga Law Office (1963-1995); President of Baron Travel Corporation (1967 - 1993); and professor at the Far Eastern University, Assumption College and San Sebastian College (1961 - 1970). He is an author of over 10 books and has received various awards for his numerous accomplishments, most notably the “Renaissance Jurist of the 21st Century” conferred by the Supreme Court in 2006 and the “Outstanding Manilan” for 1991 by the City of Manila. Chief Justice Panganiban earned his Bachelor of Laws degree (cum laude) from the Far Eastern University in 1960, placed sixth in the bar exam that same year, and holds honorary doctoral degrees in law from several universities. Apart from Petron, he is an Independent Director of the following listed companies: MERALCO, First Philippine Holdings Corp., Philippine Long Distance Telephone Co., Metro Pacific Investment Corp., Robinsons Land Corp., GMA Network, Inc., GMA Holdings, Inc., Asian Terminals, Inc. and a non-executive Director of Jollibee Foods Corporation. Margarito B. Teves, Filipino, born 1943, has served as an Independent Director of the Company since May 20, 2014. He is the Chairman of the Corporate Governance and the Related Party Transaction

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Committees and a member of the Audit Committee of the Company. He is also an Independent Director of SMC and Atok, as well as Alphaland Corporation, Alphaland Balesin Island Club, Inc., AB Capital Investment Corp. and Atlantic Atrium Investments Philippines Corporation. He is also the Managing Director of The Wallace Business Forum and Chairman of Think Tank Inc. He was the Secretary of the Department of Finance of the Philippine government (2005 - 2010), and was previously the President and Chief Executive Officer of the Land Bank of the Philippines (2000 - 2005), among others. He was awarded as “2009 Finance Minister of Year/Asia” by the London-based The Banker Magazine. He holds a Master of Arts degree in Development Economics from the Center for Development Economics, Williams College, Massachusetts and is a graduate of the City of London College, with a degree of Higher National Diploma in Business Studies which is equivalent to a Bachelor of Science in Business Economics. Of the companies in which Mr. Teves currently holds directorships other than Petron, SMC and Atok are also listed with the PSE. Carlos Jericho L. Petilla, Filipino, born 1963, has served as an Independent Director of the Company since May 15, 2018. He is the founder in 2001, and President and Chief Executive Officer of International Data Conversion Solutions, Inc. (2015 - present; 2001 - 2004); President and Chief Executive Officer of Freight Process Outsourcing, Inc. (2015 - present), and a co-founder in 1989 and a Director of DDC Group of Companies (2015 - present; 1989 - 2004). He was previously the Secretary of the Department of Energy (2012 - 2015). Provincial Governor of the Province of Leyte (2004 – 2012) and Independent Director of MRC Allied, Inc. (2017 - 2018). Mr. Petilla has a Bachelor of Science degree in Management Engineering from the Ateneo De Manila University. Mr. Petilla does not hold a directorshipin any company listed with the PSE other than Petron.

Senior Management Set out below are the name, position and year of appointment of the Executive Officers and senior management of the Company as of the date of this Prospectus:

Name Position Year

Appointed as Officer

Ramon S. Ang President and Chief Executive Officer 2015

Lubin B. Nepomuceno General Manager 2015

Emmanuel E. Eraña Senior Vice President and Chief Finance Officer 2009

Freddie P. Yumang Senior Vice President, Operations for Refinery Division 2009

Susan Y. Yu Vice President, Procurement 2009

Albert S. Sarte Vice President and Treasurer 2009

Maria Rowena O. Cortez Vice President, Supply 2009

Archie B. Gupalor Vice President, Retail Sales 2018

Joel Angelo C. Cruz Vice President, General Counsel & Corporate Secretary/Compliance Officer

2010

Julieta L. Ventigan Vice President, Business Planning and Development 2015

Rolando B. Salonga Vice President, Operations and Corporate Technical Services Group

2017

Fernando S. Magnayon Vice President, Commercial Sales 2018

Maria Rosario D. Vergel de Dios

Vice President, Human Resources Management 2018

Dennis S. Janson Assistant Vice President and Controller 2015

Certain information on the business and working experiences of each of the Executive Officers of the Company who are not directors is set out below:

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Emmanuel E. Eraña, Filipino, born 1960, has served as the Senior Vice President and Chief Finance Officer of the Company since January 2009. He holds the following positions, among others: President and Chief Executive Officer of Petrogen, LLCDC and NVRC; President of PFI; Deputy Chairman of Ovincor; and Director of PFC, POGM, PFISB, and POMSB. Mr. Eraña held the following positions in the San Miguel Group: as the Vice President and Chief Information Officer (January 2008 - December 2009), Vice President and Executive Assistant to the Chief Financial Officer, Corporate Service Unit (December 2006 - January 2008), Vice President and Chief Finance Officer of SMFBIL/NFL Australia (May 2005 - November 2006), Vice President and Chief Finance Officer of SMPFC (July 2002 - May 2005), and Assistant Vice President and Finance Officer (January 2001 - June 2002), Assistant Vice President and Finance and Management Services Officer, San Miguel Food Group (2000 - 2001). He also served as a Director of MNHPI (2012 - 2017). Mr. Eraña has a Bachelor of Science degree in Accounting from the Colegio de San Juan de Letran. Freddie P. Yumang, Filipino, born in 1958, has served as the Senior Vice President for Refinery Operations of the Company effective February 2018. He is also a Director of PPI, Mariveles Landco Corporation, Robinson International Holdings Ltd. and PAHL. He is the lead of the Company’s RMP-2 project and has held various positions in the Company, including Vice President, Operations Manager and Technical Services Manager, and different supervisory and managerial positions at the Limay Refinery. Mr. Yumang is currently a Director of the National Association of Mapua Alumni and was formerly National Director of the Philippine Society for Mechanical Engineers (2006 - 2007). He is a Mechanical Engineering graduate of the Mapua Institute of Technology and earned units for a master’s degree in Business Administration from the De La Salle University. He also attended the Basic Management and Management Development Programs of the AIM in 1992 and 2002, respectively, in which he received separate awards for superior performance. Susan Y. Yu, Filipino, born 1976, has served as the Vice President for Procurement of the Company since January 2009. She is also a Director of Ovincor and Petron Singapore Trading Pte. Ltd. (“PSTPL”). Ms. Yu has served as a Trustee of PFI, the Treasurer of Petrogen, Assistant Vice President and Senior Corporate Procurement Manager of SMB, Assistant Vice President and Senior Corporate Procurement Manager of SMC Corporate Procurement Unit (July 2003 - February 2008), and Fuel Purchasing and Price Risk Management Manager of Philippine Airlines (May 1997 - June 2003). She holds a commerce degree in Business Management from the De La Salle University and a master’s degree in Business Administration from the Ateneo de Manila University, for which she was awarded a gold medal for academic excellence. Albert S. Sarte, Filipino, born 1967, has served as the Vice President and Treasurer of the Company since August 2009. He is also the Treasurer of most of the Company’s subsidiaries. Mr. Sarte served as Assistant Vice President for SMC International Treasury until June 2009. He graduated from the Ateneo de Manila University in 1987 with a Bachelor of Science degree in Business Management and has attended the Management Development Program of the AIM in 1995. Maria Rowena O. Cortez, Filipino, born 1964, has served as the Vice President for Supply of the Company since September 2013, and concurrently the Director for PSTPL since June 2013. She is also a Director of PAHL, Robinson International Holdings Ltd., and Mariveles Landco Corporation. The various positions she has held in the Company include Vice President for Supply & Operations (July 2010 - November 2013), Vice President for Supply (June 2009-June 2010) and various managerial and supervisory positions in the Marketing/Sales and Supply and Operations Divisions of Petron. Ms. Cortez also held various positions at the Phil. National Oil Company-Energy Research and Development Center from 1986 to 1993. She holds a Bachelor of Science degree in Industrial Engineering and a master’s degree in Business Administration both from the University of the Philippines, Diliman. She also took post graduate courses at the AIM and the University of Oxford in Oxfordshire, UK. She has attended local and foreign trainings and seminars on leadership, market research, supply chain, commodity risk management, petroleum, petrochemicals and energy trading. Archie B. Gupalor, Filipino, born 1968, has served as the Vice President for Retail Sales of the Company since June 2018. He holds the following positions, among others: President and Chief Executive Officer of PFC and Director of PMC, NVRC and LLCDC. He was previously the Vice President for National Sales.

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Mr. Gupalor served the following positions in the San Miguel Group: He has been with the San Miguel Group since 1991. Prior to his appointment in the Company, he held the position of Vice President and General Manager of San Miguel Integrated Sales of San Miguel Foods, Inc. He earned his Bachelor of Science degree in Industrial Psychology at the University of San Carlos and attended several programs here and abroad, including the Executive Management Development Program of the Harvard Business Publishing. Joel Angelo C. Cruz, Filipino, born 1961, has served as the Vice President of the Office of the General Counsel of the Company since March 2013 and the Corporate Secretary and Compliance Officer of the Company since April 2010. He holds the following positions, among others: Corporate Secretary and Compliance Officer of Petrogen, Corporate Secretary of LLCDC, NVRC, PMC, and PFC; and Corporate Secretary of Petron Global Limited. Atty. Cruz was formerly the Assistant Vice President of the Office of the General Counsel, Assistant Corporate Secretary and Legal Counsel of the Company, and Assistant Corporate Secretary of all the Company’s subsidiaries. He also served as Assistant Corporate Secretary of MNHPI (2012 - 2017). He is a member of the Integrated Bar of the Philippines. Atty. Cruz holds a Bachelor of Arts degree in Economics from the University of the Philippines and a Bachelor of Laws degree from San Beda College. He attended the Basic Management Program of the AIM in 1997 as well as numerous local and foreign training and seminars. Julieta L. Ventigan, Filipino, born 1959, has served as the Vice President for Business Planning and Development of the Company since September 2015. She previously held the position of Assistant Vice President for Business Planning and Development from October 2010 until August 2015. The various positions she has held in the Company include Head of Business Planning and Development (August 2010 - September 2010), Manager for Corporate Planning/Business Planning and Analysis (January 2010 - July 2010) and Manager for Corporate Planning/Strategic Planning (April 2003 - December 2009). She has a Bachelor of Science degree major in Agricultural Economics from the University of the Philippines in Los Baños and a master’s degree in Business Administration from the Ateneo Graduate of School of Business. Rolando B. Salonga, Filipino, born 1961, has served as Vice President for Operations and Corporate Technical Services Group since May 1, 2017. Previous positions he held include Vice President for Terminal Operations (November 16, 2016-April 30, 2017), Assistant Vice President for Operations (September 2015 - November 2016), Officer-in-Charge-Operations (March 2015 - August 2015), Supply and Distribution Head of Petron Malaysia (April 2012 - February 2015), Functional Team Lead-Distribution, Project Rajah (Malaysian Acquisition) (October 2011 - March 2012), Manager-Visayas Operations (July 2009 - October 2011), Manager-Distribution (May 2005 - May 2009), Superintendent-Mandaue Terminal (April 2001 - May 2005), Superintendent-Pandacan Manufacturing (April 1994 - April 2001), Superintendent-Pandacan Lubeoil Warehouse (November 1994 - March 1995) and Superintendent-Pandacan Transportation/Distribution (April 1993 - October 1994). Mr. Salonga has a Bachelor of Science degree in Mechanical Engineering from the Mapua Institute of Technology. Fernando S. Magnayon, Filipino, born 1959, has served as the Vice President for Commercial Sales since November 16, 2018. Other positions he held include Assistant Vice President for Industrial Trade (September 2016 - November 15, 2018), Assistant Vice President for LPG, Lubes and Greases (July 2014 - August 2016), Visayas-Mindanao Regional Sales Manager for Reseller Trade (July 2013 - June 2014), Luzon Regional Sales Manager for Reseller Trade (July 2012 - June 2013), Luzon Provincial Area Manager for Industrial Trade (July 2010 - June 2012), North Luzon Area Manager for Industrial Trade (July 2009 - June 2010), Market Development Manager for Industrial Trade (September 2006 - June 2009), Industrial Brand Coordinator for Lube Trade (September 2002 - August 2006), Area Sales Executive for Lube Trade (September 2001 - August 2002), Field Technical Services Engineer for Technical Department (September 1992 - August 2001), and Research Engineer for PNOC-Energy Research and Development Center (August 1982 - August 1992). He has a Bachelor of Science degree in Mechanical Engineering from Adamson University. Maria Rosario D. Vergel de Dios, Filipino, born 1963, has served as Vice President for Human Resources Management of the Company since November 16, 2018. Other positions she has held include Assistant Vice President for Human Resources (July 2012 - November 15, 2018), Head for Human Resources

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(October 2011 - June 2012), Human Resources Planning and Services Manager (October 2008 - September 2011), Payroll and Benefits Officer (January 2002 - September 2008), Payroll Officer (February 1997 to - December 2001), Assistant for Treasury/ Funds Management (May 1994 to - January 1997), Assistant for Treasury/ Foreign Operations (September 1991 - April 1994) and Secretary for the Office of the President (April 1991 - August 1991). She has a Bachelor of Science degree in Economics from the University of the Philippines and a master’s degree in Business Management from the Ateneo de Manila University. Dennis S. Janson, Filipino, born in 1959, has served as the Assistant Vice President for Controllers and the Controller of the Company since September 2015. He is a Director of PSTPL and the Controller of various subsidiaries of Petron. Other positions he held include Assistant Controller of the Company (August 2014-August 2015), Manager for Financial Analysis and Compliance Controller (March 2013-July 2014; January 2010-September 2011), Finance Head and Chief Finance Officer of Petron Malaysia (October 2011-February 2013), and Manager for Financial Analysis Planning and Risk Management (November 2008-December 2009). He is a certified public accountant with a Bachelor of Science degree in Accountancy from the University of San Carlos in Cebu. Share Ownership The following table sets forth the share ownership of the Company’s Directors and Executive Officers as of March 31, 2019:

Directors

Title of Class Name of Record Owner Citizenship

Amount and Nature of Beneficial Ownership

Direct (D) or

Indirect (I)

Percentage of

Ownership

Directors

Common Eduardo M. Cojuangco, Jr. Filipino

1,000 D 0.00%

Series 2A Preferred - - N.A.

Series 2B Preferred - - N.A.

Common Ramon S. Ang Filipino

1,000 D 0.00%



Common Estelito P. Mendoza Filipino

1,000 D 0.00%



Common Lubin B. Nepomuceno Filipino

5,000 D 0.00%

Series 2A Preferred 2,500 I 0.00%


Common Jose P. De Jesus Filipino

500 / 225,000 D / I 0.00%



Common Mirzan Mahathir Malaysian

1,000 D 0.00%



Common Ron W. Haddock American

1 D 0.00%



Common Horacio C. Ramos Filipino

500 D 0.00%



Common Aurora T. Calderon Filipino

1,000 D 0.00%



Common Virgilio S. Jacinto Filipino

1,000 D 0.00%


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Common Nelly Favis-Villafuerte Filipino

1,000 D 0.00%



Common Reynaldo G. David Filipino

1,000 D 0.00%



Common Artemio V. Panganiban Filipino

1,000 D 0.00%



Common Margarito B. Teves Filipino

500 D 0.00%



Common Carlos Jericho L. Petilla Filipino 500 D 0.00%



Officers

Title of Class Name of Record

Owner Citizenship

Amount and Nature

of Beneficial Ownership

Direct (D) or Indirect (I)

Percentage of

Ownership

Executive Officers

Common Emmanuel E. Eraña

Filipino

- - 0.00%



Common Susan Y. Yu Filipino

591,600 I 0.00%



Common Albertito S. Sarte Filipino

765,500 I 0.00%



Common Rowena O. Cortez Filipino

8,580 D 0.00%

Series 2A Preferred 600 I 0.00%


Common Freddie P. Yumang Filipino

73,600 I 0.00%



Common Archie B. Gupalor Filipino

3,000 D 0.00%



Common Joel Angelo C. Cruz

Filipino

- - N.A.



Common Rolando B. Salonga

Filipino

845 D N.A.



Common Dennis S. Janson Filipino

163 / 15,000 D / I N.A.



Common Julieta L. Ventigan Filipino

2,100 D N.A.

Series 2A Preferred 1,000 I N.A.


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Directors and Executive Officers as a Group

Common

1,701,389

0.00%

Series 2A Preferred

25,000 0.55%

Series 2B Preferred

0 0.00%

Family Relationships There are no family relationships up to the fourth civil degree either by consanguinity or affinity among directors and/or executive officers of the Company. Committees of The Board Pursuant to the Company’s new Manual on Corporate Governance adopted on May 8, 2017, the Board created each of the following committees and appointed Board members thereto. Audit Committee The Audit Committee is responsible for overseeing the senior Management in establishing and maintaining an adequate, effective and efficient internal control framework. It ensures that systems and processes are designed to provide assurance in areas including reporting, monitoring compliance with laws, regulations and internal policies, efficiency and effectiveness of operations, and safeguarding of assets. As of the date of this Prospectus, the chairman of the Audit Committee is Reynaldo G. David and its members are Margarito B. Teves, Artemio V. Panganiban, Estelito P. Mendoza and Aurora T. Calderon. Ferdinand K. Constantino, a former Director, serves as an advisor to the Audit Committee. Executive Committee The Executive Committee has been delegated the authority to exercise certain powers of the Board of Directors in the management of the business and affairs of the Company while the Board is not in session. As of the date of this Prospectus, the chairman of the Executive Committee is Eduardo M. Cojuangco, Jr. and its members are Ramon S. Ang, and Lubin B. Nepomuceno. Aurora T. Calderon and Virgilio S. Jacinto act as alternate members of the Executive Committee. Corporate Governance Committee The Corporate Governance Committee is tasked to assist the board of directors in the performance of its corporate governance, nomination and remuneration responsibilities and ensure compliance with and proper observance of corporate governance principles and practices. As of the date of this Prospectus, the chairman of the Corporate Governance Committee is Margarito B. Teves and its members are Reynaldo G. David, Artemio V. Panganiban, Virgilio S. Jacinto and Estelito P. Mendoza. Risk Oversight Committee The Risk Oversight Committee is responsible for the oversight of the enterprise risk management system of the Company to ensure its functionality and effectiveness. As of the date of this Prospectus, the chairman of the Risk Oversight Committee is Artemio V. Panganiban and its members are Reynaldo G. David and Aurora T. Calderon. Related Party Transaction Committee The Related Party Transaction Committee is tasked with reviewing all material related party transactions of the Company. As of the date of this Prospectus, the chairman of the Related Party Transaction Committee is Carlos Jericho L. Petilla and its members are Reynaldo G. David and Aurora T. Calderon.

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Compensation The aggregate compensation paid or estimated to be paid to the executive officers and directors of the Company during the periods indicated below is as follows (including the estimate for 2019; in millions of pesos):

Name & Principal Position Year Salary

(=P millions)

Bonus

(=P millions)

Ramon S. Ang President & Chief Executive Officer

2019 (est.)

111.67

27.92

Lubin B. Nepomuceno General Manager

Emmanuel E. Eraña Senior Vice President & Chief Finance Officer

Freddie P. Yumang Senior Vice President - Refinery

Archie B. Gupalor Vice President – Retail Sales


2018 105.42 66.04






2017 96.32 60.09





All other officers and directors of the Company (unnamed)

2019 (est.) 91.35 19.28

2018 86.59 46.75

2017 58.72 50.27

Standard Arrangements The Company’s Executive Officers are also regular employees of the Company and are similarly remunerated with a compensation package comprising of 12 months base pay. They also receive whatever gratuity pay the Board of Directors extends to the managerial, supervisory and technical employees of the Company. The members of the Board of Directors who are not Executive Officers are elected for a term of one year. They likewise receive remuneration for 12 months in Director’s fees and gas allowance, in addition to compensation on a per meeting participation. Other Arrangements There are no other arrangements for which the Directors are compensated by the Company for services other than those provided as a Director. Employment Contract In lieu of an employment contract, the Directors are elected at the annual meeting of stockholders for a one-year term until their successors shall have been duly elected and qualified pursuant to the Company’s

155

By-Laws. Any Director elected in the interim will serve for the remaining term until the next annual meeting. Warrants or Options There are no warrants or options held by Directors or Executive Officers.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company engages from time to time in a variety of transactions with related parties. The Company’s policy with respect to related party transactions is to ensure that these transactions are entered into under terms comparable to those available from unrelated third parties. For more information regarding the Company’s transactions with related parties, see note 28 to the Company’s audited consolidated financial statements as of and for the period ended December 31, 2018 included elsewhere in this Prospectus. Petron Corporation Employees’ Retirement Plan In July 2010, PCERP acquired from SEA BV 24.28% of the common shares in the Company. PCERP to date holds common shares comprising 4.90% of the outstanding common stock of the Company. A significant portion of the ₱20.8 billion advance from the Company to PCERP was used to fund the purchase. The advance bears interest at market rates. The proceeds of the sales of the Company’s common shares by PCERP were used partially to repay advances made by the Company in 2010. San Miguel Corporation SMC is a major stockholder of the Company. See “Principal Shareholders.” The Company has supply agreements with various SMC subsidiaries, under which the Company supplies the bunker fuel oil, diesel fuel and lubricant requirements of selected SMC plants and subsidiaries. Generally, the pricing formulae under these agreements are based on MOPS. Aggregate revenue with related parties amounted to approximately ₱6.90 billion, ₱3.61 billion and ₱6.75 billion for the years ended December 31, 2016, 2017 and 2018, respectively. The Company also currently leases office space from an SMC subsidiary pursuant to a lease agreement that was entered into on an arm’s length basis. New Ventures Realty Corporation NVRC is a subsidiary of the Company 85.55%-owned by the Company and 14.45%-owned by PCERP. The Company leases from NVRC certain parcels of land where the Limay Refinery and its service station sites, terminals and bulk plants are located. NVRC is the holder of the lease over the site of the Limay Refinery of which PNOC is the lessor. Lease expenses in connection with the NVRC leases in 2016, 2017, and 2018 amounted to approximately ₱409.80 million, ₱415.12 million and ₱489.12 million, respectively.

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MARKET PRICE OF AND DIVIDENDS ON THE ISSUER’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of March 31, 2019, the Company had 9,375,104,497 common shares and 10,000,000 preferred shares issued and outstanding. The table below sets forth the Company’s top 20 holders of common shares as of March 31, 2019:

Stockholder Name No. of shares % to Total

1 SEA Refinery Corporation 4,696,885,564 50.100%

2 PCD Nominee Corp. (Filipino) 1,767,926,534 18.858%

3 San Miguel Corporation 1,702,870,560 18.164%

4 Petron Corporation Employees Retirement Plan 378,818,699 4.041%

5 PCD Nominee (Non-Filipino) 378,379,296 4.036%

6 F. Yap Securities, Inc. 12,704,918 0.136%

7 Ernesto Chua Chiaco &/or Margaret Sy Chua Chiaco 6,000,000 0.064%

8 Sysmart Corp. 4,000,000 0.043%

9 Margaret S. Chuachiaco 3,900,000 0.042%

10 Raul Tomas Concepcion 3,504,000 0.037%

11 Genevieve S. Chuachiaco 2,735,000 0.029%

12 Ernesson S. Chuachiaco 2,732,000 0.029%

13 Q-Tech Alliance Holdings, Inc. 2,648,500 0.028%

14 Genevieve S. Chua Chiaco 2,490,000 0.266%

15 Benedict Chua Chiaco 2,365,000 0.025%

16 Anthony Chua Chiaco 2,008,000 0.021%

17 Shahrad Rahmanifard 2,000,000 0.021%

18 Manuel Awiten Dy 2,000,000 0.021%

19 Kristine Chua Chiaco 1,956,000 0.021%

20 Ching Hai Go &/or Martina Go 1,500,000 0.016%

As at March 31, 2019, the Issuer had 145,681 shareholders of its common shares. The foreign ownership level of total outstanding voting shares in the Issuer was 4.09%.

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The table below sets forth the Company’s top 20 holders of the preferred shares as of March 31, 2019: Series 2A Preferred Shares


1 PCD Nominee Corporation (Filipino) 6,326,705 88.829%

2 San Miguel Corporation Retirement Plan-FIP 400,000 5.616%

3 San Miguel Brewery Inc. Retirement Plan 200,000 2.808%

4 San Miguel Corporation Retirement Plan-STP 60,000 0.842%

5 San Miguel Foods Inc. Retirement Plan 50,000 0.702%

6 San Miguel Yamamura Packaging Corp. Retirement Plan

40,470 0.568%

7 PCD Nominee Corporation (Non-Filipino) 33,875 0.476%

8 Knights of Columbus Fraternal Association of the Phils., Inc.

3,200 0.045%

9 Sylvia Lopez Alejandro 1,000 0.014%

10 BCS Realty Holdings & Development Corporation 1,000 0.014%

11 Zenaida M. Postrado or Renato Postrado 1,000 0.014%

12 Samuel L. Santos or Ma. Paulina Isabel P. Santos 750 0.011%

13 Irma T. San Juan 500 0.007%

14 Sta. Maria Della Strada Parish Garden Sanctuary 420 0.006%

15 Agnes L. Baniqued 300 0.004%

16 Evelyn A. Gesmundo or Dominador A. Gesmundo, Jr. 300 0.004%

17 Rafael C. Bueno, Jr. 300 0.004%

18 Alfrito D. Mah or Agueda G. Mah 300 0.004%

19 Arnel Jose S. Banas or Rufina S. Elcano or Meliza B. Zulueta

150 0.002%

20 Ma. Teresa L. Yusingco 150 0.002%

Series 2B Preferred Shares


1 PCD Nominee Corporation (Filipino) 2,754,415 95.717%

2 Knights of Columbus Fraternal Association of The Phils., Inc.

45,440 1.579%

159

3 PCD Nominee Corporation (Non-Filipino) 23,910 0.831%

4 Marcelino R. Teodoro 12,500 0.434%

5 First Life Financial Co., Inc. 7,000 0.243%

6 Ben Tiuk Sy or Judy Y. Sy 6,400 0.222%

7 Reynaldo Garcia Alejandro &/or Sylvia L. Alejandro 5,000 0.174%

8 Alexander T. Solis &/or Gina T. Sinfuego 5,000 0.174%

9 Francisco S. Alejo &/or Cynthina Alejo &/or Anna Melissa A. Acop

3,000 0.104%

10 Antonio T. Chua 2,500 0.087%

11 Enrique Dela Llana Yusingco 2,000 0.070%

12 Justinano B. Panambo, Jr. 1,920 0.067%

13 Felix B. Chavez &/or Aida T. Chavez or Irene T. Chavez 1,500 0.052%

14 Dewey T. Tan 1,000 0.035%

15 Romeo V. Jacinto 1,000 0.035%

16 Zenaida M. Postrado or Renato Postrado 1,000 0.035%

17 Evelyn A. Gesmundo or Dominador A. Gesmundo 720 0.025%

18 Ronne T. Sy Su or Chadwick C. Sy Su 700 0.024%

19 Roberto D. De Leon 650 0.023%

20 Conchita Go Teng or Chloe Louise C. Say 350 0.012%

As at March 31, 2019, the Issuer had 76 shareholders of its Outstanding Preferred Shares. The foreign ownership level of total Outstanding Preferred Shares of the Issuer was 0.58%. Dividends and Dividend Policy Shareholders shall have the right to receive dividends, subject to the discretion of the Board. The Company shall be compelled to declare dividends when its retained earnings shall be in excess of 100% of its paid-in capital stock, except: (a) when justified by definite corporate expansion projects or programs approved by the Board; or (b) when the Company is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its consent, and such consent has not been secured; or (c) when it can be clearly shown that such retention is necessary under special circumstances obtaining in the Company such as when there is need for special reserve for probable contingencies. The dividends for the Outstanding Preferred Shares is fixed at the rate of 6.3000% per annum for the Series 2A Preferred Shares (“PRF2A”) and 6.8583% for the Series 2B Preferred Shares (“PRF2B”), each calculated in reference to the offer price of ₱1,000 per share on a 30/360-day basis and payable quarterly in arrears, as and if declared by the Board. If the dividend payment date is not a Business Day, dividends will be paid on the next succeeding Business Day, without adjustment as to the amount of dividends to be paid. Since the listing of the Outstanding Preferred Shares in November 2014, cash dividends have been

160

paid out in February, May, August, and November of each year. Dividend Declarations and Payments 2018

On March 13, 2018, the Board of Directors approved a cash dividend of ₱0.15 per share to common shareholders as of the March 27, 2018 record date with a pay-out date of April 18, 2018. On the same date, the Board of Directors also approved cash dividends of (i) ₱15.75 per share to the shareholders of the Series 2A Preferred Shares for the second and third quarters of 2018 with record dates of April 12, 2018 and July 16, 2018, respectively, and pay-out dates of May 3, 2018 and August 3, 2018, respectively, and (ii) ₱17.14575 per share to the shareholders of the Series 2B Preferred Shares for the second and third quarters of 2018 record dates of April 12, 2018 and July 16, 2018, respectively, and pay-out dates of May 3, 2018 and August 3, 2018, respectively. On August 7, 2018, the Board of Directors approved cash dividends of (i) ₱15.75 per share to the shareholders of the Series 2A Preferred Shares for the fourth quarter of 2018 and first quarter of 2019 with record dates of October 10, 2018 and January 11, 2019, respectively, and pay out dates of November 5, 2018 and February 4, 2019, respectively, and (ii) ₱17.14575 per share to the shareholders of the Series 2B Preferred Shares for the fourth quarter of 2018 and the first quarter of 2019 with record dates of October 10, 2018 and January 11, 2019, respectively, and pay out dates of November 5, 2018 and February 4, 2019, respectively. 2017 On March 14, 2017, the Board of Directors approved a cash dividend of ₱0.10 per share to common shareholders as of the March 28, 2017 record date with a pay-out date of April 12, 2017. On the same date, the Board of Directors also approved cash dividends of (i) ₱15.75 per share to the shareholders of the Series 2A Preferred Shares for the second and third quarters of 2017 with record dates of April 12, 2017 and July 18, 2017, respectively, and pay-out dates of May 3, 2017 and August 3, 2017, respectively, and (ii) ₱17.14575 per share to the shareholders of the Series 2B Preferred Shares for the second and third quarters of 2017 also with record dates of April 12, 2017 and July 18, 2017, respectively, and pay-out dates of May 3, 2017 and August 3, 2017, respectively. On August 8, 2017, the Board of Directors approved cash dividends of (i) ₱15.75 per share to the shareholders of the Series 2A Preferred Shares for the fourth quarter of 2017 and first quarter of 2018 with record dates of October 16, 2017 and January 16, 2018, respectively, and pay out dates of November 3, 2017 and February 5, 2018, respectively, and (ii) ₱17.14575 per share to the shareholders of the Series 2B Preferred Shares for the fourth quarter of 2017 and the first quarter of 2018 with record dates of October 16, 2017 and January 16, 2018, respectively, and pay out dates of November 3, 2017 and February 5, 2018, respectively. Distributions under Capital Securities The table below sets forth the distributions paid to holders of the Company’s Undated Subordinated Capital Securities (“USCS”) and Senior Perpetual Capital Securities (“SPCS”) for the past three (3) years:

2018 (in USD Millions)



USCS 40.00 56.25 56.25

SPCS 11.50 - -

161

Dividends Declared by Subsidiaries As of date, the Company’s subsidiaries have not established any specific dividend policy. The table below sets forth the dividends declared by the subsidiaries for the past three (3) years:

Subsidiary 2018 (in Millions)

2017 (in Millions)

2016 (in Millions)

Overseas Ventures Insurance Corporation Ltd

-

- 167

Petron Marketing Corporation - - 72

Petron Freeport Corporation 115 100 11

Petron Oil & Gas (Mauritius) Ltd. 3,692 750 1,462

Petron Singapore Trading Pte Ltd 1,353 1,278 1,989

Market Price of the Issuer’s Equity The Company’s common and preferred shares are principally traded at the PSE. As of March 29, 2019, the last trading date for the month of March, the closing price of the Company’s common shares was ₱6.49 and the closing price of the Outstanding Preferred Shares was ₱985.00 for Series 2A and ₱1,050.00 for Series 2B. The high and low prices of the common shares for each quarter of the last three fiscal years are indicated in the table below:

2018 2017 2016

(in ₱) Highest Close

Lowest Close

Highest Close

Lowest Close

Highest Close

Lowest Close

1st Quarter 9.80 8.68 10.30 8.57 10.96 5.36

2nd Quarter 9.62 8.72 11.26 8.62 11.88 9.86

3rd Quarter 9.15 8.60 10.68 9.35 11.46 9.40

4th Quarter 8.69 7.66 10.46 9.16 10.80 9.10

The high and low prices of the PRF2A for each quarter of the last three fiscal years are indicated in the table below: 2018 2017 2016

(in ₱) Highest Close

Lowest Close

Highest Close

Lowest Close

Highest Close

Lowest Close

1st Quarter 1,070.00 1,034.00 1,089.00 1,045.00 1,084.00 1,020.00

2nd Quarter 1,050.00 1,020.00 1,075.00 1,020.00 1,079.00 1,000.00

3rd Quarter 1,045.00 1,000.00 1,090.00 1,030.00 1,140.00 1,040.00

4th Quarter 1,010.00 932.00 1,070.00 1,049.00 1,100.00 1,029.00

The high and low prices of the PRF2B for each quarter of the last three fiscal years are indicated in the table below: 2018 2017 2016 (in ₱) Highest

Close Lowest Close

Highest Close

Lowest Close

Highest Close

Lowest Close

1st Quarter 1,175.00 1,066.00 1,180.00 1,096.00 1,100.00 1,056.00

2nd Quarter 1,164.00 1,000.00 1,150.00 1,000.00 1,160.00 1,030.00

3rd Quarter 1,074.00 1,010.00 1,129.00 1,100.00 1,239.00 1,050.00

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4th Quarter 1,490.00 950.00 1,175.00 1,140.00 1,229.00 1,070.00

Recent Sales of Unregistered or Exempt Securities Including Recent Issuances of Securities Constituting an Exempt Transaction Under the SRC and the Amended Implementing Rules and Regulations of the SRC (the “Amended SRC Rules”), securities are not permitted to be sold or offered for sale or distribution within the Philippines unless such securities are approved for registration by the SEC or are otherwise exempt securities under Section 9 of the Code or sold pursuant to an exempt transaction under Section 10 of the Code. The securities discussed below were either offered in the Philippines to institutional lenders not exceeding 19 or to not more than 19 non-qualified buyers and/or to any number of qualified buyers as defined in the Code. Thus, the subject securities were either exempt securities pursuant to Section 9 of the Code and Rule 9.2 of the Amended SRC Rules or their offer and sale qualified as an exempt transaction pursuant to Sections 10.1 (k) and 10.1(l) of the Code and Rule 10.1 of the Amended SRC Rules. In the case of the subject exempt transactions, a confirmation of exemption from the SEC that the offer and sale of the securities in the Philippines qualify as an exempt transaction under the Code was not required to be, and had not been, obtained. Nevertheless, in compliance with the Amended SRC Rules, notices of exemption were filed after the issuance of the securities qualifying as exempt transactions. The securities discussed below were not registered with the SEC under the Code. Any future offer or sale thereof is subject to registration requirements under the Code, unless such offer or sale qualifies as an exempt transaction. US$500,000,000 Senior Perpetual Capital Securities On January 19, 2018, Petron issued US$500,000,000.00 Senior Perpetual Capital Securities with an initial rate of distribution of 4.6% per annum. On January 22, 2018, the Senior Perpetual Capital Securities were listed in the Singapore Stock Exchange (“SGX-ST”). The net proceeds were applied for the repurchase, refinancing and/or redemption of undated subordinated capital securities. Updates on Certain Securities of the Company The Company issued undated subordinated capital securities with an amount of US$500,000,000 and US$250,000,000 on February 6, 2013 and March 11, 2013, respectively. A portion of the securities in the total amount of US$401,957,000 was purchased by the Company on January 22, 2018 pursuant to a tender offer made by the Company. The remaining securities in the aggregate amount of US$348,043,000 were fully redeemed by the Company on August 6, 2018. The securities were delisted from The Stock Exchange of Hong Kong Limited on August 16, 2018. Apart from the foregoing, there are no recent sales of unregistered or exempt securities, including recent issuances of securities constituting an exempt transaction. The Company has no registered debt securities.

163

Security Ownership of Certain Beneficial Owners and Management Security Ownership of Certain Record and Beneficial Owners As at March 31, 2019, the following are the owners of the Issuer’s common stock in excess of 5% of total outstanding shares:

Title of Class

Name and Address of Record Owner

and Relationship with Issuer

Name of Beneficial Owner and

Relationship with Record Owner

Citizenship Number of

Shares held

Percentage of

Ownership

Common Shares

SEA Refinery Corporation (“SEA Refinery”) 19/F Liberty Center Dela Costa St., Salcedo Village, Makati City Major Stockholder

SEA Refinery Corporation

Filipino 4,696,885,564 50.10%

Common Shares

PCD Nominee Corporation (Filipino) 37th Floor Tower 1 The Enterprise Center 6766 Ayala Avenue corner Paso de Roxas, Makati City Major Stockholder

PCD Nominee Corporation

Filipino 1,767,926,534 18.86%

Common Shares

San Miguel Corporation (“SMC”) SMC Head Office Complex 40 San Miguel Avenue, Mandaluyong City Major Stockholder

San Miguel Corporation

Filipino 1,702,870,560 18.16%

Security Ownership of Management As at March 31, 2019, the following are the number of shares owned of record by the Issuer’s directors and key executive officers:

Directors

Title of Class Name of Record Owner Citizenship

Amount and Nature of Beneficial Ownership

Direct (D) or

Indirect (I)

Percentage of

Ownership

Directors

Common Eduardo M. Cojuangco, Jr. Filipino

1,000 D 0.00%



Common Ramon S. Ang Filipino

1,000 D 0.00%



Common Estelito P. Mendoza Filipino

1,000 D 0.00%


164


Common Lubin B. Nepomuceno Filipino

5,000 D 0.00%



Common Jose P. De Jesus Filipino

500 / 225,000 D / I 0.00%



Common Mirzan Mahathir Malaysian

1,000 D 0.00%



Common Ron W. Haddock American

1 D 0.00%



Common Horacio C. Ramos Filipino

500 D 0.00%



Common Aurora T. Calderon Filipino

1,000 D 0.00%



Common Virgilio S. Jacinto Filipino

1,000 D 0.00%



Common Nelly Favis-Villafuerte Filipino

1,000 D 0.00%



Common Reynaldo G. David Filipino

1,000 D 0.00%



Common Artemio V. Panganiban Filipino

1,000 D 0.00%



Common Margarito B. Teves Filipino

500 D 0.00%



Common Carlos Jericho L. Petilla Filipino 500 D 0.00%



Officers

Title of Class Name of Record

Owner Citizenship

Amount and Nature

of Beneficial Ownership

Direct (D) or Indirect (I)

Percentage of

Ownership

Executive Officers

Common Emmanuel E. Eraña

Filipino

- - 0.00%



Common Susan Y. Yu Filipino

591,600 I 0.00%



Common Albertito S. Sarte Filipino

765,500 I 0.00%



Common Rowena O. Cortez Filipino

8,580 D 0.00%



165

Common Freddie P. Yumang Filipino

73,600 I 0.00%



Common Archie B. Gupalor Filipino

3,000 D 0.00%



Common Joel Angelo C. Cruz

Filipino

- - N.A.



Common Rolando B. Salonga

Filipino

845 D N.A.



Common Dennis S. Janson Filipino

163 / 15,000 D / I N.A.



Common Julieta L. Ventigan Filipino

2,100 D N.A.

Series 2A Preferred 1,000 I N.A.


Directors and Executive Officers as a Group

Common

1,701,389

0.00%

Series 2A Preferred

25,000 0.55%

Series 2B Preferred

0 0.00%

Voting Trust Holders of 5% or More The Company is not aware of any person holding 5% or more of the Company’s outstanding voting shares under a voting trust or any similar agreement. Change in Control The Company is not aware of any change in control or arrangement that may result in a change in control of the Company since the beginning of its last fiscal year. Warrants and Options As of the date of this Prospectus, there are no existing or planned stock options / stock warrant offerings.

166

INDUSTRY OVERVIEW

The information and data contained in this section has been taken from sources in the public domain, including BP Statistical Review of World Energy, International Energy Agency, International Monetary Fund, Malaysia Energy Information Hub, Energy Commission of Malaysia and the Philippine Department of Energy, unless indicated otherwise. The Company does not have any knowledge that the information herein is inaccurate in any material respect. Neither the Company and the JLUs nor any of their respective affiliates or advisors has independently verified the information included in this section.

GLOBAL AND REGIONAL OIL MARKET According to the International Energy Agency (“IEA”), global oil demand is estimated to grow by 1.3mb/d to reach 99.2mb/d in 2018, slightly down from the growth rate of 1.5mb/d observed in 2017 due to higher average oil prices in 2018. Apart from the five-year high growth rate of 1.9mb/d observed in 2015 when oil prices fell dramatically, 2018 growth rate is largely in line with the historical average oil demand growth rates between 1.3mb/d – 1.5mb/d over the past few years. In 2019, the rate of growth for global oil demand is expected to rise slightly to 1.4mb/d. Factors driving the demand growth outlook are the prospect of lower prices and the start-up of petrochemical investments in China, offset by the slight downward revision to global GDP growth and significant downward revisions to demand in Turkey and Venezuela. Non-OECD nations are expected to contribute to the majority of demand growth in 2018, with 0.9 mb/d out of the global 1.3mb/d yoy gain. Demand for non-OECD nations is forecasted to accelerate to 1.1mb/d in 2019 on the back of lower prices and robust growth in key countries like India and China. Global Oil Demand (2017 – 2019E)

(Million barrels per day, except percentages)

Note: Figures from the fourth quarter of 2018 onwards are estimates. Asian oil demand has continued to drive growth in 2018 supported by strong growth in India and China. China’s total oil product demand is estimated to have grown by 444 kb/d in 2018 to 13.0mb/d. Demand growth in China is expected to grow by 453 kb/d in 2019 on the back of stronger environmental policies and the move to more consumer-oriented development. Additionally, weaker consumer confidence and a government crackdown on peer-to-peer lending platforms may impact the auto loans market and consequent motor vehicle demand. In India, total oil product demand is estimated to have grown by 210 kb/d in 2018 to 4.8 mb/d and is expected to grow at a similar pace of 240 kb/d in 2019.

167

THE PHILIPPINE AND MALAYSIAN OIL MARKETS The Philippines and Malaysia are major importers of finished petroleum products, importing over 50% of their total consumption requirements. The charts below show demand, imports, and imports as a percentage of demand, for the periods indicated.

Figure 1: Gross Imports as a Percentage of Total Petroleum Products Consumption in the Philippines and Malaysia

Source: Philippine Department of Energy, Malaysia Energy Information Hub Petroleum products demand in the Philippines and Malaysia have generally experienced growth, as shown in the chart below.

Figure 2: Petroleum Products Demand Growth

Source: Philippine Department of Energy, Malaysia Energy Information Hub Real GDP growth According to the IMF, the Philippine and Malaysian economies are expected to exhibit stable real GDP growth at annual rates of 6.6% and 4.6%, respectively, as indicated in the chart below. This favorable economic backdrop is expected to contribute to energy and petroleum products demand growth in these countries.

0%

20%

40%

60%

80%

0

50

100

150

200

(mm bbl)The Philippines

Import Other products (PH)

Fuel oil (PH) Import ratio (RHS)

0%

20%

40%

60%

80%

0

50

100

150

200

(mm bbl)Malaysia

Import Other products (MY)

Fuel oil (MY) Import ratio (RHS)

-5.0% -4.4%

3.9%5.9% 6.0%

8.5%7.0%

1.4%1.1%

-2.0%

7.3%

1.1%2.8%

-5.7%

2000 2011 2012 2013 2014 2015 2016 2017 2018

The Philippines Malaysia

168

Figure 3: Real GDP Growth (2017 to 2020E)

Source: International Monetary Fund Philippine Oil Market Based on data from the Philippine DOE, the country’s crude oil imports reached 85.75 MMbbl in 2018, an increase of 10.4% from 77.64 MMbbl in 2017. Historically, the majority of crude oil imports to the Philippines has been from the Middle East of which, in 2018, 33.7% (28.88 MMbbl) was sourced from Saudi Arabia, the top supplier of crude oil for the country, followed by Kuwait, UAE, Qatar and Oman with a 26.3%, 20.7%, 4.9% and 1.3% share respectively. On the other hand, 3.8 MMbbl of crude oil was imported from ASEAN and from local production equivalent to 0.1% of the total crude mix. The remaining 9.7% was sourced from Russia, Nigeria, Oman, Taiwan and South Korea. The current maximum working crude distillation capacity in the Philippines is 285.2 thousand barrels per stream day, based on data from the DOE. Due to the shortfall in domestic supply, the Philippines is an importer of finished products. Product imports in 2018 totalled 97.57 MMbbl, slightly above 97.42 MMbbl in 2017. Imports of gasoline, LPG, kerosene/avturbo increased by 10.7%, 9.4% and 3.8%, respectively. However, imports of diesel oil and fuel oil decreased by 3.3% and 24.2%, respectively. In 2018, total demand of petroleum products grew by 1.4% to 168.81MMbbl from 166.54 MMbbl in 2017. The chart below shows the demand mix for 2018.

Figure 4: Philippine Demand Breakdown by Product (2018)

Source: Philippine Department of Energy

6.7% 6.5% 6.6% 6.9%

5.9%

4.7% 4.6% 4.8%

2017A 2018A 2019E 2020E

The Philippines Malaysia

Diesel, 41.8%

Fuel Oil, 5.5%LPG, 10.4%

Others, 5.9%

Gasoline, 24.0%

Kerosene/Avturbo, 10.7%

169

Petroleum product exports from the Philippines have not been historically significant. For 2018, exports increased by 16.7% from 14.6 MMbbl in 2017 to 17.0 MMbbl. The largest components of the export mix for 2018 were condensate (23.2%), gasoline (11.2%), propylene (10.8%), naphtha (9.9%) and mixed xylene (9.7%). Oil refiners accounted for 60.4% of the total export mix while the remaining 39.6% was accounted to export of other players, according to the DOE. The Company has historically maintained a leading market share in the Philippine oil industry, with an overall market share of 28.5% as of 2018 in terms of sales volume sold by oil players. The chart below provides market share data for the Philippine oil industry for the periods indicated.

Figure 5: Philippine Petroleum Product Sales Market Share of Oil Players (2005 – 2018)

Source: Philippine Department of Energy (Others – includes imports of end-users) Malaysia Oil Market Malaysia is one of the largest producers of oil and gas in Southeast Asia. According to the 2018 BP Statistical Review of World Energy, Malaysia had proven oil reserves of 3.6 billion barrels and proven gas reserves of 2.7 trillion cubic meters as of end 2017. The country’s natural gas production grew by 4.1%, to 78.4 billion cubic metres in 2017. The majority of Malaysia’s crude oil comes from offshore fields, predominantly in the Malaya basin. Malaysia’s benchmark crude oil is the Tapis Blend, which is categorized as light and sweet. The oil, gas and energy sectors are significant contributors to Malaysia’s national GDP. Petronas is Malaysia’s integrated national oil and gas company and is the exclusive holder of ownership rights to all oil and gas exploration and production projects. The company is also responsible for all licensing procedures in Malaysia. According to the Malaysia Energy Information Hub, the final consumption of petroleum products in Malaysia grew by 5.7% to 30,349 thousand tons of oil equivalent (“ktoe”) in 2016. Motor petrol accounted for the largest consumption at 44.2%, followed by diesel at 30.5%, LPG at 11.5% and ATF & AV gas at 9.9%. In terms of a regional breakdown, Peninsular Malaysia accounted for 87% of petroleum product sales, with Sabah and Sarawak accounting for 6% and 7% in 2016, respectively, according to the National Energy Balance by the Suruhanjaya Tenaga (Energy Commission of Malaysia).

0%

20%

40%

60%

80%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Petron Shell Chevron Other Oil Players

170

Figure 6: Breakdown of Consumption of Petroleum Products in Malaysia (2016)

Source: Malaysia Energy Information Hub The Malaysian oil industry is dominated by Shell and Petronas, followed by the Company. In the retail segment, the Company had a retail market share of 20.9% for the year 2018 pursuant to Company estimates based on its internal assumptions and calculations and industry data from The Concilium Group Sdn Bhd, a market research consultant appointed by Malaysian retail market participants to compile industry data. The following table shows the historical retail market share for the Company’s Malaysian operations, which the Company acquired in March 2012.

Figure 7: Petron Malaysia / ExxonMobil Malaysia Historical Retail Market Share (2011 – 2018)

Source: Company estimates based on Company information and data from Fahrenheit Research and The Concilium Group Sdn Bhd Over the last two years, Malaysia has been a net importer of gasoline, with imports mainly from Singapore. It has also been a net importer of LPG and ATF and AV gas. Conversely, Malaysia has been a net exporter of diesel, fuel oil and jet fuel/kerosene. Exports have predominantly been to countries in Asia, particularly India, Japan, Singapore, South Korea and Thailand.

Motor Petrol44.2%

ATF & AV Gas9.9%

Diesel30.5%

LPG11.5%

Others3.8%

16.8% 16.6% 16.2% 16.4% 17.0% 17.8%19.7%

21.1%

2011 2012 2013 2014 2015 2016 2017 2018

171

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS

Overview Petron Corporation is the largest oil refining and marketing company in the Philippines and is a leading player in the Malaysian market. The Company has a combined refining capacity of 268,000 barrels per day (“bpd”). The Company refines crude oil and markets and distributes refined petroleum products in the Philippines and Malaysia. Petron operates the Philippines’ largest and most modern refinery in Bataan, the Limay Refinery, which supplies approximately 30% of the country’s total fuel requirements and has a production capacity of 180,000 bpd. The Company had an overall market share of 28.5% of the Philippine oil market for the year ended December 31, 2018 in terms of sales volume based on Company estimates using its internal assumptions and calculations and industry data from the DOE. The Limay Refinery processes crude oil into a range of petroleum products, including gasoline, diesel, LPG, jet fuel, kerosene, naphtha, and petrochemical feedstock such as benzene, toluene, mixed xylene and propylene. The completion of RMP-2, a US$2 billion project for the Limay Refinery, enabled the Company to produce more valuable White Products, increase the production of petrochemicals, and made the Company the first oil company in the Philippines capable of producing Euro 4-standard fuels. In 2017, it launched the country’s cleanest and most advanced gasoline that meets Euro 6 standards, the most stringent fuel technology and emission benchmark in the world today. From the Limay Refinery, the Company moves its products, mainly by sea, to 32 terminals and airport installations situated throughout the Philippines, representing the most extensive distribution network for petroleum products in the Philippines. The network comprises 12 terminals in Luzon, eight in the Visayas and eight in Mindanao, as well as two airport installations in Luzon and two in Mindanao. Through this nationwide network, the Company supplies its various petroleum products such as gasoline, diesel, and LPG to its customers. The Company also supplies jet fuel to international and domestic carriers at key airports in the Philippines. Through its network of about 2,400 retail service stations in the Philippines as of December 31, 2018, the Company sells gasoline, diesel, and kerosene to motorists and to the public transport sector. The Company sells its LPG brands “Gasul” and “Fiesta Gas” to households and other consumers through its extensive dealership network. The Company manufactures lubricants and greases through its blending plant in Pandacan in the Philippines, and these products are sold through the Company’s service stations and sales centers. The Company owns and operates a fuel additive blending plant in the Subic Bay Freeport Zone in the Philippines, which has a tolling agreement with Innospec, Limited (“Innospec”), a global fuel additives supplier. Regional customers of Innospec and the Company’s own requirements are served from the output of the Subic plant. The Company diversified into petrochemicals, adding a mixed xylene recovery unit to the Limay Refinery in 2000 and a propylene recovery unit in 2008. Its benzene-toluene extraction unit became operational in May 2009. On July 1, 2014, the Company acquired and took over from Philippine Polypropylene Inc. (“PPI”), an indirect subsidiary of the Company, the operations of the polypropylene plant in order to enhance the overall efficiency of its petrochemical operations. The polypropylene plant is located in Mariveles, Bataan and is owned by Robinson International Holdings Limited (“RIHL”), an indirect subsidiary of the Company, which has the capacity to produce 160,000 metric tons of polypropylene resin annually.

172

The Company entered the Malaysian market in March 2012 through the purchase of ExxonMobil’s downstream oil business in Malaysia. With this acquisition, the Company extended its portfolio of oil refining and marketing businesses outside the Philippines. The Company owns and operates the Port Dickson Refinery, which has a crude oil distillation capacity of 88,000 bpd, and produces a range of petroleum products, including LPG, naphtha, gasoline, jet fuel, diesel and low-sulfur waxy residue (“LSWR”). As of December 31, 2018, the Company had 10 product terminals and a network of over 640 retail service stations in Malaysia. For the year ended December 31, 2018, the Company ranked third in the Malaysian retail market with a 20.9% share of the Malaysian retail market based on Company estimates using its internal assumptions and calculations and industry data from The Concilium Group Sdn Bhd, a market research consultant appointed by Malaysian retail market participants to compile industry data.

The Company’s products are primarily sold to customers in the Philippines and Malaysia. The Company also exports various petroleum products and petrochemical feedstock, including LSWR, naphtha, mixed xylene, benzene, toluene and propylene, to other customers in the Asia-Pacific region. The Company’s revenues from these export sales amounted to ₱37.4 billion, or 9% of total sales in 2017, and ₱51.5 billion, or 9% of total sales in 2018.

In 2016, 2017 and 2018, the Company’s sales were ₱343.8 billion, ₱434.6 billion and ₱557.4 billion, respectively, and net income was ₱10.8 billion, ₱14.1 billion and ₱7.1 billion, respectively. Factors affecting results of operations The Company’s financial condition and results of operations are affected by a variety of factors. Set out below is a discussion of the most significant factors that have affected the Company’s results in the past and that the Company expects to affect its financial results in the future. Factors other than those set out below could also have a significant impact on the Company’s financial condition and results of operations in the future. Crude Oil Prices Crude oil generally accounts for a large portion of the Company’s total cost of goods sold. In 2018, crude oil accounted for approximately 52% of the Company’s total cost of goods sold. Because of the commodity nature of oil products, competition in the Philippine and international markets for refined petroleum products is based primarily on price, as adjusted to account for differences in product specifications and transportation and distribution costs. Therefore, the prices of the Company’s principal products are highly dependent on international crude oil prices. The Company is exposed to fluctuations in the price of crude oil, which is subject to volatile price movement caused by a number of factors beyond the Company’s control, including changes in global supply and demand for crude oil, international economic conditions, global conflicts or acts of terrorism, weather conditions and domestic and foreign governmental regulation. The Company holds crude oil and finished petroleum products inventory of approximately two months in the Philippines and approximately three weeks in Malaysia. The prices at which the Company sells its products generally rise and fall in line with international crude oil prices. Accordingly, since the Company accounts for its inventory using the first-in-first-out method, a sharp drop in crude oil prices would adversely affect the Company, as it would require the Company to sell its refined petroleum products produced with higher-priced crude oil at lower prices. See “Risk Factors — Risks Relating to the Company’s Business and Operations — Volatility of the price of crude oil and petroleum products may have a material adverse effect on the Company’s business, results of operations and financial condition.” Furthermore, a sharp rise in oil prices would increase the Company’s requirements for short-term financing for working capital and may result in higher financing costs for the Company. The Company enters into commodity swaps and options to manage the price risks of crude oil and finished petroleum products. In 2013, the Company also started implementing measures to shorten the pricing

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cycle gap between its crude oil purchases and finished petroleum product sales. However, volatile crude oil prices could still adversely affect the Company, as the Company may not be able to pass on the effects of crude oil price changes to consumers in a timely manner. Results of Operations 2018 vs. 2017 The Company posted a 50% drop in its consolidated net income to P= 7.07 billion following a sustained decline in global crude prices that resulted in significant inventory holding losses during the last two months of 2018. Consolidated Sales volume stood at 108.50 million barrels (MMB), slightly better than 107.76 MMB in 2017 primarily due to the growth in Malaysian operations, with its presence in the retail segment continued to gain momentum as it expands its service station network amid aggressive marketing initiatives. In the Philippines, incremental volume was contributed by gasoline, polypropylene, kerojet and LPG.

Net sales rose by 28% to P= 557.39 billion from P= 434.62 billion in previous year largely due to the hike in selling prices at the back of higher regional prices of finished petroleum products coupled by the additional excise tax with the implementation of the first tranche of TRAIN law and the P= 2.27 average depreciation of the peso against the US dollar.

Cost of Goods Sold (CGS) went up by 33% or P= 130.86 billion to P= 522.82 billion brought about by the escalation in price of benchmark Dubai crude oil which averaged US$69.42/barrel versus US$53.17/barrel average in 2017 as well as the additional excise tax due to TRAIN law. The decline in Gross Margin from P= 42.66 billion to P= 34.56 billion was primarily due to the unanticipated US$22/barrel drop of Dubai crude prices which peaked at US$79.39/barrel in October before sharply falling to US$57.32/barrel in December, thus, resulting in significant inventory holding losses. The Company was also hit by the reduced product cracks prevailing in the region as well as higher crude premium.

Selling and Administrative Expenses (OPEX) grew to P= 15.64 billion, 4% or P= 624 million more than previous year traced to higher terminalling fees as well as increases in non-cash items such as depreciation and provision for bad debts partly tempered by lower advertising expenses.

Net Financing Costs and Other Charges slipped by 4%, from P= 8.80 billion in previous year to P= 8.47 billion in 2018. The favorable variance was due to the marked-to-market gain (MTM) on outstanding commodity hedges as against loss recognized in 2017 and absence of debt issue costs written-off last year related to the pre-termination of US dollar-denominated loans. However, these were partly offset by higher interest expense and bank charges as well as the absence of gains on asset disposals.

Income tax expense dipped by 29% to P 3.39 billion from previous year’s P 4.76 billion on account of lower pre-tax income, tempered by the tax on dividends received from foreign subsidiaries.

2017 vs 2016 2017 marked another milestone for Petron Corporation as it posted record high consolidated net income of P= 14.09 billion, 30% or P= 3.27 billion higher than previous year’s P= 10.82 billion earnings. The company’s deliberate thrust to sell higher margin fuels and petrochemicals sourced from its own production and focus to more profitable market segments drove its growth complemented by the strong performance of its Malaysian (PM) operations. Consolidated Sales volume grew by 2% to 107.76 million barrels (MMB) from 105.70 MMB in 2016 mainly driven by its PM operations. The Company’s operations both in the Philippines and Malaysia continued to grow as its network of service stations increased during the year, further strengthening its presence in the Retail segment. Meanwhile, greater participation in the aviation sector was offset by reduced

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involvement in the less profitable market segments. On a per product basis, with the exception of Diesel and LPG, sales volume of all products went up led by gasoline and kero/jet.

Net sales surged by 26% or P= 90.78 billion to P= 434.62 billion due to the escalation in selling prices driven by the strengthening regional market prices of finished petroleum products. This was further boosted by the P= 2.90 average depreciation of the peso against the US dollar.

Cost of Goods Sold (CGS) rose by 28% to P= 391.97 billion from previous year’s P= 306.13 billion prompted by the increase in cost per liter as Dubai crude price averaged US$53.17/barrel compared to US$41.27/barrel in 2016. The effect of higher refining cracks coupled by the savings from power cost contributed to the improvement in margin, partly negated by the decline in net inventory gain realized in 2017.

Selling and Administrative Expenses (OPEX) of P= 15.02 billion went up by 8% or P= 1.10 billion owing to the increase in service stations’ related expenses, rental of additional storage tanks, higher maintenance and repairs as well as IT–related expenses.

Net Financing Costs and Other Charges slid to P= 8.80 billion from P= 9.42 billion in 2016 largely due to non-recurring gains from the compulsory divestment of service stations that were acquired by the Malaysian government, net forex/hedging gain vs. loss in 2016, decrease in bank charges and lower marked-to-market (MTM) losses on outstanding commodity hedges. Favorable variances were partly offset by higher interest expense and the full amortization of debt issue costs related to the pre-terminated US dollar-denominated loans in June 2017.

Income tax expense climbed by 34% to P 4.75 billion from previous year’s P 3.56 billion on account of higher pre-tax income.

2016 vs 2015 Petron Corporation sustained strong performance in 2016 with a consolidated net income of P= 10.82 billion, 73% or P= 4.55 billion higher than previous year’s P= 6.27 billion earnings. The company’s improved results was driven by the growth in sales volume, operational efficiency coupled with increased production run resulting in better yields, as well as effective risk management. 2016 also marked the start of RMP2’s commercial operations which resulted in the production of higher valued products and the benefit of processing cheaper crudes. However, thinner refining cracks partly toned down the company’s margin. Consolidated Sales volume increased by 6% to a record high of 105.70 million barrels (MMB) from 99.1 MMB in 2015 with the 7% upsurge from both the Petron Philippine (PP) and Malaysian (PM) operations. The growth was attributable from aggressive service station network expansion, various marketing initiatives and greater participation in key industries such as power generation and aviation. Both markets saw solid growths across key segments such as Reseller, Industrial, LPG and Lubricants. Except for Fuel oil and Naphtha, all products registered volume improvements lead by gasoline and diesel sales.

Net sales declined by 5% or P= 16.34 billion to P= 343.84 billion due to lower average selling prices. The reference market prices of finished products in the region weakened along with the relatively lower crude oil prices in 2016. The benchmark Dubai crude averaged US$41.27/barrel in 2016, 19% lower than full year 2015 average of US$50.91/barrel. Meanwhile, the drop in prices was tempered by the P= 2.00 average depreciation of the peso vis a vis the US dollar. The effect of lower selling prices was partially offset by the additional revenue from higher sales volume.

Cost of Goods Sold (CGS) dipped more by 7% to P= 306.13 billion from previous year’s P= 328.73 billion prompted by lower cost of crude and imported finished products partially countered by the cost of incremental volume sold. The effect of lower product cracks in 2016 was negated by the net inventory gains realized during 2016, a turnaround from the net inventory loss reported in the previous year.

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Selling and Administrative Expenses (OPEX) of P= 13.92 billion increased by 5% or P= 608 million traced to higher service stations’ related expenses, warehousing and terminalling fees and accrual of retirement benefits.

Net Financing Costs and Other Charges went up to P= 9.42 billion from P= 8.21 billion in 2015 largely due to the absence of capitalized interest from RMP2 project financing. The increase in interest expense was tempered by lower marked-to-market (MTM) losses on outstanding commodity hedge positions, reduced swap costs on foreign currency hedges and lower bank charges.

Despite the increase in income before income tax, Income tax expense dropped by 3% to P 3.56 billion from previous year’s P 3.66 billion upon the availment of the income tax holiday incentive of RMP2.

Financial Position

2018 vs 2017 Petron’s consolidated assets as of December 31, 2018 grew 6% (P= 20.12 billion) to P= 358.15 billion, from end-December 2017 level of P= 338.03 billion mainly contributed by higher working capital. Financial assets at fair value went up from P= 336 million to P= 1.13 billion on account of higher MTM gains on outstanding commodity hedges. Investment in debt instruments (current and non-current) amounted to P= 378 million, 29% lower than the P= 531 million balance as of end 2017 with the maturity of investment in corporate bonds. Trade and other receivables - net increased by 11% from P= 38.16 billion to P= 42.50 billion reflecting the increase in fuel prices from a year ago and delayed collection of receivables from the Malaysian government. Inventories - net surged to P= 63.87 billion, 13% or P= 7.27 billion more than the P= 56.60 billion at end 2017 due to higher volume and prices of finished products. Other current assets escalated from P= 33.18 billion to P= 37.08 billion on account of higher input VAT and prepaid taxes. Property, plant and equipment – net dipped by 8% or P= 13.71 billion to P= 163.98 billion. Capital expenditures for the refinery, depots and service stations, net of depreciation and disposals during the year was more than offset with the reclassification of leased-out assets that primarily comprised the P= 16.54 billion Investment Property. Deferred tax assets - net increased from P= 207 million to P= 257 million owing to the additional Net Operating Loss Carry-Over (NOLCO) of a subsidiary in Malaysia. Other noncurrent assets - net climbed to P= 6.49 billion, 9% or P= 526 million above the December 2017 level of P= 5.96 billion due to higher prepaid rent and the fair value of long-term derivative instruments. Short-term loans surged to P= 83.00 billion from P= 69.58 billion a year ago as additional funds were sourced to support the increase in working capital requirements given higher cost of inventories and receivables. Liabilities for crude oil and petroleum products dropped by 30% from P= 36.92 billion to P= 25.99 billion essentially due to lower volume of crude purchases outstanding as at year-end. Trade and other payables increased to P= 28.47 billion from P= 11.60 billion largely liabilities to various contractors and suppliers.

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Derivative liabilities slid to P= 614 million from P= 1.79 billion level in December 2017 owing to lower MTM loss on outstanding commodity hedges. Income tax payable fell to P= 146 million from P= 808 million due mainly to Petron Malaysia’s lower taxable income in 2018. Long-term debt (including current portion) went up from P= 101.71 billion to P= 118.00 billion with the Parent Company’s issuance of P= 20.00 billion retail bonds in October 2018. Retirement benefits liability declined to P= 2.43 billion from P= 4.89 billion primarily on account of the partial conversion of the Company’s advances to the Retirement plan into contribution as well as the actual contribution made during the year. Deferred tax liabilities amounted to P= 8.45 billion, 14% higher than the P= 7.40 billion level a year ago largely due to the temporary differences arising from the accelerated method of depreciation used for tax reporting purposes. Asset retirement obligation grew by 34% to P= 3.59 billion from P= 2.68 billion attributed to the change in discount rate and lease term of existing leases. Other noncurrent liabilities increased by 23% to P= 1.27 billion mainly due to the premium costs of derivative instruments and higher cash bond from customers. Capital Securities decreased by 19% to P= 24.88 billion traced to the redemption of the US$750 million Undated Subordinated Capital Securities (USCS) partly offset by the issuance of the US$500 million Senior Perpetual Capital Securities (SPCS). The negative balance of Equity reserves increased to P= 14.03 billion from P= 5.17 billion due to currency translation loss on the redemption of USCS, partly tempered by the currency translation gains on investments in foreign subsidiaries as a result of the strengthening of the US dollar versus the Philippine peso. Non-controlling interests rose by 12% to P= 6.71 billion from the P= 5.96 billion as of end of 2017 corresponding to its proportionate share in net income for the year, net of cash dividends declared to minority shareholders and currency translation adjustment.

2017 vs 2016 The consolidated assets of Petron amounted to P= 338.03 billion by the end of 2017, 6% or P= 19.14 billion higher than end-December 2016 balance of P= 318.89 billion mainly due to the increases in inventories and trade receivables. Financial assets at fair value through profit or loss climbed to P= 336 million from P= 221 million on account of higher MTM gains on outstanding commodity hedges. Trade and other receivables – net surged to P= 38.16 billion, 21% or P= 6.61 billion higher than end-2016 level of P= 31.55 billion due to the increase in fuel prices. Inventories – net substantially increased by 28% or P= 12.46 billion to P= 56.60 billion from P= 44.15 billion a year ago brought about by the escalation in cost of crude and finished products due to the strengthening of prices towards end 2017. Available-for-sale financial assets (current and non-current) went up to P= 531 million from P= 479 million due mainly to Insurance subsidiaries’ additional investment in government securities.

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On October 30, 2017, the Parent Company consummated the sale of its shares in Manila North Harbour Port Inc (MNHPI) presented under Investment in shares of stock of an associate as of end 2016. The remaining unsold shares amounting to P= 9 million was presented as Asset held for sale (included in the Other current asset) as of December 31, 2017. Investment property – net was reduced to P= 75 million from end-December 2016 level of P= 91 million with the disposal of a parcel of land by a real estate subsidiary. Deferred tax assets – net which mainly pertains to PM, increased by 7% or P= 13 million to P= 207 million mainly due to the appreciation of the Ringgit versus the US dollar. Goodwill – net accumulated to P= 8.28 billion from P= 7.48 billion resulting from currency translation gain of PM’s goodwill with the appreciation of the Ringgit versus the US dollar. Other noncurrent assets – net fell from P= 6.42 billion to P= 5.96 billion mainly due to the amortization of catalysts and deferred input vat. Short-term loans declined to P= 69.58 billion from P= 90.37 billion as the Parent Company’s payment exceeded the availment coupled by PM’s full settlement of its short-term loans. Liabilities for crude and petroleum products grew by 23% (P= 6.95 billion) to P= 36.92 billion driven by higher prices of outstanding crude and product purchases. Trade and other payables dropped by 28% from P= 16.16 billion to P= 11.60 billion mainly due to the settlement of various payables to a related party, contractors and suppliers. Derivative liabilities grew more than double from P= 778 million to P= 1.79 billion attributed to the increase in MTM losses on outstanding commodity hedges. Long-term debt (including current portion) increased to P= 101.71 billion from end-2016’s balance of P= 79.85 billion owing to the Parent Company’s availment of additional loan facilities partly offset by the full settlement of PM’s loans. Income tax payable increased from P= 626 million to P= 808 million owing to PM’s higher taxable income. Retirement benefits liability went up by 47% or P= 1.57 billion to P= 4.89 billion due to the re-measurement losses on plan assets. Deferred tax liabilities - net rose by 29% from P= 5.73 billion to P= 7.40 billion brought about by the foreign exchange losses realized upon the pre-termination of certain dollar loans coupled by the increase in temporary differences arising from the accelerated depreciation method on fixed assets for tax purpose. Asset retirement obligation increased to P= 2.68 billion from P= 2.32 billion on account of the recorded accretion expense during the period and the recognition of additional provision for new facilities. Other noncurrent liabilities amounted to P= 1.04 billion, up by 8% from end-2016 level due to higher LPG cylinder deposit. Retained earnings (attributable to the Parent Company) grew by 17% or P= 7.13 billion to P= 49.14 billion emanating from the P= 12.74 billion share in net profit recorded during the year, partly reduced by the cash dividends declared and distributions paid of P= 5.61 billion. The negative balance of Equity reserves decreased by 28% or P= 2.03 billion to P= 5.17 billion due to the currency translation gains on investments in foreign operations brought about by the strengthening of the US dollar versus the Philippine peso.

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Non-controlling interests increased by 38% to P= 5.96 billion from the P= 4.33 billion as of December 31, 2016 due to the share in net income and currency translation adjustment, reduced by cash dividends paid to minority shareholders.

2016 vs 2015 As of end 2016, Petron’s consolidated assets grew by 8% or P= 24.63 billion to P= 318.89 billion from previous year’s P= 294.27 billion due to additional fixed assets acquired during the year and higher inventories. Cash and cash equivalents was reduced by 8% (P= 1.55 billion) to close at P= 17.33 billion as funds generated from operations were used to pay both short and long-term loans, interest, dividends and distributions and capital investments. Financial assets at fair value through profit or loss dropped from P= 509 million to P= 221 million, or by 57% attributed to lower marked-to-market (MTM) gains on outstanding commodity hedges. The value of Inventories – net, grew to P= 44.15 billion from end-2015’s P= 30.82 billion due to higher volume and cost of crude oil and finished products by end 2016. Other current assets decreased by 6% or P= 2.03 billion to P= 32.50 billion, with the utilization of the Parent Company’s value-added tax credit certificates in payment of taxes. Available-for-sale financial assets (current and non-current) of P= 479 million ended lower by 23% than previous year’s P= 621 million traced mainly to the maturity of investment in corporate bonds held by an insurance subsidiary. Property, plant and equipment – net stood at P= 176.60 billion, 9% or P= 15.00 billion more than the P= 161.60 billion level as of end-2015 brought about by the acquisition of the 140-megawatt solid fuel-fired power plant. The sale of a parcel of land by a real estate subsidiary resulted in the decline in Investment property - net from P= 112 million to P= 91 million as of end-2016. Deferred tax assets decreased by 8% or P= 17 million to P= 194 million essentially on account of Petron Malaysia’s (PM) lower deductible temporary differences. Other noncurrent assets - net fell to P= 6.42 billion from P= 6.73 billion in 2015 primarily due to the collection of advances to Petron Corporation Employee Retirement Plan and amortization of catalysts, prepayments and intangibles, tempered by the recognition of the power plant’s deferred input tax. Short-term loans were lower by 9% or P= 9.11 billion from P= 99.48 billion to P= 90.37 billion with the net payment of loans during the year. Liabilities for crude oil and petroleum products increased to P= 29.97 billion from P= 16.27 billion, or by 84% on account of higher volume and cost of crude oil and finished products as of end 2016. Trade and other payables significantly increased by P= 6.81 billion to P= 16.16 billion due to outstanding payables to contractors and suppliers. Derivative liabilities moved up to P= 778 million or by P= 175 million chiefly due to the increase in MTM commodity hedging losses partly offset by the decline in MTM losses on currency hedges. Income tax payable ballooned from P= 183 million to P= 626 million due to PM’s higher taxes payable on reported taxable earnings in 2016.

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Long-term debt - net (including current portion) rose by 10% to P= 79.85 billion with the issuance of the P= 20 billion retail bonds in October 2016 partly offset by the repayment of existing loans. Retirement benefits liability dipped by 40% (P= 2.19 billion) to P= 3.32 billion mainly caused by the recognition of re-measurement gains on plan assets. Deferred tax liabilities surged by 23% from P= 4.64 billion to P= 5.73 billion prompted by the timing differences generated by the accelerated depreciation of the Parent company’s RMP2 and the re-measurement gains on retirement plan assets as well as utilization of the minimum corporate income tax paid in previous years. Asset retirement obligation amounted to P= 2.32 billion and registered a 28% or P= 515 million hike from end-December 2015 level on account of the additional provision for the refinery facilities. Other noncurrent liabilities of P= 959 million climbed by 6% driven by higher LPG cylinder deposits. The negative balance of Equity reserves declined from P= 8.77 billion to P= 7.20 billion triggered by the re-measurement gains on plan assets. Non-controlling interests (NCI) increased from P= 471 million to P= 4.33 billion essentially due to the reversal of the remaining NCI in foreign subsidiaries to the Parent Company.

Cash Flows

2018 vs 2017 Cash generated from the Company’s internal operations of P= 32.25 billion were partially used to finance the increase in working capital requirements and settlement of interests and taxes, netting to P= 5.05 billion. Excess internally generated funds plus cash sourced from financing activities of P= 5.95 billion were used to fund capital expenditure related to network expansion as well as various refinery and terminal projects amounting to P= 11.14 billion. Cash position as of end 2018 stood at P= 17.41 billion.

In Million Pesos

December 31, 2018

December 31, 2017

Change

Operating inflows 5,047 15,753 (10,706)

Investing outflows (11,141) (11,211) 70

Financing inflows (outflows) 5,949 (4,715) 10,664

2017 vs 2016 In 2017, the Company generated P= 15.75 billion from its operating activities net of the increase in working capital requirements and payment of interest and taxes. Meantime, excess cash from operations together with the proceeds from sale of MNHPI shares and assets in Malaysia were used to finance various capital projects in the Refinery, terminals and service stations. Likewise, financing activities used up P= 4.72 billion mostly to pay cash dividends and distributions.

2016 vs 2015 The Company’s operation internally generated cash of P= 37.06 billion was partly used to pay for interests and taxes, netting an inflow of P= 29.27 billion. The excess cash from operations were used to fund the acquisition of additional property, plant and equipment, and for settling short-term and long-term loans, dividends and distributions. Net decrease in cash and cash equivalents during 2016 amounted to P= 1.55 billion.

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Discussion of the Company’s key performance indicators:

Ratio

December 31, 2018

December 31, 2017

December 31, 2016

Current Ratio 1.0 1.2 0.8

Debt to Equity Ratio 3.2 2.4 2.6

Return on Equity (%) 7.6 15.0 12.6

Interest Rate Coverage Ratio 2.1 3.2 2.9

Assets to Equity Ratio 4.2 3.4 3.6

Current Ratio - Total current assets divided by total current liabilities. This ratio is a rough indication of a company's ability to service its current obligations. Generally, higher current ratio indicates greater ability of the company to pay currently maturing obligations. Debt to Equity Ratio - Total liabilities divided by total stockholders’ equity (including non-controlling interest). This ratio expresses the relationship between capital contributed by creditors and that contributed by owners. It expresses the degree of protection provided by the owners for the creditors. The higher the ratio, the greater the risk being assumed by creditors. A lower ratio generally indicates greater long-term financial safety. Return on Equity - Net income divided by average total stockholders’ equity. This ratio reveals how much profit a company earned in comparison to the total amount of shareholder equity fund in the statements of financial position. A business that has a high return on equity is more likely capable of generating cash internally. For the most part, the higher a company’s return on equity compared to its industry, the better.

Interest Rate Coverage Ratio – Earnings before interests and taxes divided by interest expense and other financing charges. This ratio is used to assess the company’s financial stability by exam ining whether it is profitable enough to pay off its interest expenses. A ratio greater than 1 indicates that the company has more than enough interest coverage to pay off its interest expense.

Assets to Equity Ratio – Total assets divided by total equity (including non-controlling interest).

This ratio is used as a measure of financial leverage and long-term solvency. The function of the ratio is to determine the value of the total assets of the company less any portion of the assets that are owned by the shareholders of the corporation.

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INTEREST OF NAMED EXPERTS

Legal Matters All legal issues relating to the issuance of the Preferred Shares which are subject of this Offer shall be passed upon by SyCip Salazar Hernandez & Gatmaitan (“SyCip Law”) for the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, and Picazo Buyco Tan Fider & Santos (“Picazo Law”) for the Company. SyCip Law and Picazo Law have no direct or indirect interest in Petron. However, SyCip Law and Picazo Law may, from time to time be engaged by the Company to advise on the transactions of the Company and perform legal services on the same basis that SyCip Law and Picazo Law provide such services to its other clients. Independent Auditors The consolidated financial statements of Petron as at December 31, 2016, 2017 and 2018 and for the years ended December 31, 2016, 2017 and 2018 have been audited by R.G. Manabat & Co., a member firm of KPMG, independent auditors, in accordance with Philippine Standards on Auditing as set forth in their report thereon appearing elsewhere in this Prospectus. The Company’s Audit and Risk Management Committee of the Board reviews and approves the scope of audit work of the independent auditors and the amount of audit fees for a given year. The financial statements will then be presented for approval by the stockholders in the annual meeting. As regards to services rendered by the external auditor other than the audit of financial statements, the scope of and amount for the same are subject to review and approval by the Audit and Risk Management Committee. The Company’s audit fees for each of the last two fiscal years for professional services rendered by the external auditor were ₱6.8 million, ₱6.8 million and ₱7.0 million for 2016, 2017 and 2018, respectively. Said fees include compensation for audit services and other related services such as review and agreed-upon procedures. There were no fees paid for accounting, compliance, advisory, planning and any other form of tax. There were no other fees paid to the independent auditors other than for the above-described services. Changes in and Disagreements with Accountants The Company has not had any changes in or disagreements with its independent accountants/auditors on any matter relating to financial or accounting disclosures. No interest in the Company There is no arrangement that any of the foregoing experts shall receive a direct or indirect interest in the Company or was a promoter, co-manager, voting trustee, director, officer, or employee of the Company.

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TAXATION

The following is a discussion of the material Philippine tax consequences of the acquisition, ownership, and disposition of the Preferred Shares. The statements made regarding taxation in the Philippines are based on the laws in force at the date of this Prospectus and are subject to any changes in law occurring after such date. The following is a discussion of the material Philippine tax consequences of the acquisition, ownership, and disposition of the Shares. It does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to invest in the Preferred Shares and does not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as dealers in securities) may be subject to special rates or tax incentives under special laws. Prospective purchasers of the Preferred Shares are advised to consult their own tax advisers concerning the tax consequences of their investment in the Preferred Shares. As used in this section, the term “resident alien” refers to an individual whose residence is within the Philippines and who is not a citizen thereof; a “non-resident alien” is an individual whose residence is not within the Philippines and who is not a citizen of the Philippines; a non-resident alien who is actually within the Philippines for an aggregate period of more than 180 days during any calendar year is considered a “non-resident alien engaged in trade or business in the Philippines;” otherwise, such non-resident alien who is actually within the Philippines for an aggregate period of 180 days or less during any calendar year is considered a “non-resident alien not engaged in trade or business in the Philippines”. A “resident foreign corporation” is a foreign corporation engaged in trade or business within the Philippines; and a “non-resident foreign corporation” is a non-Philippine corporation not engaged in trade or business within the Philippines. The term “non-resident holder” means a holder of the Preferred Shares:

• who is an individual who is neither a citizen nor a resident of the Philippines, or an entity which is a non-resident foreign corporation; and

• should an income tax treaty be applicable, whose ownership of the Preferred Shares is not effectively connected with a fixed base or a permanent establishment in the Philippines.

Philippine Taxation On January 1, 2018, Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion (“TRAIN”) took effect. The TRAIN amended various provisions of the Tax Code, including those on ordinary income tax of individuals, capital gains tax on the sale and disposition of shares of stock, estate tax, donor’s tax, and documentary stamp tax. Sale, Exchange or Disposition of Shares after the Listing Taxes on Transfer of Shares Listed and Traded at the PSE Unless an applicable income tax treaty exempts the sale from income and/or percentage tax (please see discussion below on tax treaties), a sale or other disposition of shares of stock through the facilities of the PSE by a resident or a non-resident holder (other than a dealer in securities) is subject to a percentage tax usually referred to as a stock transaction tax at the rate of six-tenths of one percent (6/10 of 1%) of the gross selling price or gross value in money of the shares of stock sold or otherwise disposed, which shall be paid by the seller or transferor. This tax is required to be collected by and paid to the Government by the selling stockbroker on behalf of his client. The stock transaction tax is classified as a percentage tax in lieu of a capital gains tax. Under certain income tax treaties, the exemptions from capital gains tax may not be applicable to stock transaction tax. In addition, Value-Added Tax (VAT) of 12% is imposed on the commission earned by the PSE-registered broker, and is generally passed on to the client, the seller or transferor. The stock transaction tax will not apply if the shares are sold outside the facilities of the PSE, including during a trading suspension. PSE Memorandum CN-No. 2012-0046 dated August 22, 2012 provides that immediately after December 31, 2012, the Philippine SEC shall impose a trading suspension for a period

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of not more than six (6) months, on shares of a listed company who has not complied with the Rule on Minimum Public Ownership (“MPO”) which requires listed companies to maintain a minimum percentage of listed securities held by the public at 10% of the listed companies issued and outstanding shares at all times. The sale of such listed company’ shares during the trading suspension may be effected only outside the trading system of the PSE and shall therefore be subject to taxes on the sale of shares that are not listed or traded at the stock exchange (i.e., capital gains tax and documentary stamp tax, and may even include donor’s tax). The stock transaction tax will also not apply if the shares sold are issued by a corporation that does not meet the MPO requirement, even if the sale is done through the facilities of the PSE. Revenue Regulations No. 16-2012 (“R.R. 16-12”) provides that the sale, barter, transfer, and/or assignment of shares of listed companies that fail to meet the MPO requirement after December 31, 2012 will be subject to capital gains tax and documentary stamp tax. R.R. 16-12 also requires publicly listed companies to submit public ownership reports to the BIR within 15 days after the end of each quarter. Capital Gains Tax, if the Sale Was Made outside the PSE The net capital gains realized by a citizen, resident alien, non-resident alien, whether or not engaged in trade or business within the Philippines, or a domestic corporation (other than a dealer in securities) during each taxable year from the sale, exchange or disposition of shares of stock outside the facilities of the PSE, are subject to capital gains tax at the rate of 15% of the net capital gains realized during the taxable year. The net capital gains realized by a resident foreign corporation or a non-resident foreign corporation during each taxable year from the sale, exchange or disposition of shares of stock in a domestic corporation outside the facilities of the PSE are subject to the following rates: Not over ₱100,000 …………………………. 5% On any amount in excess of ₱100,000……… 10% If an applicable income tax treaty exempts net gains from such sale from capital gains tax, an application for tax treaty relief has to be filed with the BIR in accordance with BIR regulations, and approved by the BIR, to avail of the exemption. (Please see discussion below on tax treaties.) The transfer of shares shall not be recorded in the books of a company, unless the BIR has issued a Certificate Authorizing Registration (“CAR”). Tax on Dividends Cash and property dividends received from a domestic corporation by individual shareholders who are either citizens or residents of the Philippines are subject to a final withholding tax at the rate of 10%, which shall be withheld by the Company. Cash and property dividends received by non-resident alien individuals engaged in trade or business in the Philippines are subject to a 20% final withholding tax on the gross amount thereof, while cash and property dividends received by non-resident alien individuals not engaged in trade or business in the Philippines are subject to a final withholding tax at 25% of the gross amount, subject, however, to the applicable preferential tax rates under income tax treaties executed between the Philippines and the country of residence or domicile of such non-resident alien individuals. Cash and property dividends received from a domestic corporation by another domestic corporation or by a resident foreign corporation are not subject to income tax while those received by a non-resident foreign corporation are generally subject to income tax at a final withholding tax rate of 30%. The 30% income tax rate for dividends paid to a non-resident foreign corporation may be reduced to a lower rate of 15% if tax sparing applies, which is when (i) the country where the non-resident foreign corporation is domiciled imposes no tax on foreign sourced dividends or (ii) the country of domicile of the non-resident foreign corporation allows at least 15% credit equivalent for taxes deemed to have been paid in the Philippines.

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In order to avail of the 15% tax sparing rate, Revenue Memorandum Circular No. 80-91 (Publishing the Resolution of the Supreme Court dated March 7, 1990 in G.R. No. 76573 entitled "Marubeni Corporation vs. Commissioner of Internal Revenue and Court of Tax Appeals" re: pre-requisites for the availment of 15% preferential tax rate under then Section 24 (b)(1) [now Sec. 25(b)(5)(B)] of the Tax Code, as amended dated August 12, 1991) states that the non-resident foreign holder has to submit the following documents to the payor of the cash dividends: (i) an authenticated certification issued by the foreign tax authority that the dividends received by the non-resident foreign corporation from the domestic corporation were not among the items considered in arriving at the income tax due from the non-resident foreign corporation; (ii) the income tax return of the non-resident foreign corporation for the taxable year when the dividends were received; and (iii) an authenticated document issued by the foreign tax authority showing that the foreign Government allowed a credit on the tax deemed paid in the Philippines or did not impose any tax on the dividends. The income recipient may also file a request for a ruling from the BIR that the 15% income tax rate is applicable to its receipt of the dividends and the request has to comply with Revenue Memorandum Order No. 9-2014 (Requests for Rulings with the Law and Legislative Division dated February 6, 2014) and other relevant BIR issuances. The income recipient should thereafter provide the payor of the cash dividends with proof of its filing of an application for a ruling with the BIR before the deadline for the remittance to the BIR of the withholding tax on the dividends. The abovementioned tax rates are without prejudice to applicable preferential tax rates under income tax treaties in force between the Philippines and the country of domicile of the non-resident holder. (Please see discussion on tax treaties below.) If the regular tax rate is withheld by the Company instead of the reduced rates applicable under an income tax treaty, the non-resident holder of the shares may file a claim for refund from the BIR. However, because the refund process in the Philippines requires the filing of an administrative claim and the submission of supporting information, and may also involve the filing of a judicial appeal, it may be impractical to pursue such a refund. Transfer taxes (e.g. documentary stamp tax, local transfer tax) may be payable if the dividends declared are property dividends, depending on the type of property distributed as dividends. Stock dividends distributed pro rata to any holder of shares of stock are generally not subject to Philippine income tax. However, the sale, exchange or disposition of shares received as stock dividends by the shareholder is subject to stock transaction tax if the transfer is through a local stock exchange; or if the transfer is made outside of the exchange, capital gains tax; and documentary stamp tax. Preferential Rates under the Income Tax Treaties The following table lists some of the countries with which the Philippines has tax treaties and the tax rates currently applicable to non-resident holders who are residents of those countries:

Dividends (%)

Stock transaction tax on sale or disposition effected through the PSE

(%)(9)

Capital gains tax due on disposition of shares outside the

PSE (%)

Canada 25(1) 0.6 May be exempt(13)

China 15(2) Exempt(10) May be exempt(13)

France 15(3) Exempt(11) May be exempt(13)

Germany 15(4) Exempt(12) May be exempt(13)

Japan 15(5) 0.6 May be exempt(13)

Singapore 25(6) 0.6 May be exempt(13)

United Kingdom 25(7) 0.6 Exempt(14)

United States 25(8) 0.6 May be exempt(13)

Notes:

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(1) 15% if the recipient company which is a resident of Canada controls at least 10% of the voting power of the company paying the dividends; 25% in all other cases.

(2) 10% if the beneficial owner is a company which holds directly at least 10% of the capital of the company

paying the dividends; 15% in all other cases. (3) 10% if the recipient company (excluding a partnership) holds directly at least 10% of the voting shares

of the company paying the dividends; 15% in all other cases. (4) 5% if the recipient company (excluding a partnership) holds directly at least 70% of the capital of the

company paying the dividends; 10% if the recipient company (excluding a partnership) holds directly at least 25% of the capital of the company paying the dividends.; 15% in all other cases

(5) 10% if the recipient company holds directly at least 10% of either the voting shares of the company

paying the dividends or of the total shares issued by that company during the period of six months immediately preceding the date of payment of the dividends; 15% in all other cases.

(6) 15% if during the part of the taxable year of the paying company which precedes the date of payment

of dividends and during the whole of its prior taxable year at least 15% of the outstanding shares of the voting shares of the paying company were owned by the recipient company; 25% in all other cases.

(7) 15% if the recipient company is a company which controls directly or indirectly at least 10% of the

voting power of the company paying the dividends; 25% in all other cases. (8) 20% if during the part of the taxable year of the paying company which precedes the date of payment

of dividends and during the whole of its prior taxable year, at least 10% of the outstanding shares of the voting shares of the paying corporation were owned by the recipient corporation; 25% in other cases. Notwithstanding the rates provided under the Convention between the Government of the Republic of the Philippines and the Government of the United States of America with respect to Taxes on Income, corporations which are residents of the United States may avail of the 15% withholding tax rate under the tax-sparing clause of the Philippine Tax Code provided certain conditions are met.

(9) If the stock transaction tax is not expressly included in the tax treaty, the income recipient will be

subject to stock transaction tax at the rate of 0.6% of the gross selling price as provided under Section 127 of the Tax Code as amended by the Section 39 of the TRAIN.

(10) Article 2(1)(b) of the Agreement between the Government of the Republic of the Philippines and the

Government of the People's Republic of China for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income was signed on November 18, 1999.

(11) Article 1 of the Protocol to the Tax Convention between the Government of the Republic of the

Philippines and the Government of the French Republic Signed on January 9, 1976 was signed in Paris, France on June 26, 1995 signed on June 26, 1995.

(12) Article 2 (3)(a) of Agreement between the Government of the Republic of the Philippines and the

Federal Republic of Germany for the Avoidance of Double Taxation with Respect to Taxes on Income and Capital signed on September 9, 2013.

(13) Capital gains are taxable only in the country where the seller is a resident, provided the shares are not

those of a corporation, the assets of which consist principally of real property situated in the Philippines, in which case the sale is subject to Philippine taxes.

(14) Under the income tax treaty between the Philippines and the United Kingdom, capital gains on the

sale of the shares of Philippine corporations are subject to tax only in the country where the seller is a resident, irrespective of the nature of the assets of the Philippine corporation.

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When availing of capital gains tax exemption on the sale of shares of stock under an income tax treaty, a tax treaty exemption ruling from the BIR shall be necessary in order to completely implement the transfer. For sale of shares made outside the PSE, a CAR from the BIR is required before the transfer is registered in the stock and transfer book. The BIR issues the CAR only after verifying that the applicable taxes have been paid. Thus, in lieu of proof of payment of capital gains tax, the tax treaty relief ruling should be submitted to the BIR office processing the CAR. The requirements for a tax treaty relief application in respect of capital gains tax or the stock transaction tax on the sale of shares are set out in Revenue Memorandum Order No. 72-2010 (Guidelines on the Processing of Tax Treaty Relief Applications (TTRA) Pursuant to Existing Philippine Tax Treaties dated August 25, 2010), BIR Form No. 0901-C, and other BIR issuances. These include proof of residence in the country that is a party to the income tax treaty. Proof of residence consists of a consularized certification from the tax authority of the country of residence of the seller of shares which provides that the seller is a resident of such country under the applicable income tax treaty. If the seller is a juridical entity, authenticated certified true copies of its articles of incorporation or association issued by the proper government authority should also be submitted to the BIR in addition to the certification of its residence from the tax authority of its country of residence. The tax treaty relief application has to be filed with the BIR before the first taxable event as defined under Revenue Memorandum Order No. 72-2010, which in respect of capital gains tax, is before the deadline for the payment of the documentary stamp tax on the sale of shares. With respect to the availment of preferential rates for dividends under an income tax treaty, most tax treaties to which the Philippines is a party provide for a reduced tax rate of 15% in cases where the dividend arises in the Philippines and is paid to a resident of the other contracting state. Most income tax treaties also provide that reduced withholding tax rates shall not apply if the recipient of the dividend, who is a resident of the other contracting state, carries on business in the Philippines through a permanent establishment and the holding of the relevant dividend-earning interest is effectively connected with such permanent establishment. The BIR prescribed certain procedures for availment of tax treaty relief on dividends under Revenue Memorandum Order No. 8-2017 (Procedure for Claiming Tax Treaty Benefits for Dividend, Interest and Royalty Income of Nonresident Income Earners, dated October 24, 2016). The preferential treaty rates shall be applied by the withholding agent/income payor provided that the non-resident income recipient submits, before the dividends are credited or paid, a Certificate of Residence for Tax Treaty Relief (CORTT) Form that complies with Revenue Memorandum Order No. 8-2017. After the remittance of the withholding tax to the BIR, the withholding agent/income payor shall submit within 30 days an original copy of the duly accomplished CORTT Form. Documentary Stamp Tax Beginning 1 January 2018, the original issue of shares is subject to a documentary stamp tax (“DST”) of ₱2.00 for each ₱200.00, or a fractional part thereof, of the par value of the shares issued. The Philippines imposes a DST upon the transfer outside the PSE of shares issued by a Philippine corporation at the rate of ₱1.50 on each ₱200, or a fractional part thereof, of the par value of the shares. The DST is imposed on the person making, signing, issuing, accepting or transferring the document and is thus payable by either or both the vendor or the vendee of the shares. However, the sale, barter or exchange of shares of stock listed and traded at the PSE is exempt from documentary stamp tax. Estate and Gift Taxes Shares issued by a domestic corporation are deemed to have a Philippine situs and their transfer by way of a succession or donation is subject to Philippine estate and donor’s taxes.

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The transfer by a deceased Philippine resident to his heirs of the Preferred Shares shall be subject to an estate tax which is levied on the net estate of the deceased at a rate of 6.0%. A holder of the Preferred Shares who is a Philippine resident shall be subject to donor’s tax based on the total gifts in excess of ₱250,000.00 exempt gift made during the calendar year on the transfer of the Preferred Shares by donation at a rate of 6.0%. The estate or donor’s taxes payable in the Philippines may be credited with the amount of any estate or donor’s taxes imposed by the authority of a foreign country, subject to limitations on the amount to be credited, and the tax status of the donor. The estate tax and the donor’s tax, in respect of the Preferred Shares, shall not be collected: (1) if the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or (2) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. In case the Preferred Shares are transferred for less than an adequate and full consideration in money or money’s worth, the amount by which the fair market value of the Preferred Shares exceeded the value of the consideration may be deemed a gift, and donor’s taxes may be imposed on the transferor of the Preferred Shares, based on Section 100 of the Philippine Tax Code, provided that a transfer of property made in the ordinary course of business (a transaction which is a bona fide, at arm’s length, and free from any donative intent), will be considered as made for an adequate and full consideration in money or money’s worth. Taxation outside the Philippines Shares of stock in a domestic corporation are considered under Philippine law to be situated in the Philippines and any gain derived from their sale is entirely from Philippine sources; hence, such gain is subject to Philippine income tax and the transfer of such shares by gift (donation) or succession is subject to the donors’ tax or estate tax. The tax treatment of a non-resident holder in jurisdictions outside the Philippines may vary depending on the tax laws applicable to such holder by reason of its domicile or business activities and such holder’s particular situation. This Prospectus does not discuss the tax considerations of non-resident holders of shares of stock under laws other than those of the Philippines. EACH PROSPECTIVE HOLDER SHOULD CONSULT WITH HIS OWN TAX ADVISER AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF PURCHASING, OWNING AND DISPOSING OF THE PREFERRED SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND NATIONAL TAX LAWS.

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THE PHILIPPINE STOCK MARKET

The information presented in this section has been extracted from publicly available documents which have not been prepared or independently verified by us, the Joint Issue Managers, Joint Lead Underwriters and Joint Bookrunners, or any of their respective subsidiaries, affiliates or advisors in connection with the offer and sale of the Preferred Shares. Brief History The Philippines initially had two stock exchanges, the Manila Stock Exchange, which was organized in 1927, and the Makati Stock Exchange, which began operations in 1963. Each exchange was self-regulating, governed by its respective Board of Governors elected annually by its members. Several steps initiated by the Philippine government have resulted in the unification of the two bourses into the PSE. The PSE was incorporated in 1992 by officers of both the Makati and the Manila Stock Exchanges. In March 1994, the licenses of the two exchanges were revoked. The PSE previously maintained two trading floors, one in Makati City and the other in Pasig City, which were linked by an automated trading system that integrated all bid and ask quotations from the bourses. In February 2018, the PSE transferred to its new office located at the PSE Tower, Bonifacio Global City, Taguig City. The PSE Tower houses the PSE corporate offices and a single, unified trading floor. In June 1998, the Philippine SEC granted the Self-Regulatory Organization status to the PSE, allowing it to impose rules as well as implement penalties on erring trading participants and listed companies. On August 8, 2001, the PSE completed its demutualization, converting from a non-stock member-governed institution into a stock corporation in compliance with the requirements of the SRC. The PSE had an authorized capital stock of ₱120 million, of which 61.2 million shares were subscribed and fully paid-up as of June 30, 2018. Each of the 184 member-brokers was granted 50,000 common shares of the new PSE at a par value of ₱1.00 per share. In addition, a trading right evidenced by a “Trading Participant Certificate” was immediately conferred on each member broker allowing the use of the PSE’s trading facilities. As a result of the demutualization, the composition of the PSE Board of Governors was changed, requiring the inclusion of seven brokers and eight non-brokers, one of whom is the President of the PSE. On December 15, 2003, the PSE listed its shares by way of introduction at its own bourse as part of a series of reforms aimed at strengthening the Philippine securities industry. Classified into financial, industrial, holding firms, property, services, and mining and oil sectors, companies are listed either on the PSE’s Main Board or the Small, Medium and Emerging Board. Recently, the PSE issued Rules on Exchange Traded Funds (“ETF”) which provides for the listing of ETFs on an ETF Board separate from the PSE’s existing boards. The PSE has a benchmark index, referred to as the PSEi, which reflects the price movements of the 30 largest and most active stocks at the PSE. The PSEi is a free float market capitalization-weighted index. With the increasing calls for good corporate governance and the need to consistently provide full, fair, accurate and timely information, the PSE adopted a new online disclosure system to support the provision of material information coming from listed companies and enhance access to such reports by the investing public. In December 2013, the PSE Electronic Disclosure Generation Technology (EDGe), a new disclosure system co-developed with the Korea Exchange, went live. The EDGe system provided a dedicated portal for listed company disclosures and also offered a free-to download mobile application for easy access by investors. In June 2015, the PSE shifted to a new trading system, the PSEtrade XTS, which utilizes NASDAQ's X-stream Technology. The PSEtrade XTS, which replaced the NSC trading platform provided by NYSE Euronext Technologies SAS, is equipped to handle large trading volumes. It is also capable of supporting the future requirements of the PSE should more products and services be introduced.

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In November 2016, the Exchange received regulatory approvals to introduce new products in the stock market – the Dollar Denominated Securities and the Listing of PPP Companies. In June 2018, the PSE received approval from the Philippine SEC to introduce short selling in the equities market. The PSE launched its Corporate Governance Guidebook in November 2010 as another initiative of the PSE to promote good governance among listed companies. It is composed of 10 guidelines embodying principles of good business practice and based on internationally recognized corporate governance codes and best practices The table below sets out movements in the composite index as of the last business day of each calendar year from 2006 to 2018, and shows the number of listed companies, market capitalization, and value of shares traded for the same period:

Year PSEi Level Number of Listed

Companies

Market Capitalization (in ₱ billion)

Value Turnover (in ₱ billion)

2006 2,982.54 239 7,173.19 572.63 2007 3,621.60 244 7,976.84 1,338.25 2008 1,872.85 246 4,072.16 763.90 2009 3,052.68 248 6,032.22 994.15 2010 4,201.14 253 8,866.11 1,207.38 2011 4,371.96 253 8,696.96 1,422.59 2012 5,812.73 254 10,930.09 1,771.71 2013 5,889.83 257 11,931.29 2,546.18 2014 7,230.57 263 14,251.72 2,130.12 2015 6,952.08 265 13,465.57 2,151.41 2016 6,840.64 265 14,438.77 1,929.50 2017 8,558.42 267 17,583.13 1,958.36 2018 7,466.00 267 16,150.00 1,740.00

____________ Source: PSE Trading The PSE is a double auction market. Buyers and sellers are each represented by stockbrokers. To trade, bid or ask prices are posted on the PSE’s electronic trading system. A buy (or sell) order that matches the lowest asked (or highest bid) price is automatically executed. Buy and sell orders received by one broker at the same price are crossed at the PSE at the indicated price. Payment of purchases of listed securities must be made by the buyer on or before the third trading day (the settlement date) after the trade. Equities trading on the PSE starts at 9:30 a.m. and ends at 12:00 p.m. for the morning session, and resumes at 1:30 p.m. and ends at 3:30 p.m. for the afternoon session. Trading days are Monday to Friday, except legal and special holidays and days when the BSP clearing house is closed. To maintain stability in the stock market, daily price swings are monitored and regulated. Under current PSE regulations, whenever an order will result in a breach of the trading threshold of a security within a trading day, the trading of that security will be frozen. Orders cannot be posted, modified or cancelled for a security that is frozen. In cases where an order has been partially matched, only the portion of the order that will result in a breach of the trading threshold will be frozen. Where the order results in a breach of the trading threshold, the following procedures shall apply:

• In case the static threshold is breached, the PSE will accept the order, provided the price is within the allowable percentage price difference under the implementing guidelines of the revised trading rules (i.e., 50% of the previous day’s reference or closing price, or the last adjusted closing price);

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otherwise, such order will be rejected. In cases where the order is accepted, the PSE will adjust the static threshold to 60%. All orders breaching the 60% static threshold will be rejected by the PSE.

• In case the dynamic threshold is breached, the PSE will accept the order if the price is within the allowable percentage price difference under the existing regulations (i.e., 20% for security cluster A and newly-listed securities, 15% for security cluster B and 10% for security cluster C); otherwise, such order will be rejected by the PSE.

Non-Resident Transactions When the purchase/sale of Philippine shares involves a non-resident, whether the transaction is effected in the domestic or foreign market, it will be the responsibility of the securities dealer/broker to register the transaction with the BSP. The local securities dealer/broker shall file with the BSP, within three business days from the transaction date, an application in the prescribed registration form. After compliance with other required undertakings, the BSP shall issue a Certificate of Registration. Under BSP rules, all registered foreign investments in Philippine securities including profits and dividends, net of taxes and charges, may be repatriated. Settlement The Securities Clearing Corporation of the Philippines (“SCCP”) is a wholly-owned subsidiary of the PSE, and was organized primarily as a clearance and settlement agency for SCCP-eligible trades executed through the facilities of the PSE. SCCP received its permanent license to operate on January 17, 2002. It is responsible for:

• synchronizing the settlement of funds and the transfer of securities through Delivery versus Payment clearing and settlement of transactions of Clearing Members, who are also Trading Participants of the PSE;

• guaranteeing the settlement of trades in the event of a Trading Participant’s default through the implementation of its Fails Management System and administration of the Clearing and Trade Guaranty Fund; and

• performance of Risk Management and Monitoring to ensure final and irrevocable settlement. SCCP settles PSE trades on a three-day rolling settlement environment, which means that settlement of trades takes place three days after transaction date (T+3). The deadline for settlement of trades is 12:00 noon of T+3. Securities sold should be in scripless form and lodged under the book entry system of the PDTC. Each PSE Trading Participant maintains a Cash Settlement Account with one of the nine existing Settlement Banks of SCCP which are BDO Unibank, Inc., Rizal Commercial Banking Corporation, Metropolitan Bank & Trust Company, Deutsche Bank, Union Bank of the Philippines, The Hongkong and Shanghai Banking Corporation Limited, Maybank Philippines, Inc., Asia United Bank, and China Banking Corporation. Payment for securities bought should be in good, cleared funds and should be final and irrevocable. Settlement is presently on a broker level. SCCP implemented its Central Clearing and Central Settlement (“CCCS”) system on May 29, 2006. CCCS employs multilateral netting, whereby the system automatically offsets “buy” and “sell” transactions on a per issue and a per flag basis to arrive at a net receipt or a net delivery security position for each clearing member. All cash debits and credits are also netted into a single net cash position for each clearing member. Novation of the original PSE trade contracts occurs, and SCCP stands between the original trading parties and becomes the Central Counterparty to each PSE-eligible trade cleared through it.

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Scripless Trading In 1995, the PDTC (formerly the Philippine Central Depository, Inc.), was organized to establish a central depository in the Philippines and introduce scripless or book-entry trading in the Philippines. On December 16, 1996, the PDTC was granted a provisional license by the Philippine SEC to act as a central securities depository. All listed securities at the PSE have been converted into book-entry settlement in the PDTC. The depository service of the PDTC provides the infrastructure for lodgment (deposit) and upliftment (withdrawal) of securities, pledge of securities, securities lending and borrowing and corporate actions including shareholders’ meetings, dividend declarations and rights offerings. The PDTC also provides depository and settlement services for non-PSE trades of listed equity securities. For transactions on the PSE, the security element of the trade will be settled through the book-entry system, while the cash element will be settled through the current settlement banks. In order to benefit from the book-entry system, securities must be immobilized into the PDTC system through a process called lodgment. Lodgment is the process by which shareholders transfer legal title (but not beneficial title) over their shares in favor of the PCD Nominee Corporation (“PCD Nominee”), a corporation wholly-owned by the PDTC, whose sole purpose is to act as nominee and legal title holder of all shares lodged in the PDTC. “Immobilization” is the process by which the warrant or share certificates of lodging holders are cancelled by the transfer agent and the corresponding transfer of beneficial ownership of the immobilized shares in the account of the PCD Nominee through the PDTC participant will be recorded in the issuing corporation’s registry. This trust arrangement between the participants and PDTC through the PCD Nominee is established by and explained in the PDTC Rules and Operating Procedures approved by the Philippine SEC. No consideration is paid for the transfer of legal title to the PCD Nominee. Once lodged, transfers of beneficial title of the securities are accomplished via book-entry settlement. Under the current PDTC system, only participants (e.g. brokers and custodians) will be recognized by the PDTC as the beneficial owners of the lodged equity securities. Thus, each beneficial owner of shares, through his participant, will be the beneficial owner to the extent of the number of shares held by such participant in the records of the PCD Nominee. All lodgments, trades and uplifts on these shares will have to be coursed through a participant. Ownership and transfers of beneficial interests in the shares will be reflected, with respect to the participant’s aggregate holdings, in the PDTC system, and with respect to each beneficial owner’s holdings, in the records of the participants. Beneficial owners are thus advised that in order to exercise their rights as beneficial owners of the lodged shares, they must rely on their participant-brokers and/or participant-custodians. Any beneficial owner of shares who wishes to trade his interests in the shares must course the trade through a participant. The participant can execute PSE trades and non-PSE trades of lodged equity securities through the PDTC system. All matched transactions in the PSE trading system will be fed through the SCCP, and into the PDTC system. Once it is determined on the settlement date (T+3) that there are adequate securities in the securities settlement account of the participant-seller and adequate cleared funds in the settlement bank account of the participant-buyer, the PSE trades are automatically settled in the SCCP Central Clearing and Central Settlement system, in accordance with the SCCP and PDTC Rules and Operating Procedures. Once settled, the beneficial ownership of the securities is transferred from the participant-seller to the participant-buyer without the physical transfer of stock certificates covering the traded securities. If a shareholder wishes to withdraw his shareholdings from the PDTC system, the PDTC has a procedure of upliftment under which PCD Nominee will transfer back to the shareholder the legal title to the shares lodged. The uplifting shareholder shall follow the Rules and Operating Procedures of the PDTC for the upliftment of the shares lodged under the name of the PCD Nominee. The transfer agent shall prepare and send a Registry Confirmation Advice to the PDTC covering the new number of shares lodged under the PCD Nominee. The expenses for upliftment are for the account of the uplifting shareholder.

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The difference between the depository and the registry would be on the recording of ownership of the shares in the issuing corporations’ books. In the depository set-up, shares are simply immobilized, wherein customers’ certificates are cancelled and a confirmation advice is issued in the name of PCD Nominee to confirm new balances of the shares lodged with the PDTC. Transfers among/between broker and/or custodian accounts, as the case may be, will only be made within the book-entry system of the PDTC. However, as far as the issuing corporation is concerned, the underlying certificates are in the PCD Nominee’s name. In the registry set-up, settlement and recording of ownership of traded securities will already be directly made in the corresponding issuing company’s transfer agents’ books or system. Likewise, recording will already be at the beneficiary level (whether it be a client or a registered custodian holding securities for its clients), thereby removing from the broker its current “de facto” custodianship role. Amended Rule on Lodgment of Securities On June 24, 2009, the PSE apprised all listed companies and market participants through Memorandum No. 2009-0320 that commencing on July 1, 2009, as a condition for the listing and trading of the securities of an applicant company, the applicant company shall electronically lodge its registered securities with the PDTC or any other entity duly authorized by the Philippine SEC, without any jumbo or mother certificate in compliance with the requirements of Section 43 of the SRC. In compliance with the foregoing requirement, actual listing and trading of securities on the scheduled listing date shall take effect only after submission by the applicant company of the documentary requirements stated in Article III Part A of the Revised Listing Rules. For listing applications, the amended rule on lodgment of securities is applicable to:

• The offer shares/securities of the applicant company in the case of an initial public offering;

• The shares/securities that are lodged with the PDTC, or any other entity duly authorized by the Philippine SEC in the case of a listing by way of introduction;

• New securities to be offered and applied for listing by an existing listed company; and

• Additional listing of securities of an existing listed company. Pursuant to the said amendment, the PDTC issued an implementing procedure in support thereof to wit:

• For a new company to be listed at the PSE as of July 1, 2009, the usual procedure will be observed but the transfer agent of the company shall no longer issue a certificate to PCD Nominee but shall issue a Registry Confirmation Advice, which shall be the basis for the PDTC to credit the holdings of the depository participants on the listing date.

• On the other hand, for an existing listed company, the PDTC shall wait for the advice of the transfer agent that it is ready to accept surrender of PCD Nominee jumbo certificates and upon such advice the PDTC shall surrender all PCD Nominee jumbo certificates to the transfer agent for cancellation. The transfer agent shall issue a Registry Confirmation Advice to PDTC evidencing the total number of shares registered in the name of PCD Nominee in the listed company’s registry as of confirmation date.

Further, the PSE apprised all listed companies and market participants on May 21, 2010 through Memorandum No. 2010-0246 that the Amended Rule on Lodgement of Securities under Section 16 of Article III, Part A of the Revised Listing Rules of the PSE shall apply to all securities that are lodged with the PDTC or any other entity duly authorized by the PSE. Issuance of Stock Certificates for Certificated Shares On or after the listing of the shares on the PSE, any beneficial owner of the shares may apply with PDTC through his broker or custodian-participant for a withdrawal from the book-entry system and return to the

193

conventional paper-based settlement. If a shareholder wishes to withdraw his stockholdings from the PDTC system, the PDTC has a procedure of upliftment under which PCD Nominee will transfer back to the shareholder the legal title to the shares lodged. The uplifting shareholder shall follow the Rules and Operating Procedures of the PDTC for the uplifting of the shares lodged under the name of the PCD Nominee. The transfer agent shall prepare and send a Registry Confirmation Advice to the PDTC covering the new number of shares lodged under PCD Nominee. The expenses for upliftment are on the account of the uplifting shareholder. Upon the issuance of stock certificates for the shares in the name of the person applying for upliftment, such shares shall be deemed to be withdrawn from the PDTC book-entry settlement system, and trading on such shares will follow the normal process for settlement of certificated securities. The expenses for upliftment of the shares into certificated securities will be charged to the person applying for upliftment. Pending completion of the upliftment process, the beneficial interest in the shares covered by the application for upliftment is frozen and no trading and book-entry settlement will be permitted until the relevant stock certificates in the name of the person applying for upliftment shall have been issued by the relevant company’s transfer agent. Amended Rule on Minimum Public Ownership Under the PSE Amended Rule on Minimum Public Ownership, listed companies are required, at all times, to maintain a minimum percentage of listed securities held by the public of 10% of the listed companies’ total issued and outstanding shares (i.e., exclusive of treasury shares), or at such percentage that may be prescribed by the PSE. For purposes of determining compliance with the MPO, shares held by the following are generally considered “held by the public”: (i) individuals (for as long as the shares held are not of a significant size (i.e., less than 10%) and are non-strategic in nature; (ii) trading participants (for as long as the shares held are non-strategic in nature); (iii) investment and mutual funds; (iv) pension funds; (v) PCD nominees if this account constitutes a number of shareholders, none of which has significant holdings (provided that if an owner of shares under the PCD Nominee has a shareholding that is 10% or more of the total issued and outstanding shares, then this shareholder is considered a principal stockholder); and (vi) social security funds. Listed companies which become non-compliant with the MPO on or after January 1, 2013 will be suspended from trading for a period of not more than six (6) months and will automatically be delisted if it remains non-compliant with the MPO after the lapse of the suspension period. Suspended or delisted shares will not be traded on the exchange. In addition, sale of shares of listed companies that do not maintain the MPO are not considered publicly listed for taxation purposes and should, therefore, be subjected to capital gains tax and documentary stamp tax. In accordance with the SEC Memorandum Circular No. 13 Series of 2017 issued on December 1, 2017, the MPO requirement on initial public offerings is increased from 10% to 20%. For existing publicly listed companies, the existing rules and/or guidelines of an exchange on minimum public float duly approved by the SEC still apply. The PSE rule on MPO requires that listed companies shall, at all times, maintain a minimum percentage of listed securities held by the public of 10% of the listed companies’ issued and outstanding shares, exclusive of any treasury shares, or as such percentage that may be prescribed by the PSE. As of date, the SEC is looking at increasing the MPO requirement of existing listed companies to 15%, such proposed rules on MPO is yet to be issued by SEC for comments by the public.

194

ANNEXES

195

PETRON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2016, 2017, AND 2018

196

PETRON CORPORATION

SMC Head Office Complex 40 San Miguel Avenue

Mandaluyong City, Philippines www.petron.com

JOINT ISSUE MANAGERS, JOINT LEAD UNDERWRITERS AND JOINT BOOKRUNNERS

BDO Capital & Investment Corporation 20/F, South Tower

BDO Corporate Center 7899 Makati Ave.

Makati City, 0726, Philippines

BPI Capital Corporation 11th Floor, Ayala North Exchange Building 6796 Ayala Avenue corner Salcedo Street

Makati City, Philippines

China Bank Capital Corporation 28th Floor BDO Equitable Tower

8751 Paseo de Roxas Makati City, Philippines

PNB Capital & Investment Corporation

9/F PNB Financial Center Pres. Diosdado Macapagal Blvd.

Pasay City, Metro Manila, Philippines

CO-LEAD UNDERWRITER

First Metro Investment Corporation

45th Floor, GT Tower International

Ayala Avenue cor. H.V. Dela Costa,

Makati City, Philippines

LEGAL ADVISORS

to the Issuer

Picazo Buyco Tan Fider & Santos Penthouse, Liberty Center

104 H.V. dela Costa St., Salcedo Village Makati City, 1227 Philippines

to the Joint Issue Managers, Joint Lead Underwriters and Bookrunners

SyCip Salazar Hernandez & Gatmaitan SyCipLaw Center

105 Paseo de Roxas Makati City, 1226 Philippines

INDEPENDENT AUDITORS

R.G. Manabat and Co. (a member firm of KPMG)

KPMG Center 6787 Ayala Avenue

Makati City Philippines

DEPOSITORY AGENT RECEIVING AGENT, REGISTRAR, AND STOCK TRANSFER AGENT

Philippine Depository & Trust Corp. 37/F, Tower 1

The Enterprise Center 6766 Ayala Avenue cor. Paseo de Roxas

1226 Makati City Philippines

SMC Stock Transfer Service Corporation 40 San Miguel Avenue

Ortigas Center Mandaluyong City, Metro Manila

Philippines


C O V E R S H E E T for

AUDITED FINANCIAL STATEMENTS

SEC Registration Number

3 1 1 7 1

C O M P A N Y N A M E

P E T R O N

C O R P O R A T I O N

A N D

S U B S I D I A R I E S

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province)

S M C

H e a d

O f f i c e

C o m p l e x

4 0

S a n

M i g u e l

A v e n u e

M a n d a l u y o n g

C i t y

Form Type Department requiring the report Secondary License Type, If Applicable

A A F S Certificates of Permit to Offer Securities for

Sale dated 1994, 1995, 2010 and 2014

COMPANY INFORMATION

Company's email Address Company's Telephone Number/s Mobile Number

[email protected] 886-3888, 884-9200

No. of Stockholders

Annual Meeting (Month / Day)

Fiscal Year (Month / Day)

147,007

(as of December 31, 2017) May 15, 2018 December 31

CONTACT PERSON INFORMATION The designated contact person MUST be an Officer of the Corporation

Name of Contact Person

Email Address Telephone Number/s Mobile Number

Dennis S. Janson [email protected] 886-3888 loc

49189

CONTACT PERSON's ADDRESS

SMC Head Office Complex, 40 San Miguel Avenue, Mandaluyong City

Note 1: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated. 2: All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation's records with the Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies.

F-153

PETRON CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS December 31, 2017, 2016 and 2015

F-154

December 31 Note 2017 2016 Equity Attributable to Equity Holders of the

Parent Company 21 Capital stock P9,485 P9,485 Additional paid-in capital 19,653 19,653 Undated subordinated capital securities 30,546 30,546 Retained earnings 49,142 42,011 Equity reserves (5,171) (7,204) Treasury stock (10,000) (10,000) Total Equity Attributable to Equity Holders

of the Parent Company 93,655 84,491 Non-controlling Interests 13 5,964 4,329

Total Equity 99,619 88,820

P338,030 P318,893

See Notes to the Consolidated Financial Statements.

F-162

PETRON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 (Amounts in Million Pesos, Except Per Share Data)

Note 2017 2016 2015 SALES 28, 31, 37 P434,624 P343,840 P360,178 COST OF GOODS SOLD 22 391,969 306,125 328,734 GROSS PROFIT 42,655 37,715 31,444

SELLING AND ADMINISTRATIVE EXPENSES 23 (15,017) (13,918) (13,310)

INTEREST EXPENSE AND OTHER FINANCING CHARGES 26, 37 (8,487) (7,557) (5,533)

INTEREST INCOME 26, 37 535 507 686 SHARE IN NET INCOME OF

AN ASSOCIATE 10 63 66 133 OTHER EXPENSES - Net 26 (907) (2,435) (3,495) (23,813) (23,337) (21,519)

INCOME BEFORE INCOME TAX 18,842 14,378 9,925

INCOME TAX EXPENSE 27, 36, 37 4,755 3,556 3,655 NET INCOME P14,087 P10,822 P6,270

Attributable to: Equity holders of the Parent

Company 32 P12,739 P10,100 P5,618 Non-controlling interests 1,348 722 652 P14,087 P10,822 P6,270

BASIC/DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY 32 P0.86 P0.60 P0.15


F-163

PETRON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015

(Amounts in Million Pesos)

Note 2017 2016 2015 NET INCOME P14,087 P10,822 P6,270 OTHER COMPREHENSIVE

INCOME (LOSS) Items that will not be

reclassified to profit or loss Equity reserve for retirement

plan 30 (1,142) 2,647 (3,112) Share in other comprehensive

income (loss) of an associate and a joint venture 10 3 3 (6)

Income tax benefit (expense) 346 (794) 935 (793) 1,856 (2,183)

Items that may be reclassified to profit or loss

Exchange differences on translation of foreign operations 3,303 523 (3,748)

Unrealized fair value losses on available-for-sale financial assets 7 (4) (2) (1)

Share in other comprehensive loss of a joint venture (1) - -

Income tax benefit 1 1 - 3,299 522 (3,749)

OTHER COMPREHENSIVE INCOME (LOSS) - Net of tax 2,506 2,378 (5,932)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR - Net of tax P16,593 P13,200 P338

Attributable to: Equity holders of the Parent

Company P14,772 P12,742 P390 Non-controlling interests 1,821 458 (52) P16,593 P13,200 P338


F-164

PETRON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 (Amounts in Million Pesos)

Equity Attributable to Equity Holders of the Parent Company Undated Retained Earnings Equity Reserves

Capital Additional

Paid-in Subordinated

Capital Appro- Unappro- Reserve for Retirement Other Treasury

Non- controlling Total

Note Stock Capital Securities priated priated Plan Reserves Stock Total Interests Equity

As of January 1, 2017 P9,485 P19,653 P30,546 P15,160 P26,851 (P1,345) (P5,859) (P10,000) P84,491 P4,329 P88,820

Unrealized fair value loss on available-for-sale financial assets - net of tax - - - - - - (3) - (3) - (3)

Exchange differences on translation of foreign operations - - - - - - 2,838 - 2,838 465 3,303

Equity reserve for retirement plan - net of tax - - - - - (804) - - (804) 8 (796) Share in other comprehensive income (loss) of

an associate and a joint venture - - - - - 3 (1) - 2 - 2

Other comprehensive income (loss) - - - - - (801) 2,834 - 2,033 473 2,506 Net income for the year - - - - 12,739 - - - 12,739 1,348 14,087 Total comprehensive income (loss) for the year - - - - 12,739 (801) 2,834 - 14,772 1,821 16,593

Cash dividends 21 - - - - (1,584) - - - (1,584) (186) (1,770) Distributions paid 21 - - - - (4,024) - - - (4,024) - (4,024)

Transactions with owners - - - - (5,608) - - - (5,608) (186) (5,794) As of December 31, 2017 P9,485 P19,653 P30,546 P15,160 P33,982 (P2,146) (P3,025) (P10,000) P93,655 P5,964 P99,619

Forward

F-165


Capital Additional





As of January 1, 2016 P9,485 P19,653 P30,546 P25,082 P16,630 (P3,204) (P5,563) (P10,000) P82,629 P471 P83,100


Exchange differences on translation of foreign operations - - - - - - 784 - 784 (261) 523

Equity reserve for retirement plan - net of tax - - - - - 1,856 - - 1,856 (3) 1,853 Share in other comprehensive income of an

associate and a joint venture - - - - - 3 - - 3 - 3

Other comprehensive income (loss) - - - - - 1,859 783 - 2,642 (264) 2,378 Net income for the year - - - - 10,100 - - - 10,100 722 10,822 Total comprehensive income for the year - - - - 10,100 1,859 783 - 12,742 458 13,200

Cash dividends 21 - - - - (1,584) - - - (1,584) (168) (1,752) Distributions paid 21 - - - - (3,807) - - - (3,807) - (3,807) Reversal of appropriations - net 21 - - - (9,922) 9,922 - - - - - - Acquisition of additional interest in a subsidiary 13 - - - - - - (570) - (570) 570 - Purchase of non-controlling interest in a subsidiary 13 - - - - - - (509) - (509) (1,412) (1,921) Transfer from non-controlling interests - - - - (4,410) - - - (4,410) 4,410 -

Transactions with owners - - - (9,922) 121 - (1,079) - (10,880) 3,400 (7,480) As of December 31, 2016 P9,485 P19,653 P30,546 P15,160 P26,851 (P1,345) (P5,859) (P10,000) P84,491 P4,329 P88,820

Forward

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Capital Additional





As of January 1, 2015 P9,485 P19,653 P30,546 P25,171 P15,644 (P1,018) (P2,149) P - P97,332 P16,360 P113,692


Exchange differences on translation of foreign operations - - - - - - (3,041) - (3,041) (707) (3,748)

Equity reserve for retirement plan - net of tax - - - - - (2,180) - - (2,180) 3 (2,177) Share in other comprehensive loss of an

associate - - - - - (6) - - (6) - (6)

Other comprehensive loss - - - - - (2,186) (3,042) - (5,228) (704) (5,932) Net income for the year - - - - 5,618 - - - 5,618 652 6,270 Total comprehensive income (loss) for the year - - - - 5,618 (2,186) (3,042) - 390 (52) 338

Cash dividends 21 - - - - (1,114) - - - (1,114) (567) (1,681) Distributions paid 21 - - - - (3,607) - - - (3,607) - (3,607) Redemption of preferred shares 13, 21 - - - - - - - (10,000) (10,000) (15,642) (25,642) Reversal of appropriations - net - - - (89) 89 - - - - - - Acquisition of additional interest in a subsidiary - - - - - - (372) - (372) 372 -

Transactions with owners - - - (89) (4,632) - (372) (10,000) (15,093) (15,837) (30,930) As of December 31, 2015 P9,485 P19,653 P30,546 P25,082 P16,630 (P3,204) (P5,563) (P10,000) P82,629 P471 P83,100


F-167

PETRON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 (Amounts in Million Pesos)

Note 2017 2016 2015 CASH FLOWS FROM

OPERATING ACTIVITIES Income before income tax P18,842 P14,378 P9,925 Adjustments for:

Depreciation and amortization 25 10,979 9,505 6,272 Interest expense and other

financing charges 26 8,487 7,557 5,533 Retirement benefits costs 30 508 579 419 Share in net income of an

associate 10 (63) (66) (133) Interest income 26 (535) (507) (686) Unrealized foreign exchange

losses (gains) - net (880) 529 87 Other losses - net 594 538 304

Operating income before working capital changes 37,932 32,513 21,721

Changes in noncash assets, certain current liabilities and others 33 (13,043) 4,550 (5,484)

Cash generated from operations 24,889 37,063 16,237 Contribution to retirement fund 30 (100) (135) - Interest paid (7,492) (7,014) (8,020) Income taxes paid (1,920) (902) (513) Interest received 376 257 764 Net cash flows provided by

operating activities 15,753 29,269 8,468

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to property, plant and equipment 11 (13,142) (19,122) (13,474)

Proceeds from sale of property and equipment 1,195 336 106

Proceeds from sale of investment property 16 18 -

Increase in: Other receivables - - (265) Other noncurrent assets (969) (536) (694)

Reductions from (additions to): Investment in shares of stock

of an associate 10 1,750 - (525) Available-for-sale financial

assets (61) 139 260 Net cash flows used in investing

activities (11,211) (19,165) (14,592) Forward

F-168

Note 2017 2016 2015 CASH FLOWS FROM

FINANCING ACTIVITIES Proceeds from availment of

loans 33 P298,669 P226,360 P222,099 Payments of:

Loans 33 (298,199) (230,924) (256,732) Cash dividends and

distributions 21, 33 (5,773) (5,537) (5,517) Purchase of non-controlling

interest in a subsidiary 13 - (1,921) - Redemption of preferred shares 13, 21 - - (25,642) Increase (decrease) in other

noncurrent liabilities 588 (3) (551) Net cash flows used in

financing activities (4,715) (12,025) (66,343)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (145) 372 746

NET DECREASE IN CASH AND CASH EQUIVALENTS (318) (1,549) (71,721)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,332 18,881 90,602

CASH AND CASH EQUIVALENTS AT END OF YEAR 5 P17,014 P17,332 P18,881


F-169

PETRON CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in Million Pesos, Except Par Value, Number of Shares and Per Share Data, Exchange Rates and Commodity Volumes)

1. Reporting Entity

Petron Corporation (the “Parent Company” or “Petron”) was incorporated under the laws of the Republic of the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on December 22, 1966. On September 13, 2013, the SEC approved the extension of the Parent Company’s corporate term to December 22, 2066. The accompanying consolidated financial statements comprise the financial statements of Petron Corporation and Subsidiaries (collectively referred to as the “Group”) and the Group’s interests in an associate and joint ventures. Petron is the leading oil refining and marketing company in the Philippines. Petron is committed to its vision to be the leading provider of total customer solutions in the energy sector and its derivative businesses. Petron operates the Philippines’ largest and most modern refinery in Bataan, with a rated capacity of 180,000 barrels a day. Petron’s Integrated Management Systems (IMS) - certified refinery processes crude oil into a full range of world-class petroleum products including liquefied petroleum gas (LPG), gasoline, diesel, jet fuel, kerosene, and petrochemicals. From the refinery, Petron moves its products mainly by sea to more than 30 terminals strategically located across the country. Through this network, Petron supplies fuels to its service stations and various essential industries such as power-generation, transportation, manufacturing, agriculture, etc. Petron also supplies jet fuel at key airports to international and domestic carriers. With nearly 2,400 service stations and hundreds of industrial accounts, Petron remains the leader in all the major segments of the market. Petron retails gasoline, diesel, and autoLPG to motorists and public transport operators. Petron also sells its LPG brands “Gasul” and “Fiesta” to households and other industrial consumers through an extensive dealership network. Petron sources its fuel additives from its blending facility in Subic Bay. This gives Petron the capability to formulate unique additives for Philippine driving conditions. It also has a facility in Mariveles, Bataan where the refinery’s propylene production is converted into higher-value polypropylene resin. In line with efforts to increase its presence in the regional market, Petron exports various products to Asia-Pacific countries. Today, Petron is one of the leading oil companies in Malaysia with an integrated business which includes an 88,000 barrel-per-day refinery, 10 terminals, 7 storage facilities and a network of more than 600 service stations. The Parent Company is a public company under Section 17.2 of Securities Regulation Code and its shares of stock are listed for trading at the Philippine Stock Exchange (PSE). As of December 31, 2017, the Parent Company’s public float stood at 23.84%.

F-170

The intermediate parent company of Petron is San Miguel Corporation (SMC) while its ultimate parent company is Top Frontier Investments Holdings, Inc. Both companies are incorporated in the Philippines. The registered office address of Petron is SMC Head Office Complex, 40 San Miguel Avenue, Mandaluyong City.

2. Basis of Preparation Statement of Compliance The accompanying consolidated financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). PFRS are based on International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). PFRS consist of PFRS, Philippine Accounting Standards (PAS) and Philippine Interpretations issued by the Financial Reporting Standards Council (FRSC). The consolidated financial statements were approved and authorized for issue by the Board of Directors (BOD) on March 13, 2018. Basis of Measurement The consolidated financial statements of the Group have been prepared on the historical cost basis of accounting except for the following which are measured on an alternative basis at each reporting date: Items Measurement Bases Derivative financial instruments at fair

value through profit or loss Fair value Non-derivative financial instruments at

fair value through profit or loss Fair value Available-for-sale (AFS) financial assets Fair value Retirement benefits liability Present value of the defined benefit

obligation less fair value of plan assets Functional and Presentation Currency The consolidated financial statements are presented in Philippine peso, which is the Parent Company’s functional currency. All financial information is rounded off to the nearest million (P000,000), except when otherwise indicated.

F-171

Basis of Consolidation The consolidated financial statements include the accounts of the Parent Company and its subsidiaries. These subsidiaries are:

Percentage

of Ownership Country of Name of Subsidiary 2017 2016 Incorporation

Overseas Ventures Insurance Corporation Ltd. (Ovincor) 100.00 100.00 Bermuda

Petrogen Insurance Corporation (Petrogen) 100.00 100.00 Philippines Petron Freeport Corporation (PFC) 100.00 100.00 Philippines Petron Singapore Trading Pte., Ltd. (PSTPL) 100.00 100.00 Singapore Petron Marketing Corporation (PMC) 100.00 100.00 Philippines New Ventures Realty Corporation (NVRC)

and Subsidiaries 40.00 40.00 Philippines Limay Energen Corporation (LEC) 100.00 100.00 Philippines Petron Global Limited (PGL) 100.00 100.00 British Virgin

Islands Petron Finance (Labuan) Limited (PFL) 100.00 100.00 Malaysia Petron Oil and Gas Mauritius Ltd. (POGM)

and Subsidiaries 100.00 100.00 Mauritius Petrochemical Asia (HK) Limited (PAHL) and

Subsidiaries 100.00 100.00(a) Hong Kong

(a)In July 2016, ownership interest increased to 100% (Note 13a). Petrogen and Ovincor are both engaged in the business of non-life insurance and re-insurance. The primary purpose of PFC and PMC is to, among others, sell on wholesale or retail and operate service stations, retail outlets, restaurants, convenience stores and the like. PSTPL’s principal activities are those relating to the procurement of crude oil, ethanol, catalysts, additives, coal and various petroleum finished products; crude vessel chartering and commodity risk management. NVRC’s primary purpose is to acquire real estate and derive income from its sale or lease. The primary purpose of LEC is to build, operate, maintain, sell and lease power generation plants, facilities, equipment and other related assets and engage in the business of power generation. PGL is a holding company incorporated in the British Virgin Islands. POGM is a holding company incorporated under the laws of Mauritius. POGM owns an offshore subsidiary Petron Oil and Gas International Sdn. Bhd. (POGI). As of December 31, 2017 and 2016, POGI owns 73.4% of Petron Malaysia Refining & Marketing Bhd (PMRMB) and 100% of both Petron Fuel International Sdn Bhd (PFISB) and Petron Oil (M) Sdn Bhd (POMSB), collectively hereinafter referred to as “Petron Malaysia”. Petron Malaysia is involved in the refining and marketing of petroleum products in Malaysia. PFL is a holding company incorporated under the laws of Labuan, Malaysia.

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PAHL is a holding company incorporated in Hong Kong in March 2008. A subsidiary is an entity controlled by the Group. The Group controls an entity if and only if, the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group reassesses 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. When the Group has less than 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 the contractual arrangement with the other vote holders of the investee, rights arising from other contractual arrangements and the Group’s voting rights and potential voting rights. For NVRC and PAHL, the basis of consolidation is discussed in Note 4. The financial statements of the subsidiaries are included in the consolidated financial statements from the date when the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using uniform accounting policies for like transactions and other events in similar circumstances. Intergroup balances and transactions, including intergroup unrealized profits and losses, are eliminated in preparing the consolidated financial statements. Non-controlling interests represent the portion of profit or loss and net assets not attributable to the Parent Company and are presented in the consolidated statements of income, consolidated statements of comprehensive income and within equity in the consolidated statements of financial position, separately from the equity attributable to equity holders of the Parent Company. Non-controlling interests represent the interests not held by the Parent Company in NVRC and PMRMB in 2017 and 2016. A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, the Group: (i) derecognizes the assets (including goodwill) and liabilities of the subsidiary, the carrying amount of any non-controlling interests and the cumulative transaction differences recorded in equity; (ii) recognizes the fair value of the consideration received, the fair value of any investment retained and any surplus or deficit in profit or loss; and (iii) reclassify the Parent Company’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.

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3. Significant Accounting Policies The accounting policies set out below have been applied consistently to all the years presented in the consolidated financial statements, except for the changes in accounting policies as explained below. Adoption of Amendments to Standards The Group has adopted the following amendments to standards starting January 1, 2017 and accordingly, changed its accounting policies. Except as otherwise indicated, the adoption of these amendments to standards did not have significant impact on the Group’s consolidated financial statements. Disclosure Initiative (Amendments to PAS 7, Statement of Cash Flows). The

amendments address financial statements users’ requests for improved disclosures about an entity’s net debt relevant to understanding an entity’s cash flows. The amendments require entities to provide disclosures that enable users of consolidated financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes - e.g. by providing a reconciliation between the opening and closing balances in the consolidated statements of financial position for liabilities arising from financing activities.

Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to PAS 12, Income Taxes). The amendments clarify that: • the existence of a deductible temporary difference depends solely on a

comparison of the carrying amount of an asset and its tax base at the end of the reporting period, and is not affected by possible future changes in the carrying amount or expected manner of recovery of the asset;

• the calculation of future taxable profit in evaluating whether sufficient taxable profit will be available in future periods excludes tax deductions resulting from the reversal of the deductible temporary differences;

• the estimate of probable future taxable profit may include the recovery of some of an entity's assets for more than their carrying amount if there is sufficient evidence that it is probable that the entity will achieve this; and

• an entity assesses a deductible temporary difference related to unrealized losses in combination with all of its other deductible temporary differences, unless a tax law restricts the utilization of losses to deduction against income of a specific type.

Annual Improvements to PFRS Cycles 2014 - 2016 contain changes to three standards, of which only the Amendments to PFRS 12, Disclosure of Interests in Other Entities on clarification of the scope of the standard is applicable to the Group. The amendments clarify that the disclosure requirements for interests in other entities also apply to interests that are classified as held for sale or distribution.

Standards Issued but Not Yet Adopted A number of new standards and amendments to standards are effective for annual periods beginning after January 1, 2017. However, the Group has not applied the following new or amended standards in preparing these consolidated financial statements. Unless otherwise stated, none of these are expected to have a significant impact on the Group’s consolidated financial statements.

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The Group will adopt the following new or revised standards and amendments to standards on the respective effective dates:

To be Adopted 2018

PFRS 9 (2014), Financial Instruments, replaces PAS 39, Financial Instruments:

Recognition and Measurement, and supersedes the previously published versions of PFRS 9 that introduced new classifications and measurement requirements (in 2009 and 2010) and a new hedge accounting model (in 2013). PFRS 9 includes revised guidance on the classification and measurement of financial assets, including a new expected credit loss model for calculating impairment, guidance on own credit risk on financial liabilities measured at fair value and supplements the new general hedge accounting requirements. PFRS 9 incorporates new hedge accounting requirements that represent a major overhaul of hedge accounting and introduces significant improvements by aligning the accounting more closely with risk management. The new standard is required to be applied retrospectively for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Group will adopt the new standard on the effective date and will not restate comparative information. The Group has performed an assessment which is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Group in 2018. The adoption of PFRS 9 will have no significant effect on the classification and measurement of financial assets and liabilities of the Group. The Group does not expect any impact on its consolidated statement of financial position except for the possible effect of applying the expected credit loss model in measuring impairment.

Applying PFRS 9, Financial Instruments with PFRS 4, Insurance Contracts (Amendments to PFRS 4). The amendments permit to defer application of PFRS 9 in 2018 and continue to apply PAS 39, Financial Instruments: Recognition and Measurement if it has not applied PFRS 9 before and its activities are predominantly connected with insurance. A qualified entity is permitted to apply the temporary exemption for annual reporting periods beginning before January 1, 2021. The amendments also provide an overlay approach to presentation when applying PFRS 9 for designated financial assets where an entity is permitted to reclassify between profit or loss and other comprehensive income the difference between the amounts recognized in profit or loss under PFRS 9 and those that would have been reported under PAS 39. A financial asset is eligible for designation if it is not held for an activity that is unconnected with contracts in the scope of PFRS 4, and if it is measured at FVPL under PFRS 9, but would not have been under PAS 39. An entity is generally permitted to start applying the overlay approach only when it first applies PFRS 9, including after previously applying the temporary exemption. The amendments permitting the temporary exemption is for annual periods beginning on or after January 1, 2018 and the amendments allowing the overlay approach are applicable when an entity first applies PFRS 9.

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PFRS 15, Revenue from Contracts with Customers replaces PAS 11, Construction Contracts, PAS 18, Revenue, IFRIC 13, Customer Loyalty Programmes, IFRIC 18, Transfer of Assets from Customers and SIC-31, Revenue - Barter Transactions Involving Advertising Services. The new standard introduces a new revenue recognition model for contracts with customers which specifies that revenue should be recognized when (or as) a company transfers control of goods or services to a customer at the amount to which the Group expects to be entitled. Depending on whether certain criteria are met, revenue is recognized over time, in a manner that best reflects the Group’s performance, or at a point in time, when control of the goods or services is transferred to the customer. The standard does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other PFRS. It also does not apply if two companies in the same line of business exchange non-monetary assets to facilitate sales to other parties. Furthermore, if a contract with a customer is partly in the scope of another PFRS, then the guidance on separation and measurement contained in the other PFRS takes precedence. The management of the Group is still finalizing the impact of PFRS 15 on the Group’s revenue recognition. However, the Group does not expect significant impact on its consolidated financial position and consolidated net income.

Transfers of Investment Property (Amendments to PAS 40, Investment Property) amends the requirements on when an entity should transfer a property asset to, or from, investment property. A transfer is made when and only when there is an actual change in use - i.e. an asset meets or ceases to meet the definition of investment property and there is evidence of the change in use. A change in management intention alone does not support a transfer. The amendments are effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. An entity may apply the amendments to transfers that occur after the date of initial application and also reassess the classification of property assets held at that date or apply the amendments retrospectively, but only if it does not involve the use of hindsight.

Philippine Interpretation IFRIC-22, Foreign Currency Transactions and Advance Consideration. The amendments clarifies that the transaction date to be used for translation for foreign currency transactions involving an advance payment or receipt is the date on which the entity initially recognizes the prepayment or deferred income arising from the advance consideration. For transactions involving multiple payments or receipts, each payment or receipt gives rise to a separate transaction date. The interpretation applies when an entity pays or receives consideration in a foreign currency and recognizes a non-monetary asset or liability before recognizing the related item. The interpretation is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted.

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Annual Improvements to PFRS Cycles 2014 - 2016 contain changes to three standards, of which only the Amendments to PAS 28, Investments in Associates on measuring an associate or joint venture at fair value is applicable to the Group. The amendments provide that a venture capital organization, or other qualifying entity, may elect to measure its investments in an associate or joint venture at FVPL. This election can be made on an investment-by-investment basis. The amendments also provide that a non-investment entity investor may elect to retain the fair value accounting applied by an investment entity associate or investment entity joint venture to its subsidiaries. This election can be made separately for each investment entity associate or joint venture. The amendments are to be applied retrospectively on or after January 1, 2018, with early application permitted.

To be Adopted 2019 PFRS 16, Leases supersedes PAS 17, Leases and the related Philippine

Interpretations. The new standard introduces a single lease accounting model for lessees under which all major leases are recognized on-balance sheet, removing the lease classification test. Lease accounting for lessors essentially remains unchanged except for a number of details including the application of the new lease definition, new sale-and-leaseback guidance, new sub-lease guidance and new disclosure requirements. Practical expedients and targeted reliefs were introduced including an optional lessee exemption for short-term leases (leases with a term of 12 months or less) and low-value items, as well as the permission of portfolio-level accounting instead of applying the requirements to individual leases. New estimates and judgmental thresholds that affect the identification, classification and measurement of lease transactions, as well as requirements to reassess certain key estimates and judgments at each reporting date were introduced. PFRS 16 is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted for entities that apply PFRS 15 at or before the date of initial application of PFRS 16. The management of the Group is currently assessing the potential impact of PFRS 16 on their current lease arrangements and plans to adopt this new standard on leases on the required effective date.

Philippine Interpretation IFRIC 23, Uncertainty over Income Tax Treatments. The interpretation clarifies how to apply the recognition and measurement requirements in PAS 12, Income Taxes, when there is uncertainty over income tax treatments. Under the interpretation, whether the amounts recorded in the consolidated financial statements will differ to that in the tax return, and whether the uncertainty is disclosed or reflected in the measurement, depends on whether it is probable that the tax authority will accept the Group’s chosen tax treatment, the uncertainty is reflected using the measure that provides the better prediction of the resolution of the uncertainty - either the most likely amount or the expected value. The interpretation also requires the reassessment of judgments and estimates applied if facts and circumstances change - e.g. as a result of examination or action by tax authorities, following changes in tax rules or when a tax authority’s right to challenge a treatment expires. The interpretation is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted.

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Long-term Interests in Associates and Joint Ventures (Amendments to PAS 28, Investments in Associates). The amendment requires the application of PFRS 9 to other financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests (LTIs) that, in substance, form part of the entity's net investment in an associate or joint venture. The amendment explains the annual sequence in which PFRS 9 and PFRS 28 are to be applied. In effect, PFRS 9 is first applied ignoring any prior years’ PAS 28 loss absorption. If necessary, prior years’ PAS 28 loss allocation is trued-up in the current year which may involve recognizing more prior years’ losses, reversing these losses or re-allocating them between different LTI instruments. Any current year PAS 28 losses are allocated to the extent that the remaining LTI balance allows and any current year PAS 28 profits reverse any unrecognized prior years’ losses and then allocations against LTI. The amendment is effective for annual periods beginning on or after January 1, 2019 with early adoption permitted. Retrospective application is required, subject to relevant transitional reliefs.

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to PFRS 10 and PAS 28). The amendments address an inconsistency between the requirements in PFRS 10 and in PAS 28, 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. Originally, the amendments apply prospectively for annual periods beginning on or after January 1, 2016 with early adoption permitted. However, on January 13, 2016, the FRSC decided to postpone the effective date of these amendments until the IASB has completed its broader review of the research project on equity accounting that may result in the simplification of accounting for such transactions and of other aspects of accounting for associates and joint ventures.

Current versus Noncurrent Classification The Group presents assets and liabilities in the consolidated statements of financial position based on current and non-current classification. An asset is current when it is: (a) expected to be realized or intended to be sold or consumed in the normal operating cycle; (b) held primarily for the purpose of trading; (c) expected to be realized within twelve months after the reporting period; or (d) cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. A liability is current when it is: (a) expected to be settled in the normal operating cycle; (b) held primarily for trading; (c) due to be settled within twelve months after the reporting period; or (d) there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The Group classifies all other assets and liabilities as noncurrent. Deferred tax assets and liabilities are classified as noncurrent.

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Financial Assets and Financial Liabilities Date of Recognition. The Group recognizes a financial asset or a financial liability in the consolidated statements of financial position when it becomes a party to the contractual provisions of the instrument. In the case of a regular way purchase or sale of financial assets, recognition is done using settlement date accounting. Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair value of the consideration given (in case of an asset) or received (in case of a liability). The initial measurement of financial instruments, except for those designated as at fair value through profit or loss (FVPL), includes transaction costs. Classification of Financial Instruments. The Group classifies its financial assets in the following categories: held-to-maturity (HTM) investments, AFS financial assets, financial assets at FVPL and loans and receivables. The Group classifies its financial liabilities as either financial liabilities at FVPL or other financial liabilities. The classification depends on the purpose for which the investments are acquired and whether they are quoted in an active market. Management determines the classification of its financial assets and financial liabilities at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date. ‘Day 1’ Profit. Where the transaction price in a non-active market is different from the fair value of 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 the fair value (a ‘Day 1’ profit) in profit or loss unless it qualifies for recognition as some other type of asset. In cases where data used is not observable, the difference between the transaction price and model value is only recognized in profit or loss 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’ profit amount. Financial Assets Financial Assets at FVPL. A financial asset is classified as at FVPL if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at FVPL if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Derivative instruments (including embedded derivatives), except those covered by hedge accounting relationships, are classified under this category. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Financial assets may be designated by management at initial recognition at FVPL when any of the following criteria is met: the designation eliminates or significantly reduces the inconsistent treatment that

would otherwise arise from measuring the assets or recognizing gains or losses on a different basis;

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the assets are part of a group of financial assets which are managed and their performances 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 recognized.

The Group uses commodity price swaps to protect its margin on petroleum products from potential price volatility of international crude and product prices. It also enters into short-term forward currency contracts to hedge its currency exposure on crude oil importations. In addition, the Parent Company has identified and bifurcated embedded foreign currency derivatives from certain non-financial contracts. Derivative instruments are initially recognized at fair value on the date in which a derivative transaction is entered into or bifurcated, and are subsequently re-measured at fair value. Derivatives are presented in the consolidated statements of financial position as assets when the fair value is positive and as liabilities when the fair value is negative. Unrealized gains and losses from changes in fair value of forward currency contracts, commodity price swaps and embedded derivatives are recognized under the caption “Marked-to-market gains (losses) - net” included as part of “Other expenses - net” account in the consolidated statements of income. Realized gains or losses on the settlement of commodity price swaps are recognized under the caption “Inventories” included as part of “Cost of goods sold” account in the consolidated statements of income. The fair values of freestanding and bifurcated forward currency transactions are calculated by reference to current exchange rates for contracts with similar maturity profiles. The fair values of commodity swaps are determined based on quotes obtained from counterparty banks. The Group’s derivative assets and proprietary membership shares are classified under this category. Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments and 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. Subsequent to initial recognition, loans and receivables are carried at amortized cost using the effective interest method, less any impairment in value. Any interest earned on loans and receivables is recognized as part of “Interest income” account in the consolidated statements of income on an accrual basis. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The periodic amortization is also included as part of “Interest income” account in the consolidated statements of income. Gains or losses are recognized in profit or loss when loans and receivables are derecognized or impaired. Cash includes cash on hand and in banks which are stated at face value. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. The Group’s cash and cash equivalents, trade and other receivables, due from related parties, long-term receivables and noncurrent deposits are included under this category.

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HTM Investments. HTM investments are non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Group’s 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 recognition, these investments are measured at amortized cost using the effective interest method, less impairment in value. Any interest earned on the HTM investments is recognized as part of “Interest income” account in the consolidated statements of income on an accrual basis. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The periodic amortization is also included as part of “Interest income” account in the consolidated statements of income. Gains or losses are recognized in profit or loss when the HTM investments are derecognized or impaired. The Group has no investments accounted for under this category as of December 31, 2017 and 2016. AFS Financial Assets. AFS financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other financial asset categories. Subsequent to initial recognition, AFS financial assets are measured at fair value and changes therein, other than impairment losses and foreign currency differences on AFS debt instruments, are recognized in other comprehensive income and presented in the consolidated statements of changes in equity. The effective yield component of AFS debt securities is reported as part of “Interest income” account in the consolidated statements of income. Dividends earned on holding AFS equity securities are recognized as “Dividend income” when the right to receive payment has been established. When individual AFS financial assets are either derecognized or impaired, the related accumulated unrealized gains or losses previously reported in equity are transferred to and recognized in profit or loss. AFS financial assets also include unquoted equity instruments with fair values which cannot be reliably determined. These instruments are carried at cost less impairment in value, if any. The Group’s investments in equity and debt securities included under “Available-for-sale financial assets” account are classified under this category. Financial Liabilities Financial Liabilities at FVPL. Financial liabilities are classified under this category through the fair value option. Derivative instruments (including embedded derivatives) with negative fair values, except those covered by hedge accounting relationships, are also classified under this category. The Group carries financial liabilities at FVPL using their fair values and reports fair value changes in profit or loss. The Group’s derivative liabilities are classified under this category. Other Financial Liabilities. This category pertains to financial liabilities that are not designated or classified at FVPL. After initial measurement, other financial liabilities are carried at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any premium or discount and any directly attributable transaction costs that are considered an integral part of the effective interest rate of the liability.

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The Group’s liabilities arising from its short-term loans, liabilities for crude oil and petroleum products, trade and other payables, long-term debt, cash bonds, cylinder deposits and other noncurrent liabilities are included under this category. Debt Issue Costs Debt issue costs are considered as an adjustment to the effective yield of the related debt and are deferred and amortized using the effective interest method. When a loan is paid, the related unamortized debt issue costs at the date of repayment are recognized in the consolidated statements of income. Derivative Financial Instruments Freestanding Derivatives. For the purpose of hedge accounting, hedges are classified as either: a) fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment (except for foreign currency risk); b) cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment; or c) hedges of a net investment in foreign operations. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. The Group has no derivatives that qualify for hedge accounting as of December 31, 2017 and 2016. Any gains or losses arising from changes in fair value of derivatives are taken directly to profit or loss during the year incurred. Embedded Derivatives. The Group assesses whether embedded derivatives are required to be separated from host contracts when the Group becomes a party to the contract. An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL. 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.

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Derecognition of Financial Assets and Financial Liabilities Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized when: the rights to receive cash flows from the asset have expired; or the Group has transferred its rights to receive cash flows from 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 either: (a) has transferred substantially all the risks and rewards of the asset; or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognizes the associated liability. The transferred asset and the associated liability are measured on the basis that reflects the rights and obligations that the Group has retained. Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. When 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. The difference in the respective carrying amounts is recognized in profit or loss. Impairment of Financial Assets The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a 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 have occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Assets Carried at Amortized Cost. For financial assets carried at amortized cost such as loans and receivables, the Group first assesses whether objective impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If no objective evidence of impairment has been identified for a particular financial asset that was individually assessed, the Group includes the asset as part of a group of financial assets with similar credit risk characteristics and collectively assesses the group 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 the collective impairment assessment.

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Evidence of impairment for specific impairment purposes may include indications that the borrower or a group of borrowers is experiencing financial difficulty, default or delinquency in principal or interest payments, or may enter into bankruptcy or other form of financial reorganization intended to alleviate the financial condition of the borrower. For collective impairment purposes, evidence of impairment may include observable data on existing economic conditions or industry-wide developments indicating that there is a measurable decrease in the estimated future cash flows of the related assets. If there is objective evidence of impairment, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). Time value is generally not considered when the effect of discounting the cash flows is not material. If a loan or receivable has a variable rate, the discount rate for measuring any impairment loss is the current effective interest rate, adjusted for the original credit risk premium. For collective impairment purposes, impairment loss is computed based on their respective default and historical loss experience. The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The impairment loss for the period shall be recognized in profit or loss. 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 profit or loss, to the extent that the carrying amount of the asset does not exceed its amortized cost at the reversal date. AFS Financial Assets. For equity instruments carried at fair value, the Group assesses at each reporting date whether objective evidence of impairment exists. Objective evidence of impairment includes a significant or prolonged decline in the fair value of an equity instrument below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ is evaluated against the period in which the fair value has been below its original cost. The Group generally regards fair value decline as being significant when decline exceeds 25%. A decline in a quoted market price that persists for 12 months is generally considered to be prolonged. If an AFS financial asset is impaired, an amount comprising the difference between the cost (net of any principal payment and amortization) and its current fair value, less any impairment loss on that financial asset previously recognized in profit or loss, is transferred from equity to profit or loss. Reversals of impairment losses in respect of equity instruments classified as AFS financial assets are not recognized in profit or loss. Reversals of impairment losses on debt instruments are recognized in profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in profit or loss. In the case of an unquoted equity instrument or of a derivative asset linked to and must be settled by delivery of an unquoted equity instrument, for which its fair value cannot be reliably measured, the amount of impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows from the asset discounted using its historical effective rate of return on the asset.

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Classification of Financial Instruments between Liability and Equity Financial instruments are classified as liability or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity, net of any related income tax benefits. A financial instrument is classified as liability if it provides for a contractual obligation to: deliver cash or another financial asset to another entity;

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. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements 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. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated statements of financial position. Fair Value Measurements The Group measures a number of financial and non-financial assets and liabilities at 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 most advantageous market for the asset or liability. The principal or most advantageous market must be accessible to the Group. The fair value of an asset or 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.

F-185

All assets and liabilities for which fair value is measured or disclosed in the consolidated 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 prices (unadjusted) in active markets for identical assets or

liabilities;

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3: inputs for the asset or liability that are not based on observable market data.

For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing the categorization at the end of each reporting period. For purposes of the fair value disclosure, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of fair value hierarchy, as explained above. Inventories Inventories are carried at the lower of cost or net realizable value (NRV). For petroleum products and crude oil, the NRV is the estimated selling price in the ordinary course of business, less the estimated costs to complete and/or market and distribute. For financial reporting purposes, the Group uses the first-in, first-out method in costing petroleum products and crude oil. Cost is determined using the moving-average method in costing lubes and greases, blending components, polypropylene, materials and supplies inventories. For income tax reporting purposes, cost of all inventories is determined using the moving-average method. For financial reporting purposes, duties and taxes related to the acquisition of inventories are capitalized as part of inventory cost. For income tax reporting purposes, such duties and taxes are treated as deductible expenses in the year these charges are incurred. Business Combination Business combinations are accounted for using the acquisition method as of the acquisition date. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included as part of “Selling and administrative expenses” account in the consolidated statements of income. When the Group acquires a business, it assesses the financial assets and financial liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as of the acquisition date.

F-186

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured at the acquisition date fair values and any resulting gain or loss is recognized in profit or loss. The Group measures goodwill at the acquisition date as: a) the fair value of the consideration transferred; plus b) the recognized amount of any non-controlling interests in the acquiree; plus c) if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less d) the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss. Subsequently, goodwill is measured at cost less any accumulated impairment in value. Goodwill is reviewed for impairment, annually or more frequently, if events or changes in circumstances indicate that the carrying amount may be impaired. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities that the Group incurs in connection with a business combination, are expensed as incurred. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognized in profit or loss. Goodwill in a Business Combination. Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating units, or groups of cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated: represents the lowest level within the Group at which the goodwill is monitored

for internal management purposes; and

is not larger than an operating segment determined in accordance with PFRS 8.

Impairment is determined by assessing the recoverable amount of the cash-generating unit or group of cash-generating units, to which the goodwill relates. Where the recoverable amount of the cash-generating unit or group of cash-generating units is less than the carrying amount, an impairment loss is recognized. Where goodwill forms part of a cash-generating unit or group of cash-generating units and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. An impairment loss with respect to goodwill is not reversed. Intangible Assets Acquired in a Business Combination. The cost of an intangible asset acquired in a business combination is the fair value as of the date of acquisition, determined using discounted cash flows as a result of the asset being owned.

F-187

Following initial recognition, intangible asset is carried at cost less any accumulated amortization and impairment losses, if any. The useful life of an intangible asset is assessed to be either finite or indefinite. An intangible asset with finite life is amortized over the useful economic life 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 each reporting date. A change in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for as a change in accounting estimate. The amortization expense on intangible asset with finite life is recognized in profit or loss. Transactions under Common Control Transactions under common control entered into in contemplation of each other, and business combination under common control designed to achieve an overall commercial effect are treated as a single transaction. Transfers of assets between commonly controlled entities are accounted for using the book value accounting. Non-controlling Interests The acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognized as a result of such transactions. Any difference between the purchase price and the net assets of the acquired entity is recognized in equity. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. Investment in Shares of Stock of an Associate An associate is an entity in which the Group has significant influence. Significant influence is the power to participate in the financial and operating policies of the investee, but not control over those policies. The Group’s investment in shares of stock of an associate are accounted for using the equity method. Under the equity method, the investment in an associate is initially recognized at cost. The carrying amount of the investment is adjusted to recognize the changes in the Group’s share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment. The Group’s share in the profit or loss of the associate is recognized as “Share in net income of an associate” account in the Group’s consolidated statements of income. Adjustments to the carrying amount may also be necessary for changes in the Group’s proportionate interest in the associate arising from changes in the associate’s other comprehensive income. The Group’s share of those changes is recognized in the consolidated statements of comprehensive income. Unrealized gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

F-188

After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss with respect to the Group’s net investment in the associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group recalculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value. Such impairment loss is recognized as part of “Share in net income of an associate” account in the consolidated statements of income. Upon loss of significant influence over the associate, the Group measures and recognizes any retained investment at fair value. Any difference between the carrying amount of the investment in shares of stock of an associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss. The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. Interest in Joint Ventures A joint venture 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. The Group’s 33.33% joint venture interest in Pandacan Depot Services, Inc. (PDSI) and 50.00% joint venture interest in Terminal Bersama Sdn Bhd (TBSB), included under “Other noncurrent assets - net” account in the consolidated statements of financial position, are accounted for under the equity method of accounting. The interest in joint ventures is carried in the consolidated statements of financial position at cost plus post-acquisition changes in the Group’s share in net income (loss) of the joint ventures, less any impairment in value. The consolidated statements of income reflect the Group’s share in the results of operations of the joint ventures presented as part of “Other expenses” account. As of December 31, 2017, the Group has capital commitments amounting to P4 and nil for TBSB and PDSI, respectively. The Group has no contingent liabilities in relation to its interest in these joint ventures. Results of operations as well as financial position balances of PDSI and TBSB were less than 1% of the consolidated balances of the Group and as such are assessed as not material; hence, not separately disclosed. Property, Plant and Equipment Property, plant and equipment, except land, are stated at cost less accumulated depreciation and amortization and any accumulated impairment in value. Such cost includes the cost of replacing part of the property, plant and equipment at the time that cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing. Land is stated at cost less any impairment in value.

F-189

The initial cost of property, plant and equipment comprises its construction cost or purchase price, including import duties, taxes and any directly attributable costs in bringing the asset to its working condition and location for its intended use. Cost also includes any related asset retirement obligation (ARO). Expenditures incurred after the asset has been put into operation, such as repairs, maintenance and overhaul costs, are normally recognized as an expense in the period the costs are incurred. Major repairs are capitalized as part of property, plant and equipment only when it is probable that future economic benefits associated with the items will flow to the Group and the cost of the items can be measured reliably. Construction in progress (CIP) represents structures under construction and is stated at cost. This includes the costs of construction and other direct costs. Borrowing costs that are directly attributable to the construction of plant and equipment are capitalized during the construction period. CIP is not depreciated until such time that the relevant assets are ready for use. For financial reporting purposes, depreciation and amortization, which commences when the assets are available for its intended use, are computed using the straight-line method over the following estimated useful lives of the assets:

Number of Years Buildings and improvements and

related facilities 7 - 50 Refinery and plant equipment 4 - 33 Service stations and other equipment 2 - 33 Computers, office and motor

equipment 2 - 20 Land and leasehold improvements 10 or the term of the lease,

whichever is shorter For financial reporting purposes, duties and taxes related to the acquisition of property, plant and equipment are capitalized. For income tax reporting purposes, such duties and taxes are treated as deductible expenses in the year these charges are incurred. For income tax reporting purposes, depreciation and amortization are computed using the double-declining balance method. The remaining useful lives and depreciation and amortization method are reviewed and adjusted periodically, if appropriate, to ensure that such useful lives and method of depreciation and amortization are consistent with the expected pattern of economic benefits from the items of property, plant and equipment. The carrying amounts of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable. Fully depreciated assets are retained in the accounts until they are no longer in use. An item of property, plant and equipment is derecognized either when it has been disposed of or when it is permanently withdrawn from use and no future economic benefits are expected from its use or disposal. Any gain or loss arising from the retirement or disposal of an item of property, plant and equipment (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period of retirement or disposal.

F-190

Investment Property Investment property consists of land and building held to earn rentals and/or for capital appreciation but not for sale in the ordinary course of business, used in the production or supply of goods or services or for administrative purposes. Investment property is initially measured at cost which is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire the investment property at the time of its acquisition or construction. Investment property, except for land, is measured at cost including transaction costs less accumulated depreciation and amortization and any accumulated impairment in value. The carrying amount includes the cost of replacing part of an existing investment property at the time the cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing of an investment property. Land is stated at cost less any impairment in value. For financial reporting purposes, depreciation of building is computed on a straight-line basis over the estimated useful lives of the assets of 20 years. For income tax reporting purposes, depreciation is computed using the double-declining balance method. The useful lives and depreciation and amortization method are reviewed and adjusted, if appropriate, at each reporting date. Investment property is derecognized either when it has been disposed of or when it 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 property are recognized in profit or loss in the period of retirement or disposal. Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation or commencement of an operating lease to another party. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of the owner-occupation or commencement of development with a view to sell. For a transfer from investment property to owner-occupied property, the cost of property for subsequent accounting is its carrying amount at the date of change in use. If the property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as of the date of acquisition. Subsequently, intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditures are recognized in profit or loss in the year in which the related expenditures are incurred. The useful lives of intangible assets are assessed to be either finite or indefinite.

F-191

Intangible assets with finite lives are amortized over the useful life and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortization periods and amortization method used for an intangible asset with a finite useful life are reviewed at each reporting date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are 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 profit or loss consistent with the function of the intangible asset. Amortization is computed using the straight-line method over the following estimated useful lives of the assets:

Number of Years Software 5 - 10 Franchise fee 3 - 10 Other intangibles 10 - 16

Gains or losses arising from the disposal 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 profit or loss when the asset is derecognized. As of December 31, 2017 and 2016, the Group has existing and pending trademark registration for its products for a term of 10 to 20 years. It also has copyrights for its 7-kg LPG container, Gasulito with stylized letter “P” and two flames, Powerburn 2T and Petron New Logo (22 styles). Copyrights endure during the lifetime of the creator and for another 50 years after creator’s death. The amount of intangible assets is included as part of “Other noncurrent assets - net” in the consolidated statements of financial position. Expenses incurred for research and development of internal projects and internally developed patents and copyrights are expensed as incurred and are part of “Selling and administrative expenses” account in the consolidated statements of income. Asset Held for Sale The Group classifies noncurrent assets as held for sale, if their carrying amounts will be recovered primarily through sale rather than through continuing use. The assets are generally measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognized in the consolidated statements of income. Gains are not recognized in excess of any cumulative impairment losses. The criteria for held for sale is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes will be made or that the decision on sale will be withdrawn. Management must be committed to the sale within one year from date of classification. Equity accounting of equity-accounted investees ceases once classified as held for sale. Assets held for sale are presented under “Other current assets” account in the consolidated statements of financial position.

F-192

Impairment of Nonfinancial Assets The carrying amounts of property, plant and equipment, investment property, intangible assets with finite useful lives, investment in shares of stock of an associate and interest in joint ventures are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such indication exists, and if the carrying amount exceeds the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amounts. The recoverable amount of the asset is the greater of fair value less costs of disposal and value in use. The fair value less costs of disposal 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, less costs of disposal. 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. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in profit or loss in those expense categories consistent with the function of the impaired asset. 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 recoverable amount is estimated. 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 depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss. After such a reversal, the depreciation and amortization charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Cylinder Deposits The Parent Company purchases LPG cylinders which are loaned to dealers upon payment by the latter of an amount equivalent to 90% of the acquisition cost of the cylinders. The Parent Company maintains the balance of cylinder deposits at an amount equivalent to three days worth of inventory of its biggest dealers, but in no case lower than P200 at any given time, to take care of possible returns by dealers. At the end of each reporting date, cylinder deposits, shown under “Other noncurrent liabilities” account in the consolidated statements of financial position, are reduced for estimated non-returns. The reduction is recognized directly in profit or loss.

F-193

Provisions Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a result of past event; (b) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) 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 assessment of the time value of money and the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement is treated as a separate asset. The amount recognized for the reimbursement shall not exceed the amount of the provision. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. The Group recognizes provisions arising from legal and/or constructive obligations associated with the cost of dismantling and removing an item of property, plant and equipment and restoring the site where it is located, the obligation for which the Group incurs either when the asset is acquired or as a consequence of using the asset during a particular year for purposes other than to produce inventories during the year. Capital Stock Common Shares. Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects and any excess of the proceeds over the par value of shares issued less any incremental costs directly attributable to the issuance, net of tax, is presented in equity as additional paid-in capital. Preferred Shares. Preferred shares are classified as equity if they are non-redeemable, or redeemable only at the Parent Company’s option, and any dividends thereon are discretionary. Dividends thereon are recognized as distributions within equity upon approval by the Parent Company’s BOD. Preferred shares are classified as a liability if they are redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognized as interest expense in profit or loss as accrued. Additional Paid-in Capital When the shares are sold at premium, the difference between the proceeds and the par value is credited to the “Additional paid-in capital” account. When shares are issued for a consideration other than cash, the proceeds are measured by the fair value of the consideration received. In case the shares are issued to extinguish or settle the liability of the Parent Company, the shares are measured either at the fair value of the shares issued or fair value of the liability settled, whichever is more reliably determinable. Treasury Stock Own equity instruments which are reacquired are carried at cost and deducted from equity. No gain or loss is recognized on the purchase, sale, reissuance or cancellation of the Parent Company’s own equity instruments. When the shares are retired, the capital stock account is reduced by its par value and the excess of cost over par value upon retirement is debited to additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares were issued and to retained earnings for the remaining balance.

F-194

Undated Subordinated Capital Securities (USCS) USCS are classified as equity when there is no contractual obligation to deliver cash or other financial assets to another person or entity or to exchange financial assets or liabilities with another person or entity that is potentially unfavorable to the issuer. Incremental costs directly attributable to the issuance of undated subordinated capital securities are recognized as a deduction from equity, net of tax. The proceeds received net of any directly attributable transaction costs are credited to undated subordinated capital securities. Retained Earnings Retained earnings represent the accumulated net income or losses, net of any dividend distributions and other capital adjustments. Appropriated retained earnings represent that portion which is restricted and therefore not available for any dividend declaration. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the amount of the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Sale of Goods. Revenue from sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of trade discounts and volume rebates. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, which is normally upon delivery, and the amount of revenue can be measured reliably. Interest. Revenue is recognized as the interest accrues, taking into account the effective yield on the asset. Dividend. Revenue is recognized when the Group’s right as a shareholder to receive the payment is established. Rent. Revenue from operating leases (net of any incentives given to the lessees) is recognized on a straight-line basis over the lease term. Customer Loyalty Program. Revenue is allocated between the customer loyalty program and the other component of the sale. The amount allocated to the customer loyalty program is deducted from revenue at the time points are awarded to the customer. A deferred liability account is set up until the Group has fulfilled its obligations to supply the discounted products under the terms of the program or when it is no longer probable that the points under the program will be redeemed. Other Income. Other income is recognized when there is incidental economic benefit, other than the usual business operations, that will flow to the Group and that can be measured reliably. Cost and Expense Recognition Costs and expenses are recognized upon receipt of goods, utilization of services or at the date they are incurred.

F-195

Expenses are also recognized when a decrease in future economic benefit related to a decrease in an asset or an increase in a liability that can be measured reliably has arisen. Expenses are recognized on the basis of a direct association between costs incurred and the earning of specific items of income; on the basis of systematic and rational allocation procedures when economic benefits are expected to arise over several accounting periods and the association can only be broadly or indirectly determined; or immediately when an expenditure produces no future economic benefits or when, and to the extent that future economic benefits do not qualify, or cease to qualify, for recognition as an asset. Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement 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 the inception of the lease only if one of the following applies: (a) there is a change in contractual terms, other than a renewal or extension of the

arrangement; (b) a renewal option is exercised or an extension is granted, unless the term of the

renewal or extension was initially included in the lease term;

(c) there is a change in the determination of whether fulfillment is dependent on a specific asset; or

(d) there is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gives rise to the reassessment for scenarios (a), (c) or (d), and at the date of renewal or extension period for scenario (b) above. Group as Lessee. Leases which do not transfer to the Group 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 profit or loss on a straight-line basis over the lease term. Associated costs such as maintenance and insurance are expensed as incurred. Group as Lessor. Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Rent income from operating leases is recognized as income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as rent income. Contingent rents are recognized as income in the period in which they are earned. Borrowing Costs Borrowing costs directly attributable to the acquisition or construction of an asset that necessarily takes a substantial period of time to get ready for its intended use are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their intended use.

F-196

Research and Development Costs Research costs are expensed as incurred. Product development costs incurred on an individual project are carried forward when their future recoverability can be reasonably regarded as assured. Any expenditure carried forward is amortized in line with the expected future sales from the related project. The carrying amount of development costs is reviewed for impairment annually when the related asset is not yet in use. Otherwise, this is reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Employee Benefits Short-term Employee Benefits. Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Retirement Benefits Costs and Other Employee Benefit Costs. Petron has a tax qualified and funded defined benefit pension plan covering all permanent, regular, full-time employees administered by trustee banks. Some of its subsidiaries have separate unfunded, noncontributory, retirement plans. The Group’s net retirement benefits liability is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, discounting that amount and deducting the fair value of plan assets. The calculation of defined benefit retirement obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognized asset is limited to the present value of economic benefits available in the form of reductions in future contributions to the plan. Remeasurements of the net defined retirement obligation or asset, excluding net interest, are recognized immediately in other comprehensive income under “Equity reserve for retirement plan”. Such remeasurements are also immediately recognized in equity under “Equity reserves” and are not reclassified to profit or loss in subsequent periods. Net defined retirement benefit obligation or asset comprise actuarial gains and losses, the return on plan assets, excluding interest and the effect of the asset ceiling, if any. The Group determines the net interest expense or income on the net defined retirement obligation or asset for the period by applying the discount rate used to measure the defined benefit retirement obligation at the beginning of the annual period to the then-net defined retirement obligation or asset, taking into account any changes in the net defined benefit retirement obligation or asset during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit retirement plan when the settlement occurs.

F-197

The Group also provides other benefits to its employees as follows: Corporate Performance Incentive Program. The Group has a corporate performance incentive program that aims to provide financial incentives for the employees, contingent on the achievement of the Group’s annual business goals and objectives. The Group recognizes achievement of its business goals through key performance indicators (KPIs) which are used to evaluate performance of the organization. The Group recognizes the related expense when the KPIs are met, that is when the Group is contractually obliged to pay the benefits. Savings Plan. The Group established a Savings Plan wherein eligible employees may apply for membership and have the option to contribute 5% to 15% of their monthly base pay. The Group, in turn, contributes an amount equivalent to 50% of the employee-member’s contribution. However, the Group’s 50% share applies only to a maximum of 10% of the employee-member’s contribution. The Savings Plan aims to supplement benefits upon employees’ retirement and to encourage employee-members to save a portion of their earnings. The Group accounts for this benefit as a defined contribution pension plan and recognizes a liability and an expense for this plan as the expenses for its contribution fall due. The Group has no legal or constructive obligations to pay further contributions after payments of the equivalent employer-share. The accumulated savings of the employees plus the Group’s share, including earnings, will be paid in the event of the employee’s: (a) retirement, (b) resignation after completing at least five years of continuous services, (c) death, or (d) involuntary separation not for cause. Land/Home Ownership Plan. The Group established the Land/Home Ownership Plan, an integral part of the Savings Plan, to extend a one-time financial assistance to Savings Plan members in securing housing loans for residential purposes. Foreign Currency Foreign Currency Translations. Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting date. Nonmonetary assets and nonmonetary liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Nonmonetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of AFS financial assets, a financial liability designated as a hedge of the net investment in a foreign operation that is effective, or qualifying cash flow hedges, which are recognized in other comprehensive income.

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Foreign Operations. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Philippine peso at exchange rates at the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to Philippine peso at average exchange rates for the period. Foreign currency differences are recognized in other comprehensive income, and presented in the “Other reserves” account in the consolidated statements of changes in equity. However, if the operation is not a wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognized in other comprehensive income, and presented in the “Other reserves” account in the consolidated statements of changes in equity. Taxes Current Tax. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred Tax. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except: where the deferred tax liability arises from the initial recognition of goodwill or of

an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

with respect to taxable temporary differences associated with investments in

subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

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Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits - Minimum Corporate Income Tax (MCIT) and unused tax losses - Net Operating Loss Carry Over (NOLCO), to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward benefits of MCIT and NOLCO can be utilized, except: where the deferred tax asset relating to the deductible temporary difference

arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

with respect to deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset 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 profit will allow the deferred tax asset to be recovered. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretation of tax laws and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in 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.

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Value-added Tax (VAT). Revenues, expenses and assets are recognized net of the amount of VAT, except: where the tax incurred on a purchase of assets or services is not recoverable

from the taxation authority, in which case the tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

receivables and payables that are stated with the amount of tax included. The net amount of tax recoverable from, or payable to, the taxation authority is included as part of “Other current assets” or “Trade and other payables” accounts in the consolidated statements of financial position. Related Parties 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 also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities. Basic and Diluted Earnings Per Common Share (EPS) Basic EPS is computed by dividing the net income for the period attributable to equity holders of the Parent Company, net of dividends on preferred shares and distributions to holders of USCS, by the weighted average number of issued and outstanding common shares during the period, with retroactive adjustment for any stock dividends declared. For the purpose of computing diluted EPS, the net income for the period attributable to owners of the Parent Company and the weighted-average number of issued and outstanding common shares are adjusted for the effects of all potential dilutive debt or equity instruments. Operating Segments The Group’s operating segments 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 serves different markets. Financial information on operating segments is presented in Note 37 to the consolidated financial statements. The Chief Executive Officer (the “chief operating decision maker”) reviews management reports on a regular basis. The measurement policies the Group used for segment reporting under PFRS 8 are the same as those used in its consolidated financial statements. There have been no changes in the measurement methods used to determine reported segment profit or loss from prior periods. All inter-segment transfers are carried out at arm’s length prices. Segment revenues, expenses and performance include sales and purchases between business segments. Such sales and purchases are eliminated in consolidation. Contingencies Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed in the notes to the consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed in the notes to the consolidated financial statements when an inflow of economic benefits is probable.

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Events After the Reporting Date Post year-end events that provide additional information about the Group’s consolidated financial position at the reporting date (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the consolidated financial statements when material.

4. Significant Accounting Judgments, Estimates and Assumptions The preparation of the Group’s consolidated financial statements in accordance with PFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts of assets, liabilities, income and expenses reported in the consolidated financial statements at the reporting date. However, uncertainty about these judgments, estimates and assumptions could result in outcome that could require a material adjustment to the carrying amount of the affected asset or liability in the future. Judgments and estimates 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. Revisions are recognized in the period in which the judgments and estimates are revised and in any future period affected. Judgments In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements: Determining Functional Currency. The Parent Company has determined that its functional currency is the Philippine peso. It is the currency of the primary economic environment in which the Parent Company operates. It is the currency that mainly influences the sales price of goods and services and the costs of providing these goods and services. Operating Lease Commitments - Group as Lessor/Lessee. The Group has entered into various lease agreements either as lessor or lessee. The Group had determined that it retains all the significant risks and rewards of ownership of the properties leased out on operating leases while the significant risks and rewards for properties leased from third parties are retained by the lessors. Rent income recognized in the consolidated statements of income amounted to P1,243, P1,139 and P1,131 in 2017, 2016 and 2015, respectively (Notes 23 and 26). Rent expense recognized in the consolidated statements of income amounted to P1,702, P1,293 and P1,295 in 2017, 2016 and 2015, respectively (Notes 22 and 23). Evaluating Control over its Investees. Determining whether the Parent Company has control in an investee requires significant judgment. Although the Parent Company owns less than 50% of the voting rights of NVRC and PAHL, before the Parent Company acquired the remaining equity interest in PAHL in 2016, management has determined that the Parent Company controls these entities by virtue of its exposure and rights to variable returns from its involvement in these investees and its ability to affect those returns through its power over the investees.

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The Parent Company has the power, in practice, to govern the financial and operating policies of NVRC, to appoint or remove the majority of the members of the BOD of NVRC and to cast majority votes at meetings of the BOD of NVRC. The Parent Company controls NVRC since it is exposed, and has rights, to variable returns from its involvement with NVRC and has the ability to affect those returns through its power over NVRC. The Parent Company assessed it has control over PAHL, even prior to the Parent Company’s acquisition of the remaining equity interest in 2016, by virtue of the extent of the Parent Company’s participation in the BOD and management of PAHL, of which the Parent Company established it has: (i) power over PAHL, (ii) it is exposed and has rights to variable returns from its involvement with PAHL, and (iii) it has ability to use its power over PAHL to affect the amount of PAHL’s returns. Accordingly, the Parent Company considered PAHL a subsidiary beginning January 1, 2013. As of December 31, 2017 and 2016, the Parent Company owns 100% of PAHL. Classifying Financial Instruments. The Group exercises judgments in classifying a financial instrument, or its component parts, on initial recognition as a financial asset, a financial liability, or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial asset or liability. The substance of a financial instrument, rather than its legal form, governs its classification in the consolidated statements of financial position. Distinction between Property, Plant and Equipment and Investment Property. The Group determines whether a property qualifies as investment property. In making its judgment, the Group considers whether the property generates cash flows largely independent of the other assets held by the Group. Owner-occupied properties generate cash flows that are attributable not only to the property but also to other assets used in the production or supply process. Some properties comprise a portion that is held to earn rental or for capital appreciation and another portion that is held for use in the production and supply of goods and services or for administrative purposes. If these portions can be sold separately (or leased out separately under finance lease), the Group accounts for the portions separately. If the portion cannot be sold separately, the property is accounted for as investment property only if an insignificant portion is held for use in the production or supply of goods or services for administrative purposes. Judgment is applied in determining whether ancillary services are so significant that a property does not qualify as investment property. The Group considers each property separately in making its judgment. Determining Impairment Indicators of Other Non-financial Assets. PFRS requires that an impairment review be performed on property, plant and equipment, investment in shares of stock of an associate and interest in joint ventures, investment property and intangible assets when events or changes in circumstances indicate that the carrying value may not be recoverable. Determining the recoverable amount of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. While it is believed that the assumptions used in the estimation of recoverable amounts are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable amounts and any resulting impairment loss could have a material adverse impact on financial performance.

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Determining whether an Arrangement Contains a Lease. The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement 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 the inception of the lease only if one of the following applies: (a) there is a change of contractual terms, other than a renewal or extension of the

arrangement; (b) a renewal option is exercised or extension granted, unless the term of the

renewal or extension was initially included in the lease term; (c) there is a change in the determination of whether fulfillment is dependent on a

specific asset; and (d) there is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gives rise to the reassessment for scenarios (a), (c) or (d) above, and at the date of renewal or extension period for scenario (b). Taxes. Significant judgment is required in determining current and deferred tax expense. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current income tax and deferred tax expenses in the year in which such determination is made. Beginning July 2008, in the determination of the Group’s current taxable income, the Group has an option to either apply the optional standard deduction (OSD) or continue to claim itemized standard deduction. The Group, at each taxable year from the effectivity of the law, may decide which option to apply; once an option to use OSD is made, it shall be irrevocable for that particular taxable year. For 2017, 2016 and 2015, the Group opted to continue claiming itemized standard deductions except for Petrogen and certain subsidiaries of NVRC such as Las Lucas Construction and Development Corporation (Las Lucas) and Parkville Estates and Development Corporation (PEDC), as they opted to apply OSD. In 2017, certain subsidiaries of NVRC such as Mariveles Landco Corporation, South Luzon Prime Holdings, Inc. and MRGVeloso Holdings, Inc. (MHI) also opted to apply OSD (Note 27). Contingencies. The Group currently has several tax assessments, legal and administrative claims. The Group’s estimate of the probable costs for the resolution of these assessments and claims has been developed in consultation with in-house as well as outside legal counsel handling the prosecution and defense of these matters and is based on an analysis of potential results. The Group currently does not believe that these tax assessments, legal and administrative claims will have a material adverse effect on its financial position and financial performance. It is possible, however, that future financial performance could be materially affected by changes in the estimates or in the effectiveness of strategies relating to these proceedings.

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Estimates and Assumptions The key estimates and assumptions used in the consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates. Allowance for Impairment Losses on Trade and Other Receivables. Allowance for impairment is maintained at a level considered adequate to provide for potentially uncollectible receivables. The level of allowance is based on past collection experience and other factors that may affect collectibility. An evaluation of receivables, designed to identify potential changes to allowance, is performed regularly throughout the year. Specifically, in coordination with the National Sales Division, the Finance Division ascertains customers who are unable to meet their financial obligations. In these cases, the Group’s management uses sound judgment based on the best available facts and circumstances including but not limited to, the length of relationship with the customers, the customers’ current credit status based on known market forces, average age of accounts, collection experience and historical loss experience. The amount of impairment loss differs for each year based on available objective evidence for which the Group may consider that it will not be able to collect some of its accounts. Impaired accounts receivable are written off when identified to be worthless after exhausting all collection efforts. An increase in allowance for impairment of trade and other receivable would increase the Group’s recorded selling and administrative expenses and decrease current assets. Impairment losses on trade and other receivables amounted to P10, P68 and P154 in 2017, 2016 and 2015, respectively (Notes 8 and 23). Receivables written-off amounted to P89 in 2017 and P97 in 2016 (Note 8). The carrying amount of receivables amounted to P38,159 and P31,548 as of December 31, 2017 and 2016, respectively (Note 8). Net Realizable Values of Inventories. In determining the NRV of inventories, management takes into account the most reliable evidence available at the times the estimates are made. Future realization of the carrying amount of inventories of P56,604 and P44,147 as of the end of 2017 and 2016, respectively (Note 9), is affected by price changes in different market segments for crude and petroleum products. Both aspects are considered key sources of estimation uncertainty and may cause significant adjustments to the Group’s inventories within the next financial year. No inventory write-down was recognized by the Group in 2017 and 2016 while inventory write-down in 2015 amounted to P225 (Note 9). Allowance for Inventory Obsolescence. The allowance for inventory obsolescence consists of collective and specific valuation allowance. A collective valuation allowance is established as a certain percentage based on the age and movement of stocks. In case there is write-off or disposal of slow-moving items during the year, a reduction in the allowance for inventory obsolescence is made. Review of allowance is done every quarter, while a revised set-up or booking is posted at the end of the year based on evaluations or recommendations of the proponents. The amount and timing of recorded expenses for any year would therefore differ based on the judgments or estimates made. In 2017, 2016 and 2015, the Group provided an additional loss on inventory obsolescence amounting to nil, P327 and P36, respectively (Note 9).

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Fair Values of Financial Assets and Financial Liabilities. The Group carries certain financial assets and financial liabilities at fair value, which requires extensive use of accounting estimates and judgments. Significant components of fair value measurement were determined using verifiable objective evidence (e.g., foreign exchange rates, interest rates, volatility rates). The amount of changes in fair value would differ if the Group utilized different valuation methodologies and assumptions. Any change in the fair value of these financial assets and financial liabilities would affect profit or loss and equity. Fair values of financial assets and financial liabilities are discussed in Note 35. Estimated Useful Lives of Property, Plant and Equipment, Intangible Assets with Finite Useful Lives and Investment Property. The Group estimates the useful lives of property, plant and equipment, intangible assets with finite useful lives and investment property based on the period over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment, intangible assets with finite useful lives and investment property are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets. In addition, estimation of the useful lives of property, plant and equipment, intangible assets with finite useful lives and investment property is based on collective assessment of industry practice, internal technical evaluation and experience with similar assets. It is possible, however, that future financial performance could be materially affected by changes in estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of property, plant and equipment, intangible assets with finite useful lives and investment property would increase recorded cost of goods sold and selling and administrative expenses and decrease noncurrent assets. There is no change in estimated useful lives of property, plant and equipment, intangible assets with finite useful lives and investment property based on management’s review at the reporting date. Accumulated depreciation and amortization of property, plant and equipment, intangible assets with finite useful lives and investment property amounted to P85,204 and P75,258 as of December 31, 2017 and 2016, respectively (Notes 11, 12 and 14). Property, plant and equipment, net of accumulated depreciation and amortization, amounted to P177,690 and P176,604 as of December 31, 2017 and 2016, respectively (Note 11). Investment property, net of accumulated depreciation, amounted to P75 and P91 as of December 31, 2017 and 2016, respectively (Note 12). Intangible assets with finite useful lives, net of accumulated amortization, amounted to P162 and P208 as of December 31, 2017 and 2016, respectively (Note 14). Fair Value of Investment Property. The fair value of investment property presented for disclosure purposes is based on market values, being the estimated amount for which the property can be sold, or based on a most recent sale transaction of a similar property within the same vicinity where the investment property is located. In the absence of current prices in an active market, the valuations are prepared by considering the aggregate estimated future cash flows expected to be received from leasing out the property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation.

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Estimated fair values of investment property amounted to P162 and P151 as of December 31, 2017 and 2016, respectively (Note 12). Impairment of Goodwill. The Group determines whether goodwill is impaired at least annually. This requires the estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating value in use requires management to make an estimate of the expected future cash flows from the cash-generating unit and to choose a suitable discount rate to calculate the present value of those cash flows. The recoverable amount of goodwill arising from the acquisition of Petron Malaysia has been determined based on fair value less costs to sell and value in use using discounted cash flows (DCF). Assumptions used in the DCF include terminal growth rate of 3.0% in 2017 and 2016 and discount rates of 6.3% and 5.8% in 2017 and 2016, respectively (Note 13). Management believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause its carrying amount to exceed its recoverable amount. The calculations of value in use are most sensitive to the projected sales volume, selling price and improvement in the gross profit margin, and discount rate. No impairment losses were recognized in 2017, 2016 and 2015 in relation to the goodwill arising from the acquisition of Petron Malaysia which accounts for almost 99% of goodwill in the consolidated statements of financial position as of December 31, 2017 and 2016. In 2016, the Group fully provided impairment loss for the goodwill arising from the acquisition of PAHL amounting to P298. The impairment loss is included under “Other expenses - net” in the 2016 consolidated statement of income (Notes 13 and 26). Realizability of Deferred Tax Assets. The Group reviews its deferred tax assets at each reporting date and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. The Group’s assessment on the recognition of deferred tax assets on deductible temporary differences and carry forward benefits of MCIT and NOLCO is based on the projected taxable income in the following periods. Deferred tax assets amounted to P207 and P194 as of December 31, 2017 and 2016, respectively (Note 27). Present Value of Defined Benefit Retirement Obligation. The present value of defined benefit retirement obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. These assumptions are described in Note 30 to the consolidated financial statements and include discount rate and salary increase rate. The Group determines the appropriate discount rate at the end of each year. It is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the retirement liabilities. In determining the appropriate discount rate, the Group considers the interest rates on government bonds that are denominated in the currency in which the benefits will be paid. The terms to maturity of these bonds should approximate the terms of the related retirement benefits liability.

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Other key assumptions for retirement benefits liability are based in part on current market conditions. While it is believed that the Group’s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Group’s retirement benefits liability. Retirement benefits costs recognized in profit or loss amounted to P508, P579 and P419 in 2017, 2016 and 2015, respectively. Remeasurement losses (gains) of the net defined retirement obligation recognized in other comprehensive income amounted to P1,142, (P2,647) and P3,112 in 2017, 2016 and 2015, respectively. The retirement benefits liability amounted to P4,989 and P3,392 as of December 31, 2017 and 2016, respectively (Note 30). Asset Retirement Obligation (ARO). The Group has ARO arising from the refinery, leased service stations, terminals and blending plant. Determining ARO requires estimation of the costs of dismantling, installations and restoring leased properties to their original condition. The Group determined the amount of ARO by obtaining estimates of dismantling costs from the proponent responsible for the operation of the asset, discounted at the Group’s current credit-adjusted risk-free rate ranging from 6.659% to 9.055% depending on the life of the capitalized costs. While it is believed that the assumptions used in the estimation of such costs are reasonable, significant changes in these assumptions may materially affect the recorded expense or obligation in future periods. The ARO amounted to P2,681 and P2,324 as of December 31, 2017 and 2016, respectively (Note 19).

5. Cash and Cash Equivalents This account consists of: Note 2017 2016 Cash on hand P2,701 P1,794 Cash in banks 4,106 5,423 Short-term placements 10,207 10,115 34, 35 P17,014 P17,332

Cash in banks earn annual interest at the respective bank deposit rates. Short-term placements include demand deposits which can be withdrawn at any time depending on the immediate cash requirements of the Group and earn annual interest at the respective short-term placement rates ranging from 0.05% to 4.50% in 2017, 0.03% to 4.50% in 2016 and 0.05% to 5.00% in 2015 (Note 26).

6. Financial Assets at Fair Value through Profit or Loss This account consists of: Note 2017 2016 Proprietary membership shares 34, 35 P171 P157 Derivative assets 34, 35 165 64 P336 P221

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The fair values presented have been determined directly by reference to published market prices, except for derivative assets which are based on inputs other than quoted prices that are observable (Note 35). Changes in fair value recognized in 2017, 2016 and 2015 amounted to P14, P10 and P11, respectively (Note 26).

7. Available-for-Sale Financial Assets This account consists of: Note 2017 2016 Government securities P201 P141 Other debt securities 330 338 34, 35 531 479 Less current portion 199 71 P332 P408

Petrogen’s government securities are deposited with the Bureau of Treasury in accordance with the provisions of the Insurance Code, for the benefit and security of its policyholders and creditors. These investments bear fixed annual interest rates ranging from 2.13% to 5.30% in 2017, 2.13% to 7.75% in 2016 and 4.47% to 8.88% in 2015 (Note 26). Ovincor’s outstanding corporate bond is maintained at the Bank of N. T. Butterfield and carried at fair value with fixed annual interest rate of 6.75% (Note 26). The breakdown of investments by contractual maturity dates as of December 31 follows: Note 2017 2016 Due in one year or less P199 P71 Due after one year through six years 332 408 34, 35 P531 P479

The reconciliation of the carrying amounts of AFS financial assets as of December 31 follows: 2017 2016 Balance at beginning of year P479 P621 Additions 131 90 Disposals (70) (232) Amortization of premium (5) (7) Fair value loss (4) (2) Currency translation adjustment - 9 Balance at end of year P531 P479

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8. Trade and Other Receivables This account consists of: Note 2017 2016 Trade 34 P26,199 P18,338 Related parties - trade 28, 34 726 1,001 Allowance for impairment loss on trade

receivables (776) (807) 26,149 18,532

Government 6,151 7,441 Related parties - non-trade 28 5,273 5,127 Others 991 787 Allowance for impairment loss on non-trade

receivables (405) (339) 12,010 13,016

34, 35 P38,159 P31,548 Trade receivables are noninterest-bearing and are generally on a 45-day term. Penalties are charged when the account becomes overdue. Government receivables pertain to duty drawback, VAT and specific tax claims as well as subsidy receivables from the Government of Malaysia under the Automatic Pricing Mechanism. The amount includes receivables over 30 days but less than one year amounting to P767 and P1,954 as of December 31, 2017 and 2016, respectively. The filing and the collection of claims is a continuous process and is closely monitored. Related parties - non-trade consists of an advance made by the Parent Company to Petron Corporation Employee Retirement Plan (PCERP) and other receivables from SMC and its subsidiaries. Others mainly consist of receivables from various non-trade customers and matured hedging transactions. A reconciliation of the allowance for impairment losses at the beginning and end of 2017 and 2016 is shown below: Note 2017 2016 Balance at beginning of year P1,227 P1,230 Additions 23 10 68 Write off 4 (89) (97) Currency translation adjustment 123 26 Balance at end of year 1,271 1,227 Less noncurrent portion for long-term

receivables 14 90 81 P1,181 P1,146

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As of December 31, 2017 and 2016, the age of past due but not impaired trade accounts receivable is as follows (Note 34): Past Due but not Impaired

Within

30 days 31 to 60

Days 61 to 90

Days Over 90

Days Total December 31, 2017 Reseller P95 P20 P7 P6 P128 Lubes 40 8 2 40 90 Gasul 67 26 20 - 113 Industrial 69 4 239 140 452 Others 17 27 29 90 163 P288 P85 P297 P276 P946

December 31, 2016 Reseller P107 P8 P2 P10 P127 Lubes 1 - 6 - 7 Gasul 57 2 2 - 61 Industrial 15 9 95 263 382 Others 88 35 23 131 277 P268 P54 P128 P404 P854

No allowance for impairment losses is necessary as regard to these past due but unimpaired trade receivables based on past collection experience. There are no significant changes in credit quality. As such, these amounts are still considered recoverable.

9. Inventories This account consists of: 2017 2016 Crude oil and others P29,538 P24,474 Petroleum 20,359 13,418 Lubes, greases and aftermarket specialties 2,544 2,754 Materials and supplies 4,163 3,501

P56,604 P44,147 The cost of these inventories amounted to P57,393 and P44,936 as of December 31, 2017 and 2016, respectively. If the Group used the moving-average method (instead of the first-in, first-out method, which is the Group’s policy), the cost of petroleum, crude oil and other products would have increased by P61 and P1,906 as of December 31, 2017 and 2016, respectively. Inventories (including distribution or transshipment costs) charged to cost of goods sold amounted to P369,695, P283,169 and P311,526 in 2017, 2016 and 2015, respectively (Note 22). Research and development costs on these products constituted the expenses incurred for internal projects in 2017 and 2016 (Note 23).

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The movements in allowance for write-down of inventories to NRV and inventory obsolescence at the beginning and end of 2017 and 2016 follow: Note 2017 2016 Balance at beginning of year P789 P684 Loss on inventory obsolescence 4 - 327 Reversals - (223) Currency translation adjustment - 1 Balance at end of year P789 P789

As of December 31, 2017 and 2016, there is no allowance for write-down of inventories to NRV recognized by the Group. The losses and reversals are included as part of “Cost of goods sold” account in the consolidated statements of income (Note 22). Reversal of write-down corresponds to inventories sold during the year.

10. Investment in Shares of Stock of an Associate This account consists of: 2017 2016 Acquisition Cost Balance at beginning of year P1,405 P1,405 Disposal/reclassification (1,405) - Balance at end of year - 1,405

Share in Total Comprehensive Income Balance at beginning of year 478 409 Share in net income during the year 63 66 Share in other comprehensive income 3 3 Disposal/reclassification (544) - Balance at end of year - 478

P - P1,883 Investment in shares of stock of an associate pertains to 35% investment in Manila North Harbour Port Inc. (MNHPI), a company incorporated in the Philippines, prior to its disposal in October 2017. On January 3, 2011, the Parent Company entered into a Share Sale and Purchase Agreement with Harbour Centre Port Terminal, Inc. for the purchase of 35% of the outstanding and issued capital stock of MNHPI. Prior to the disposal of MNHPI shares in 2017, last transaction relative to the investment in MNHPI was the advances made by the Parent Company amounting to P525 as deposit for future subscription in February 2015. Following the approval of the increase in the authorized capital stock of MNHPI by the SEC, the Parent Company was issued stock certificate for 7,000,000 shares in December 2015, representing 35% of the increase in the authorized capital stock of MNHPI.

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On September 21, 2017, the Parent Company signed the Share Purchase Agreement (SPA) with International Container Terminal Services, Inc. (ICTSI) for the sale by the Parent Company of its 10,449,000 shares in MNHPI equal to 34.83% of MNHPI’s outstanding shares for a total consideration of P1,750. The completion of the SPA was subject to several conditions. On October 30, 2017, all conditions for the completion of the sale of the Parent Company’s shares in MNHPI had been complied with and accordingly, the purchase price had been paid. As a result of the transaction, the Group recognized loss on disposal of investments amounting to P189 included as part of “Other expenses - net” account in the 2017 consolidated statement of income (Note 26). The remaining 51,000 shares representing 0.17% interest in MNHPI was also intended to be sold to a related party effectively rendering the remaining MNHPI shares as assets held for sale as of December 31, 2017. The proposed sale is still subject to negotiations as of December 31, 2017. Asset held for sale with carrying amount of P9 is recognized as part of “Other current assets” account in the consolidated statement of financial position as of December 31, 2017 (Note 14). Following are the condensed financial information of MNHPI as of and for the periods ended September 30, 2017 and December 31, 2016:

September 30

2017 December 31

2016 Percentage of ownership 35%* 35% Current assets P2,098 P2,698 Noncurrent assets 12,765 11,349 Current liabilities (6,236) (5,574) Noncurrent liabilities (4,078) (4,102) Net assets P4,549 P4,371

Sales P2,504 P2,984

Net income P179 P188 Other comprehensive income - 9 Total comprehensive income P179 P197

Share in net assets P - P1,530 Goodwill - 353 Carrying amount of investment in shares of

stock of an associate P - P1,883 *The remaining 0.17% equity interest in MNHPI as of December 31, 2017 was classified as “Asset held for sale”

(Note 14).

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11. Property, Plant and Equipment The movements and balances as of and for the years ended December 31 follow:

Buildings and Improvements

and Related Facilities

Refinery and Plant

Equipment

Service Stations

and Other Equipment

Computers, Office and

Motor Equipment

Land and Leasehold

Improvements Construction

in-Progress Total Cost January 1, 2016 P28,248 P49,785 P16,230 P4,703 P13,274 P116,585 P228,825 Additions 289 18,065 363 293 467 3,749 23,226 Disposals/reclassifications 34 94,310 (494) (348) 186 (95,033) (1,345) Currency translation

adjustment 332 103 73 4 77 18 607

December 31, 2016 28,903 162,263 16,172 4,652 14,004 25,319 251,313 Additions 563 1,307 405 232 237 6,954 9,698 Disposals/reclassifications 2,162 20,628 159 (68) (315) (24,983) (2,417) Currency translation

adjustment 876 1,106 700 135 705 139 3,661

December 31, 2017 32,504 185,304 17,436 4,951 14,631 7,429 262,255

Accumulated Depreciation and Amortization

January 1, 2016 17,425 33,088 11,140 3,448 2,127 - 67,228 Additions 1,255 5,010 1,192 655 134 - 8,246 Disposals/reclassifications (85) (20) (369) (477) (61) - (1,012) Currency translation

adjustment 143 173 24 (97) 4 - 247

December 31, 2016 18,738 38,251 11,987 3,529 2,204 - 74,709 Additions 1,315 7,200 868 416 162 - 9,961 Disposals/reclassifications (380) 25 (1,064) (241) (342) - (2,002) Currency translation

adjustment 532 820 416 93 36 - 1,897

December 31, 2017 20,205 46,296 12,207 3,797 2,060 - 84,565

Carrying Amount December 31, 2016 P10,165 P124,012 P4,185 P1,123 P11,800 P25,319 P176,604

December 31, 2017 P12,299 P139,008 P5,229 P1,154 P12,571 P7,429 P177,690

No interest was capitalized in 2017 and 2016 (Note 18). No impairment loss was required to be recognized in 2017, 2016 and 2015 based on management’s assessment of impairment indicators. Capital Commitments As of December 31, 2017 and 2016, the Group has outstanding commitments to acquire property, plant and equipment amounting to P10,615 and P7,756, respectively.

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12. Investment Property The movements and balances as of and for the years ended December 31 follow: Land Building Total Cost January 1, 2016 P100 P25 P125 Disposal (20) - (20) December 31, 2016 80 25 105 Disposal (15) - (15) December 31, 2017 65 25 90 Accumulated Depreciation January 1, 2016 - 13 13 Depreciation - 1 1 December 31, 2016 - 14 14 Depreciation - 1 1 December 31, 2017 - 15 15 Carrying Amount December 31, 2016 P80 P11 P91

December 31, 2017 P65 P10 P75 The Group’s investment property pertains to a property located in Tagaytay and parcels of land in various locations. Estimated fair value of the Tagaytay property amounted to P44 as of December 31, 2017 and 2016 based on the appraisal made in February 2017. The fair value was calculated using market approach. The Group’s parcels of land are located in Metro Manila and some major provinces. As of December 31, 2017 and 2016, the aggregate fair market values of the properties amounting to P118 and P107, respectively, determined by independent appraisers in 2018 and 2013, respectively, using market approach, is higher than their carrying amount, considering recent market transactions and specific conditions related to the parcels of land as determined by NVRC. The fair market value of investment property has been categorized as Level 3 in the fair value hierarchy based on the inputs used in the valuation technique (Note 4). The fair value of investment property was determined by external, independent property appraisers having appropriate recognized professional qualifications and recent experience in the location and category of the property being valued. The independent appraisers provide the fair value of the Group’s investment property on a regular basis.

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13. Investment in Shares of Stock of Subsidiaries and Goodwill The following are the major developments relating to the Parent Company’s investment in shares of stock of subsidiaries: a. PAHL

Although the Group owns less than half of the voting power of PAHL, prior to the acquisition of the remaining equity interest in 2016, management has assessed, in accordance with PFRS 10, that the Group has control over PAHL on a de facto basis. Accordingly, the Group consolidated PAHL beginning January 1, 2013. On November 17, 2015, the Parent Company subscribed to additional 18,324,889 ordinary shares of PAHL for a total consideration of US$11,746,724 which effectively increased the Parent Company’s ownership interest by 1.40% to 47.25%. On March 18, 2016, the Parent Company subscribed to additional 43,125,482 ordinary shares of PAHL for a total consideration of US$27,644,540 which effectively increased the Parent Company’s ownership interest from 47.25% to 50.26%. On July 25, 2016, the Parent Company purchased the remaining 273,000,000 ordinary shares and 102,142,858 “B” ordinary shares in PAHL for a total of 375,142,858 shares owned by PCERP for a total purchase price of P1,921. Petron’s ownership interest in PAHL has increased from 50.26% to 100%. As a result of the foregoing transactions, non-controlling interest in PAHL has been derecognized in 2016.

b. PGL On various dates in 2015, the Parent Company subscribed to additional common shares of PGL as follows:

Date No. of Shares Amount Per Share

(in US$) Total (in US$) March 13, 2015 9,354,136 1.00 9,354,136 April 13, 2015 1,710,231 1.00 1,710,231 May 13, 2015 1,067,462 1.00 1,067,462

PGL has issued an aggregate of 73,559,188 common shares from 2012 to 2014 with a par value of US$1.00 per share to Petron and 150,000,000 cumulative, non-voting, non-participating and non-convertible preferred shares series A and 200,000,000 cumulative, non-voting, non-participating and non-convertible preferred shares series B at an issue price equal to the par value of each share of US$1.00 to a third party investor. The said preferred shares were redeemed on May 13, 2015 at US$1.00 per share. Consequently, non-controlling interest in PGL has been transferred to retained earnings attributable to the equity holders of the Parent Company. As of December 31, 2017 and 2016, the Parent Company holds a total of 85,691,017 common shares in PGL representing 100% of the voting capital stock of PGL.

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c. Las Lucas and MHI On December 19, 2017, the BOD and stockholders of the subsidiaries of NVRC, Las Lucas and MHI, approved the merger between Las Lucas and MHI effective (to the extent allowed by applicable law or regulation) on the first day of the month following the issuance by the SEC of the certificate of merger, wherein Las Lucas will be the surviving entity. Upon the effective date of merger, all the respective rights, businesses, powers, privileges, immunities, franchises, assets and other properties of MHI including, but not limited to, all real and personal properties, contractual and property rights, licenses, privileges, property rights, claims, bank deposits, stocks, accounts receivable, retained earnings, credit lines, supplies, equipment, investments of whatever nature, including subscriptions to shares, choses in action, goodwill, intangible assets and such other assets, owned or which may have been acquired by MHI shall be conveyed, assigned, and transferred to, possessed and owned by, and vested in Las Lucas . The Plan of Merger was submitted with the SEC in January 2018. The application for merger is still pending approval by the SEC as of March 13, 2018.

Goodwill The movements and balances of goodwill as of and for the years ended December 31 are as follows: Note 2017 2016 Cost Balance at beginning of year P7,480 P7,694 Translation adjustments 797 84 Balance at end of year 8,277 7,778 Less impairment loss during the year 26 - 298 Net carrying amount P8,277 P7,480

Impairment of Goodwill from Petron Malaysia Goodwill arising from the acquisition of Petron Malaysia, which accounts for 99% of total goodwill in the consolidated statements of financial position as of December 31, 2017 and 2016, is allocated at the POGI Group cash generating unit (CGU) instead of each individual acquiree company’s CGU as it is expected that the POGI Group CGU will benefit from the synergies created from the acquiree companies in combination. For the goodwill allocated to the POGI Group CGU, the recoverable amount of goodwill has been determined based on value in use (VIU). The VIU is based on cash flows projections for five (5) years using a terminal growth rate of 3.0% in 2017 and 2016 and discount rates of 6.3% and 5.8% in 2017 and 2016, respectively. The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on internal sources (i.e., historical data). The discount rate is based on the weighted average cost of capital (WACC) using the Capital Asset Pricing Model (CAPM) by taking into consideration the debt equity capital structure and cost of debt of comparable companies and cost of equity based on appropriate market risk premium.

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The financial projection used in the VIU calculation is highly dependent on the following underlying key drivers of growth in profitability: Sales Volume. Majority of the sales volume is generated from the domestic

market of the CGU. The growth in projected sales volume would mostly contributed from retail and commercial segments. Retail sales refer to sales of petroleum products through petrol stations. Commercial sales refer to sales to industrial, wholesale, aviation and LPG accounts.

Selling Price and Improvement in the Gross Profit Margin. Management has

projected an improvement in selling price in 2018, and thereafter, it is projected to remain constant during the forecast period. Management also expects improvement in gross profit margin to be achieved through overall growth in sales volume along with better sales mix and better cost management.

For purposes of growth rate sensitivity, a growth rate scenario of 2%, 3% and 4% is applied on the discounted cash flows analysis. Based on the sensitivity analysis, any reasonably possible change in the key assumptions would not cause the carrying amount of goodwill to exceed its recoverable amount. No impairment losses were recognized in 2017, 2016 and 2015 in relation to the goodwill arising from the acquisition of Petron Malaysia. Impairment of Goodwill from PAHL For the goodwill allocated to PAHL, the recoverable amount of goodwill has been determined based on fair value less costs to sell. The fair value was calculated using market approach which has been categorized as Level 3 in the fair value hierarchy. In 2016, the Group fully provided impairment loss for the goodwill arising from the acquisition of PAHL amounting to P298. The impairment loss is included under “Other expenses - net" in the 2016 consolidated statement of income (Note 26).

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The following table summarizes the financial information relating to each of the Group’s subsidiaries that has material non-controlling interests: December 31, 2017 December 31, 2016 NVRC PMRMB NVRC PMRMB Non-controlling Interests

Percentage 60.00% 26.60% 60.00% 26.60% Carrying amount of

non-controlling interest P558 P5,406 P474 P3,855

Current assets P350 P19,595 P308 P16,744 Noncurrent assets 5,521 13,844 5,296 12,601 Current liabilities (237) (13,274) (205) (13,946) Noncurrent liabilities (4,229) (1,599) (4,135) (2,492) Net assets P1,405 P18,566 P1,264 P12,907

Net income attributable to non-controlling interests P84 P1,264 P57 P725

Other comprehensive income attributable to non-controlling interests P - P473 P - P28

Sales P584 P121,701 P593 P87,124

Net income P141 P4,754 P96 P2,727 Other comprehensive income - 28 - 105 Total comprehensive income P141 P4,782 P96 P2,832

Cash flows provided by operating activities P292 P4,271 P222 P3,881

Cash flows used in investing activities (82) (389) (429) (525)

Cash flows provided by (used in) financing activities (213) (4,519) 128 (3,221)

Effects of exchange rate changes on cash and cash equivalents - (2) - 2

Net increase (decrease) in cash and cash equivalents (P3) (P639) (P79) P137

Net loss and other comprehensive income attributable to non-controlling interest of PAHL prior to the acquisition of the remaining equity interest in 2016 amounted to (P60) and P4, respectively, while other comprehensive loss attributable to non-controlling interest of PGL in 2016 amounted to P296.

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14. Other Assets This account consists of: Note 2017 2016 Current:

Prepaid taxes P19,025 P24,478 Input VAT 12,337 6,097 Prepaid expenses 28 1,383 1,518 Special-purpose fund 147 140 Asset held for sale 10 9 - Tax recoverable 1 - Others 276 266

P33,178 P32,499

Noncurrent: Prepaid rent P2,600 P2,211 Input VAT 1,832 2,229 Catalyst - net 503 833 Long-term receivables - net 34, 35 228 205 Noncurrent deposits 34, 35 90 81 Others - net 706 856

P5,959 P6,415 The “Others - net” under “Noncurrent” account includes software, marketing assistance to dealers, other prepayments, franchise fees, licenses and other intangible assets amounting to P693 and P850 as of December 31, 2017 and 2016, respectively, net of amortization amounting to P282 and P349 as of December 31, 2017 and 2016, respectively. The amortization of prepaid rent amounted to P195, P207 and P189 in 2017, 2016 and 2015, respectively. Amortization of software, marketing assistance to dealers, other prepayments, franchise fees, other intangibles and prepaid rent included as part of “Depreciation and amortization” under “Selling and administrative expenses” account in the consolidated statements of income amounted to P138, P214 and P285 in 2017, 2016 and 2015, respectively (Notes 23 and 25). Amortization of catalyst, licenses and other prepayments included as part of “Depreciation and amortization” under “Cost of goods sold” account in the consolidated statements of income amounted to P684, P837 and P433 in 2017, 2016 and 2015, respectively (Notes 22 and 25).

15. Short-term Loans This account pertains to unsecured Philippine peso, US dollar and Malaysian ringgit-denominated loans obtained from various banks with maturities ranging from 4 to 120 days and annual interest ranging from 2.35% to 6.02% in 2017, 2.85% to 6.22% in 2016 and 2.75% to 6.20% in 2015 (Note 26). These loans are intended to fund the importation of crude oil and petroleum products (Note 9) and working capital requirements. Interest expense on short-term loans amounted to P2,323 both in 2017 and 2016 and P3,284 in 2015 (Note 26).

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16. Liabilities for Crude Oil and Petroleum Products This account pertains to liabilities to suppliers of crude oil, petroleum and other products that are noninterest-bearing and generally settled on a 30-day term. Details of the supply agreements in relation to importations of crude oil requirements of the Group are disclosed in Note 31. Liabilities for crude oil and petroleum products are payable to the following: Note 2017 2016 Third parties P36,895 P29,563 Related parties 28 25 403 34, 35 P36,920 P29,966

17. Trade and Other Payables This account consists of: Note 2017 2016 Trade P5,540 P4,545 Specific taxes and other taxes payable 1,358 2,352 Accrued payroll 52 119 Due to related parties 28 774 5,474 Accrued interest 533 713 Accrued rent 817 892 Dividends payable 239 218 Insurance liabilities 78 66 Retention payable 641 336 Deferred liability on customer loyalty

program 1,024 750 Retirement benefits liability 30 104 77 Others 39 444 619 34, 35 P11,604 P16,161

Trade payables are liabilities to haulers, contractors and suppliers that are noninterest-bearing and are generally settled on a 30-day term. Others include provisions (Note 39), accruals of selling and administrative expenses, and advances which are normally settled within a year.

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18. Long-term Debt This account consists of: Note 2017 2016 Unsecured Peso-Denominated

(net of debt issue costs) Fixed rate corporate notes of 7% due in

2017 (a) P - P19,964 Fixed rate corporate notes of 6.3212% due

until 2018 and 7.1827% due until 2021 (b) 3,369 3,401 Term loan of 5.4583% due until 2022 (f) 4,986 4,981 Fixed rate retail bonds of 4.0032% due in

2021 and 4.5219% due in 2023 (g) 19,835 19,801 Fixed rate corporate notes of 5.5276%

due quarterly until 2024 (i) 14,380 - Fixed rate corporate notes of 5.7584% due

until 2022 (j) 9,950 - Unsecured Foreign Currency-

Denominated (net of debt issue costs) Floating rate dollar loan - MYR100 million (c) - 832 Floating rate dollar loan - MYR100 million (c) - 920 Floating rate dollar loan - MYR50 million (c) - 506 Floating rate dollar loan - US$475 million (d) - 6,556 Floating rate dollar loan - US$550 million (e) - 22,891 Floating rate dollar loan - US$1,000 million

due until 2022 (h) 49,185 - 33, 34, 35 101,705 79,852 Less current portion 3,789 20,911 P97,916 P58,941

a. On November 10, 2010, the Parent Company issued P20,000 Peso-

denominated Notes, payable in US dollar. The notes bear interest of 7% per annum, payable semi-annually in arrears on May 10 and November 10 of each year. The principal and interest will be translated into and paid in US dollar based on the average representative market rate at the applicable rate calculation date at the time of each payment. The notes matured and were repaid on November 10, 2017.

b. The Parent Company issued Fixed Rate Corporate Notes (FXCN) totaling

P3,600 on October 25, 2011. The FXCNs consisted of Series A Notes amounting to P690 having a maturity of up to 7 years from issue date and Series B Notes amounting to P2,910 having a maturity of up to 10 years from issue date. The FXCNs are subject to fixed interest coupons of 6.3212% per annum for the Series A Notes and 7.1827% per annum for the Series B Notes. The net proceeds from the issuance were used for general corporate requirements.

c. On March 17, 2014, PMRMB availed of Malaysian ringgit (MYR) 100 million (P1,374) loan. Additionally, on June 27, 2014, PMRMB availed of MYR 100 million (P1,359) and on July 25, 2014, PFISB availed of five-year MYR 50 million (P685) loan. Proceeds from the loans were used to finance the refurbishment of the retail stations in Malaysia. All loans bear an interest rate of Cost of Fund (COF) +1.5%. All the remaining balances of the loans were prepaid on various dates in 2017.

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d. On May 14, 2014, the Parent Company signed and executed a US$300 million term loan facility. The facility is amortized over 5 years with a 2-year grace period and is subject to a floating interest rate based on LIBOR plus a fixed spread. Proceeds were used to refinance existing debt and for general corporate purposes. Drawdowns and their respective amounts were made on the following dates: May 27, 2014 (US$70 million); June 4, 2014 (US$118 million); June 20, 2014 (US$70 million) and July 2, 2014 (US$42 million). On September 29, 2014, the Parent Company completed the syndication of the facility, raising the facility amount to US$475 million. Drawdowns related to the additional US$175 million were made as follows: October 24, 2014 (US$70 million) and November 6, 2014 (US$105 million). Amortization in seven equal amounts started in May 2016, with final amortization due in May 2019. In 2015, 2016 and 2017, the Parent Company made payments on the following dates: September 29, 2015 (US$65 million); November 27, 2015 (US$70 million); March 31, 2016 (US$40 million); October 28, 2016 (US$165 million); March 31, 2017 (US$20 million) and June 28, 2017 (US$115 million). As of December 31, 2017, the term loans from the facility have been fully paid.

e. On July 29, 2015, the Parent Company drew US$550 million from a US$550 million refinancing facility which was signed and executed on July 20, 2015. The facility is amortized over 5 years with a 2-year grace period and is subject to a floating interest rate based on LIBOR plus a fixed spread. The proceeds were used to pay in full the remaining outstanding balances of about US$206 million and US$345 million under the US$480 million term loan facility and the US$485 million term loan facility, respectively. On November 11, 2015, the Parent Company completed the syndication of the new facility with 29 banks. On October 28, 2016 and June 28, 2017, the Parent Company made partial and full payments amounting to US$80 million and US$470 million, respectively.

f. On October 13, 2015, the Parent Company drew P5,000 from a P5,000 term loan which was signed and executed on October 7, 2015. The facility is amortized over 7 years with a 2-year grace period and is subject to a fixed rate of 5.4583% per annum. The net proceeds from the issuance were used to repay currently maturing obligations and for general corporate requirements.

g. On October 27, 2016, the Parent Company issued P20,000 retail bonds (the “Bonds”) divided into Series A (P13,000) and Series B (P7,000). Series A Bonds is due on October 27, 2021 with interest rate of 4.0032% per annum. Series B Bonds will mature on October 27, 2023 with interest rate of 4.5219% per annum. Interests on these Bonds are payable quarterly on January 27, April 27, July 27 and October 27 of each year. The proceeds from the issuance of the Bonds were used to partially settle the US$475 million and US$550 million Term Loan facilities, to repay short-term loans and for general corporate requirements. The Bonds were listed with the Philippine Dealing & Exchange Corp. on October 27, 2016.

h. On June 16, 2017, the Parent Company signed and executed a US$1,000 million

term facility and has initially drawn US$600 million on June 28, 2017. The proceeds were used to pay in full the outstanding balances of US$115 million and US$470 million loans under the US$475 million and US$550 million term loan facilities, respectively. On October 10, 2017, the Parent Company drew the remaining US$400 million from the facility. The proceeds of which were used to settle the P20,000 Peso-denominated Notes which matured on November 10, 2017. The facility is amortized over 5 years with a 2-year grace period and is subject to a floating interest rate based on LIBOR plus a spread.

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i. On July 25, 2017, the Parent Company drew P15,000 from a P15,000 term loan facility which was signed on July 14, 2017 and executed on July 17, 2017. The facility is amortized over 7 years and is subject to a fixed interest rate of 5.5276% per annum. The proceeds were used to refinance the bridge loan availed on December 23, 2016 for the acquisition of the Refinery Solid Fuel-Fired Power Plant (the “Power Plant”) as discussed in Note 28.

j. On December 29, 2017, the Parent Company drew P10,000 from a P10,000

bilateral facility which was signed and executed on December 28, 2017. The facility is amortized quarterly for five years beginning on the fifth quarter and is subject to a fixed rate of 5.7584% per annum. The proceeds were used to fund permanent working capital requirements.

The above-mentioned loan agreements contain, among others, covenants relating to merger and consolidation, maintenance of certain financial ratios, working capital requirements and restrictions on guarantees. As of December 31, 2017 and 2016, the Group has complied with the covenants of its debt agreements. Total interest incurred on the above-mentioned long-term loans (including amortization of debt issue costs) amounted to P5,140, P4,155 and P1,013 for the years ended 2017, 2016 and 2015, respectively (Note 26). No interest was capitalized in 2017 and 2016 (Note 11). Movements in debt issue costs follow: Note 2017 2016 Balance at beginning of year P915 P1,208 Additions 978 205 Amortization for the year 26 (820) (498) Balance at end of year P1,073 P915

Repayment Schedule As of December 31, 2017 and 2016, the annual maturities of long-term debt are as follows: 2017 Year Gross Amount Debt Issue Costs Net 2018 P3,820 P31 P3,789 2019 19,938 602 19,336 2020 19,938 234 19,704 2021 35,557 150 35,407 2022 12,775 41 12,734 2023 and beyond 10,750 15 10,735 P102,778 P1,073 P101,705

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2016 Year Gross Amount Debt Issue Costs Net 2017 P20,956 P45 P20,911 2018 13,679 519 13,160 2019 12,642 116 12,526 2020 8,842 30 8,812 2021 16,648 134 16,514 2022 and beyond 8,000 71 7,929 P80,767 P915 P79,852

19. Asset Retirement Obligation Movements in the ARO are as follows: Note 2017 2016 Balance at beginning of year P2,324 P1,809 Additions 74 129 Effect of change in discount rate 98 278 Accretion for the year 22, 26 182 141 Effect of change in lease term 7 - Settlement (4) (33) Balance at end of year P2,681 P2,324

20. Other Noncurrent Liabilities Note 2017 2016 Cylinder deposits P577 P499 Cash bonds 400 387 Others 60 73 34, 35 P1,037 P959

“Others” account includes liability to a contractor and supplier.

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21. Equity a. Capital Stock

Common Shares Pursuant to the registration statement rendered effective by the SEC on May 18, 1995 and the permit to sell issued by the SEC dated May 30, 1995, 10,000,000,000 common shares of the Parent Company with par value of P1.00 per share were offered for sale at an offer price of P1.00 per share. As of December 31, 2017 and 2016, the Parent Company had 144,316 and 145,602 stockholders with at least one board lot at the PSE, respectively, for a total of 9,375,104,497 (P1.00 per share par value) issued and outstanding common shares. Preferred Shares On January 21, 2010, the SEC approved the Parent Company’s amendment to its articles of incorporation to reclassify 624,895,503 unissued common shares into preferred shares with a par value of P1.00 per share, as part of its authorized capital stock. On February 12, 2010, the SEC issued an order permitting the Parent Company’s offer and sale of 50,000,000 peso-denominated, cumulative, non-participating and non-voting preferred shares, with an oversubscription option of 50,000,000 preferred shares (collectively, the “2010 Preferred Shares”) to the public at an issue price of P100.00 per share. Proceeds from issuance in excess of par value less related transaction costs amounting to P9,764 was recognized as additional paid-in capital. Dividend rate of 9.5281% per annum computed in reference to the issue price was payable every March 5, June 5, September 5 and December 5 of each year, when declared by the Parent Company’s BOD. The 2010 Preferred Shares were listed with PSE on March 5, 2010. On October 17, 2014, the SEC issued an order permitting the Parent Company’s public offering and sale of 7,000,000 cumulative, non-voting, non-participating, non-convertible, peso-denominated perpetual preferred shares with an oversubscription option of 3,000,000 preferred shares (collectively, the “Series 2 Preferred Shares”) at an issue price of P1,000.00 per share. On November 3, 2014, the Parent Company issued and listed in the PSE 10,000,000 Series 2 Preferred Shares at an offer price of P1,000.00 per share. The Series 2 Preferred Shares were issued in two (2) sub-series, (i) 7,122,320 Series 2A preferred shares (the “Series 2A Preferred Shares”) and (ii) 2,877,680 Series 2B preferred shares (the “Series 2B Preferred Shares”). Proceeds from issuance in excess of par value less related transaction costs amounting to P9,889 was recognized as additional paid-in capital. The Series 2A Preferred Shares may be redeemed by the Parent Company starting on the fifth anniversary from the listing date while the Series 2B Preferred Shares may be redeemed starting on the seventh anniversary from the listing date. Series 2A and Series 2B Preferred Shares have dividend rates of 6.3000% and 6.8583%, respectively. Cash dividends are payable quarterly every February 3, May 3, August 3 and November 3 of each year, as and if declared by the Parent Company’s BOD. All shares rank equally as regards to the Parent Company’s residual assets, except that holders of preferred shares participate only to the extent of the issue price of the shares plus any accumulated and unpaid cash dividends.

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On March 5, 2015, the Parent Company redeemed the 2010 Preferred Shares at P100.00 per share, which were delisted by the PSE on March 6, 2015 in line with the latter’s rule on the delisting of redeemed shares which are not re-issuable at the time of redemption under the issuing company’s articles of incorporation. On July 6, 2015, the SEC approved the amendment of the articles of incorporation of the Parent Company to provide a re-issuability feature of its preferred shares. As of December 31, 2017 and 2016, the Parent Company had 10,000,000 (P1 par value) issued and outstanding preferred shares. The total number of preferred shareholders with at least one board lot at the PSE as of December 31, 2017 and 2016 are as follows: 2017 2016 Series 2A Preferred Shares 48 49 Series 2B Preferred Shares 31 31 79 80

b. Retained Earnings

i. Declaration of Cash Dividends

On various dates in 2016 and 2017, the Parent Company’s BOD approved the declaration of cash dividends for common and preferred shareholders with the following details:

Type Per

Share Date of Declaration Date of Record Date of Payment 2015 Common P0.05000 March 17, 2015 April 1, 2015 April 16, 2015 Series 2A 15.75000 March 17, 2015 April 17, 2015 May 4, 2015 Series 2B 17.14575 March 17, 2015 April 17, 2015 May 4, 2015 Series 2A 15.75000 March 17, 2015 July 20, 2015 August 3, 2015 Series 2B 17.14575 March 17, 2015 July 20, 2015 August 3, 2015 Series 2A 15.75000 August 10, 2015 October 16, 2015 November 3, 2015 Series 2B 17.14575 August 10, 2015 October 16, 2015 November 3, 2015 Series 2A 15.75000 August 10, 2015 January 18, 2016 February 3, 2016 Series 2B 17.14575 August 10, 2015 January 18, 2016 February 3, 2016 2016 Common P0.10000 March 15, 2016 March 31, 2016 April 14, 2016 Series 2A 15.75000 March 15, 2016 April 15, 2016 May 3, 2016 Series 2B 17.14575 March 15, 2016 April 15, 2016 May 3, 2016 Series 2A 15.75000 March 15, 2016 July 15, 2016 August 3, 2016 Series 2B 17.14575 March 15, 2016 July 15, 2016 August 3, 2016 Series 2A 15.75000 August 8, 2016 October 14, 2016 November 3, 2016 Series 2B 17.14575 August 8, 2016 October 14, 2016 November 3, 2016 Series 2A 15.75000 August 8, 2016 January 13, 2017 February 3, 2017 Series 2B 17.14575 August 8, 2016 January 13, 2017 February 3, 2017 2017 Common P0.10000 March 14, 2017 March 28, 2017 April 12, 2017 Series 2A 15.75000 March 14, 2017 April 12, 2017 May 3, 2017 Series 2B 17.14575 March 14, 2017 April 12, 2017 May 3, 2017 Series 2A 15.75000 March 14, 2017 July 18, 2017 August 3, 2017 Series 2B 17.14575 March 14, 2017 July 18, 2017 August 3, 2017 Series 2A 15.75000 August 8, 2017 October 16, 2017 November 3, 2017 Series 2B 17.14575 August 8, 2017 October 16, 2017 November 3, 2017 Series 2A 15.75000 August 8, 2017 January 16, 2018 February 5, 2018 Series 2B 17.14575 August 8, 2017 January 16, 2018 February 5, 2018

Total cash dividends declared by the Parent Company amounted to P1,584 both in 2017 and 2016 and P1,114 in 2015.

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ii. Appropriation for Capital Projects On May 11, 2011, the Parent Company’s BOD approved the proposal to revise the current level of appropriated retained earnings of P15,372 to P25,000 for the Parent Company’s Refinery Master Plan 2 (RMP-2) project. On January 1, 2016, RMP-2 Project commenced commercial operation, thus, on May 5, 2016, the Parent Company’s BOD approved the reversal of P25,000 appropriation for the Parent Company’s RMP-2 and the re-appropriation of retained earnings amounting to P15,000 for capital projects in 2016 and 2017 which are expected to be completed within five years from the date of the approval. On August 23, 2016, Las Lucas’ BOD approved the reversal of appropriation made in 2010 amounting to P5 (P3 - attributable to non-controlling interest) which was aimed to fund its construction management service. On September 29, 2015, NVRC’s BOD approved the appropriation of retained earnings of P200 (P120 - attributable to non-controlling interest) and on December 20, 2016, an additional appropriation of P200 (P120 - attributable to non-controlling interest) was approved, both for the programmed lot acquisitions which are expected to be completed in 2019. The appropriated retained earnings attributable to the equity holders of the Parent Company as of December 31, 2017 and 2016 amounted to P15,160.

c. The Group’s unappropriated retained earnings include its accumulated equity in net earnings of subsidiaries, joint ventures and an associate amounting to P20,539, P15,040 and P11,401 as of December 31, 2017, 2016 and 2015, respectively. Such amounts are not available for declaration as dividends until declared by the respective investees.

d. Equity reserves pertain to reserve for retirement plan, unrealized fair value losses on AFS financial assets, exchange differences on translation of foreign operations and others. Reserve for retirement plan pertains to the cumulative remeasurements of the Group’s defined benefit retirement plan.

e. Undated Subordinated Capital Securities (USCS)

In February 2013, the Parent Company issued US$500 million USCS at an issue price of 100% (“Original Securities”). In March 2013, the Parent Company issued under the same terms and conditions of the Original Securities an additional US$250 million at a price of 104.25% (“New Securities”). The New Securities constituted a further issuance of, were fungible with, and were consolidated and formed a single series with the Original Securities (the “Original Securities” and, together with the “New Securities”, the “Securities”). Proceeds were applied by the Parent Company for capital and other expenditures of RMP-2 as well as for general corporate purposes. The Securities were offered for sale and sold to qualified buyers and not more than 19 institutional lenders. Hence, each sale of the Securities was considered an exempt transaction for which no confirmation of exemption from the registration requirements of The Securities Regulation Code (SRC) was required to be filed with the SEC. In compliance with the amended rules of the SRC, notices of exemption for the issuances of the Securities were filed with the SEC on February 12, 2013 for the Original Securities and on March 19, 2013 for the New Securities.

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Holders of the Securities are conferred a right to receive distribution on a semi-annual basis from their issue date at the rate of 7.5% per annum, subject to a step-up rate. The Parent Company has a right to defer this distribution under certain conditions. The Securities have no fixed redemption date and are redeemable in whole, but not in part, at their principal amounts together with any accrued, unpaid or deferred distributions at the Parent Company’s option on or after August 6, 2018 or on any distribution payment date thereafter or upon the occurrence of certain other events. Payments of distribution pertaining to the Securities amounting to US$28.125 million were made on each of the following dates: February 6, 2015 (P1,770); August 6, 2015 (P1,837); February 5, 2016 (P1,918); August 5, 2016 (P1,889); February 3, 2017 (P2,000); and August 4, 2017 (P2,024).

22. Cost of Goods Sold This account consists of: Note 2017 2016 2015 Inventories 9 P369,695 P283,169 P311,526 Depreciation and amortization 25 8,043 6,153 2,724 Materials and Supplies 4,873 1,397 1,637 Purchased services and

utilities 2,339 10,486 8,156 Personnel expenses 24 1,925 1,647 1,565 Others 19, 31 5,094 3,273 3,126 P391,969 P306,125 P328,734

Distribution or transshipment costs included as part of inventories amounted to P10,438, P10,711 and P11,066 in 2017, 2016 and 2015, respectively. Others include manufacturing and overhead costs such as maintenance and repairs, taxes and licenses, insurance and rent.

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23. Selling and Administrative Expenses This account consists of: Note 2017 2016 2015 Depreciation and

amortization 25 P2,936 P3,352 P3,548 Personnel expenses 24 4,021 3,373 3,150 Purchased services and

utilities 3,762 3,004 2,597 Advertising 1,524 1,460 1,482 Maintenance and repairs 1,276 1,108 985 Materials and office supplies 546 754 603 Rent - net 29, 31 464 154 164 Taxes and licenses 342 415 314 Impairment losses on trade

and other receivables 4, 8 10 68 154 Others 9 136 230 313 P15,017 P13,918 P13,310

Selling and administrative expenses include research and development costs amounting to P65, P66 and P65 in 2017, 2016 and 2015, respectively (Note 9). Rent is shown net of rental income amounting to P1,180, P1,139 and P1,131 in 2017, 2016 and 2015, respectively.

24. Personnel Expenses This account consists of: Note 2017 2016 2015 Salaries, wages and other

employee costs 28 P5,345 P4,348 P4,210 Retirement benefits costs -

defined benefit plan 28, 30 508 579 419 Retirement benefits costs -

defined contribution plan 28 93 93 86 P5,946 P5,020 P4,715

The above amounts are distributed as follows: Note 2017 2016 2015 Costs of goods sold 22 P1,925 P1,647 P1,565 Selling and administrative

expenses 23 4,021 3,373 3,150 P5,946 P5,020 P4,715

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25. Depreciation and Amortization This account consists of: Note 2017 2016 2015 Cost of goods sold:

Property, plant and equipment 11 P7,359 P5,316 P2,291

Other assets 14 684 837 433 22 8,043 6,153 2,724

Selling and administrative expenses: Property, plant and

equipment 11 2,602 2,930 3,073 Investment property 12 1 1 1 Intangible assets and

others 14 333 421 474 23 2,936 3,352 3,548

37 P10,979 P9,505 P6,272

26. Interest Expense and Other Financing Charges, Interest Income and Other Expenses

This account consists of: Note 2017 2016 2015 Interest expense and other

financing charges: Long-term debt 18 P4,320 P3,657 P869 Short-term loans 15 2,323 2,323 3,284 Bank charges 839 999 1,157 Amortization of debt issue

costs 18 820 498 144 Accretion on ARO 19 182 76 66 Others 3 4 13 37 P8,487 P7,557 P5,533

Interest income: Advances to related

parties 28 P211 P261 P297 Short-term placements 5 236 163 313 AFS financial assets 7 22 18 11 Trade receivables 49 50 45 Cash in banks 5 16 14 20 Others 1 1 - 37 P535 P507 P686

Forward

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Note 2017 2016 2015 Other expenses - net:

Foreign currency gains (losses) - net 34 P1,192 (P2,236) (P4,305)

Changes in fair value of financial assets at FVPL 6 14 10 11

Insurance claims (charges) (36) 16 61 Hedging gains (losses) - net (373) (152) 637 Marked-to-market gains

(losses) - net 35 (1,692) 824 936 Others - net 13 (12) (897) (835) (P907) (P2,435) (P3,495)

The Parent Company recognized its share in the net income (loss) of PDSI amounting to P2, (P3) and (P4) in 2017, 2016 and 2015, respectively, and its share in the net income of TBSB amounting to P4 and P6 in 2017 and 2016, respectively. These were recorded as part of “Others - net” under “Other expenses - net” account in the consolidated statements of income. Also included in “Others - net” were the following: (i) loss on disposal of investment in MNHPI amounting to P189 in 2017 (Note 10); (ii) rental income amounting to P63 in 2017 (Note 23); and (iii) impairment loss on goodwill in PAHL in 2016 amounting to P298 (Note 13).

27. Income Taxes Deferred tax assets and liabilities are from the following: 2017 2016 Various allowances, accruals and others P1,116 P894 Net retirement benefits liability 1,337 878 ARO 487 373 Unutilized tax losses 220 197 Inventory differential 199 616 Rental 188 217 Fair market value adjustments on business

combination (33) (31) Unrealized foreign exchange losses (gains) - net (264) 791 Capitalized taxes and duties on inventories

deducted in advance (288) (211) Excess of double-declining over straight-line

method of depreciation and amortization (5,012) (3,587) Capitalized interest, duties and taxes on

property, plant and equipment deducted in advance and others (5,140) (5,675)

MCIT - 6 (P7,190) (P5,532)

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The above amounts are reported in the consolidated statements of financial position as follows: 2017 2016 Deferred tax assets - net P207 P194 Deferred tax liabilities - net (7,397) (5,726) (P7,190) (P5,532)

Net deferred taxes of individual companies are not allowed to be offset against net deferred tax liabilities of other companies, or vice versa, for purposes of consolidation. The components of income tax expense are shown below: 2017 2016 2015 Current P2,754 P3,289 P1,448 Deferred 2,001 267 2,207 P4,755 P3,556 P3,655

The following are the amounts of deferred tax expense (benefit), for each type of temporary difference, recognized in the consolidated statements of income: 2017 2016 2015 Excess of double-declining over

straight-line method of depreciation and amortization P1,425 P805 (P156)

Unrealized foreign exchange losses (gains) - net 1,055 (118) (67)

Inventory differential 417 258 (569) Capitalized taxes and duties on

inventories deducted in advance 77 (34) 34 Rental 29 38 (9) MCIT 6 468 (232) NOLCO - 2 405 Unutilized tax gains (losses) (23) (13) 91 ARO (114) (78) (75) Various allowances, accruals and

others (222) (480) (14) Capitalized interest, duties and

taxes on property, plant and equipment deducted in advance and others (535) (441) 2,818

Others (114) (140) (19) P2,001 P267 P2,207

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A reconciliation of tax on the pretax income computed at the applicable statutory rates to tax expense reported in the consolidated statements of income is as follows: Note 2017 2016 2015 Statutory income tax rate 30.00% 30.00% 30.00% Increase (decrease) in

income tax rate resulting from: Income subject to Income

Tax Holiday (ITH) 36 (3.05%) (9.63%) - Interest income subjected

to lower final tax (0.13%) (0.13%) (0.74%) Nontaxable income (3.52%) (2.36%) (0.89%) Nondeductible expense 0.91% 1.85% 2.40% Nondeductible interest

expense 0.06% 0.06% 0.26% Changes in fair value of

financial assets at FVPL 26 (0.02%) (0.02%) (0.03%) Excess of optional

standard deduction over deductible expenses (0.06%) (0.05%) (0.07%)

Others, mainly income subject to different tax rates 1.04% 5.01% 5.90%

Effective income tax rate 25.23% 24.73% 36.83% Optional Standard Deduction Effective July 2008, Republic Act (RA) No. 9504 was approved giving corporate taxpayers an option to claim itemized deduction or OSD equivalent to 40% of gross sales. Once the option to use OSD is made, it shall be irrevocable for the taxable year for which the option was made (Note 4).

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28. Related Party Disclosures The Parent Company, certain subsidiaries, associate, joint ventures and SMC and its subsidiaries in the normal course of business, purchase products and services from one another. Transactions with related parties are made at normal market prices and terms. Amounts owed by/owed to related parties are collectible/to be settled in cash. The balances and transactions with related parties as of and for the years ended December 31 follow:

Note Year

Revenue from

Related Parties

Purchases from

Related Parties

Amounts Owed by Related Parties

Amounts Owed to Related Parties Terms Conditions

Retirement 2017 P211 P - P5,188 P - On demand; Unsecured; Plan 8, 30, a 2016 261 - 5,042 - long-term; no impairment 2015 297 - 6,597 - interest

bearing

Intermediate b, e 2017 10 650 4 27 On demand; Unsecured; Parent 2016 7 173 5 24 non-interest no impairment

2015 9 74 3 35 bearing Under Common 14, b, c, d, i 2017 3,233 10,670 870 768 On demand; Unsecured;

Control 2016 6,473 30,773 1,096 5,850 non-interest no impairment 2015 3,587 14,504 975 1,682 bearing Associate b 2017 153 - - - On demand; Unsecured; 2016 154 - 33 - non-interest no impairment 2015 143 - 31 - bearing Joint Ventures c, f 2017 1 43 - 4 On demand; Unsecured; 2016 - 42 - 3 non-interest no impairment 2015 - 95 - 2 bearing 2017 P3,608 P11,363 P6,062 P799

2016 P6,895 P30,988 P6,176 P5,877

2015 P4,036 P14,673 P7,606 P1,719

a. As of December 31, 2017 and 2016, the Parent Company has interest bearing

advances to PCERP, included as part of “Trade and other receivables - net” in the consolidated statements of financial position, for some investment opportunities (Notes 8 and 30).

b. Sales relate to the Parent Company’s supply agreements with the Intermediate

Parent, various SMC subsidiaries, and an associate. Under these agreements, the Parent Company supplies diesel fuel, gasoline and lube requirements of selected SMC plants and subsidiaries.

c. Purchases relate to purchase of goods and services such as power,

construction, information technology, shipping and terminalling from a joint venture and various SMC subsidiaries.

d. The Parent Company entered into a lease agreement with San Miguel

Properties, Inc. for its office space covering 6,802 square meters with a monthly rate of P6. The lease, which commenced on June 1, 2014, is for a period of one year and was subsequently renewed on a yearly basis in accordance with the written agreement of the parties.

e. The Parent Company also pays SMC for its share in common expenses such as

utilities and management fees.

f. TBSB, an operator of LPG bottling plant, provides bottling services to PFISB and another venturer.

g. Amounts owed by related parties consist of trade, non-trade receivables,

advances and prepaid expenses.

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h. Amounts owed to related parties consist of trade and non-trade payables.

i. In 2016, the Parent Company reacquired the Power Plant from SMC Powergen, Inc. The Power Plant is presented as part of “Refinery and plant equipment” category in the “Property, plant and equipment” account in the consolidated statements of financial position (Note 11). Amounts owed to related party arising from the transaction has been fully settled as of December 31, 2017.

j. The compensation and benefits of key management personnel of the Group, by benefit type, included in the “Personnel expenses” account as follow (Note 24): 2017 2016 2015 Salaries and other short-term

employee benefits P906 P754 P659 Retirement benefits costs -

defined benefit plan 166 133 86 Retirement benefits costs -

defined contribution plan 33 31 27 P1,105 P918 P772

29. Operating Lease Commitments Group as Lessee The Group entered into commercial leases on certain parcels of land for its refinery and service stations (Notes 23 and 31). The leases’ life ranges from one to forty two years with renewal options included in the contracts. There are no restrictions placed upon the Group by entering into these leases. The lease agreements include upward escalation adjustments of the annual rental rates. Future minimum rental payables under the non-cancellable operating lease agreements as of December 31 are as follows: 2017 2016 2015 Within one year P1,561 P1,322 P1,269 After one year but not more than

five years 5,103 3,497 2,982 After five years 11,224 10,763 9,821 P17,888 P15,582 P14,072

Group as Lessor The Group has entered into lease agreements on its service stations and other related structures (Note 23). The non-cancellable leases have remaining terms of between three to ten years. All leases include a clause to enable upward escalation adjustment of the annual rental rates.

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Future minimum rental receivables under the non-cancellable operating lease agreements as of December 31 follow: 2017 2016 2015 Within one year P91 P187 P272 After one year but not more than

five years 115 158 259 After five years 12 17 14 P218 P362 P545

30. Retirement Plan The succeeding tables summarize the components of net retirement benefits costs (income) under defined benefit retirement plans recognized in profit or loss and the funding status and amounts of retirement plans recognized in the consolidated statements of financial position. The Parent Company has a funded, noncontributory, defined benefit retirement plan while several subsidiaries have unfunded, noncontributory, defined benefit retirement plans. Contributions and costs are determined in accordance with the actuarial studies made for the plans. Annual cost is determined using the projected unit credit method. The Group’s latest actuarial valuation date is as of December 31, 2017. Valuations are obtained on a periodic basis. The Parent Company’s Retirement Plan is registered with the Bureau of Internal Revenue (BIR) as a tax-qualified plan under Republic Act (RA) No. 4917, as amended. The control and administration of the retirement plan is vested in the Board of Trustees (BOT), as appointed by the BOD of the Parent Company. The BOT of the retirement plan, who exercise voting rights over the shares and approve material transactions, are also officers of the Parent Company, while one of the BOT is also a BOD. The retirement plan’s accounting and administrative functions are undertaken by SMC’s Retirement Funds Office.

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The following table shows a reconciliation of the net defined benefit retirement asset (liability) and its components:

Present Value of Defined Benefit

Obligation Fair Value of Plan Assets Net Defined Benefit

Retirement Asset (Liability) 2017 2016 2015 2017 2016 2015 2017 2016 2015 Balance at beginning of year (P5,344) (P5,603) (P5,947) P1,952 P12 P3,603 (P3,392) (P5,591) (P2,344) Recognized in Profit or Loss Current service cost (313) (285) (302) - - - (313) (285) (302) Past service cost - plan amendment - (2) - - - - - (2) - Interest expense (289) (278) (269) - - - (289) (278) (269) Interest income - - - 94 (14) 152 94 (14) 152 (602) (565) (571) 94 (14) 152 (508) (579) (419)

Recognized in Other Comprehensive Income Remeasurements:

Actuarial losses (gains) arising from: Experience adjustments (555) (398) (163) - - - (555) (398) (163) Changes in financial assumptions 105 173 151 - - - 105 173 151 Changes in demographic assumptions 43 302 197 - - - 43 302 197

Return on plan asset excluding interest - - - (735) 2,570 (3,297) (735) 2,570 (3,297) (407) 77 185 (735) 2,570 (3,297) (1,142) 2,647 (3,112)

Others Benefits paid 571 753 600 (528) (651) (546) 43 102 54 Contributions - - - 100 35 100 100 35 100 Transfer to other accounts payable (4) - 6 - - - (4) - 6 Transfers from other plans/subsidiaries - (16) - - - - - (16) - Transfers to other plans/subsidiaries - 16 - - - - - 16 - Translation adjustment (86) (6) 124 - - - (86) (6) 124 481 747 730 (428) (616) (446) 53 131 284

Balance at end of year (P5,872) (P5,344) (P5,603) P883 P1,952 P12 (P4,989) (P3,392) (P5,591)

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The above net defined benefit retirement liability was recognized in the consolidated statements of financial position as follows: Note 2017 2016 Trade and other payables 17 P104 P77 Retirement benefits liability

(noncurrent portion) 4,885 3,315 P4,989 P3,392

Retirement benefits costs recognized in the consolidated statements of income by the Parent Company amounted to P408, P485 and P329 in 2017, 2016 and 2015, respectively. Retirement benefits costs recognized in the consolidated statements of income by the subsidiaries amounted to P100, P94 and P90 in 2017, 2016 and 2015, respectively. The carrying amounts of the Parent Company’s retirement fund approximate fair values as of December 31, 2017 and 2016. Plan assets consist of the following: 2017 2016 Shares of stock:

Quoted 84% 82% Unquoted 5% 4%

Government securities 7% 9% Cash and cash equivalents 1% 2% Others 3% 3% 100% 100%

Investment in Shares of Stock. As of December 31, 2017, the Parent Company’s plan assets include 731,156,097 common shares of Petron with fair market value per share of P9.17, 2,000,000 Series “2”, Subseries “B” preferred shares of SMC with fair market value per share of P76.50, and investment in Petron bonds amounting to P122. The Group’s plan recognized a gain (loss) on the investment in marketable securities and bonds of the Parent Company and SMC amounting to (P577), P2,169 and (P2,641) in 2017, 2016 and 2015, respectively, mainly as a result of marked-to-market remeasurements. Dividend income from the investment in shares of stock of Petron and SMC amounted to P85 both in 2017 and 2016 and P56 in 2015. On July 25, 2016, the Group plan’s investment in 375,142,858 ordinary shares of PAHL was sold to Petron for a total consideration of P1,921. Accordingly, the plan recognized gain on sale of investment amounting to P503. Investment in Trust Account. Investment in trust account represents funds entrusted to financial institutions for the purpose of maximizing the yield on investible funds. Others include receivables which earn interest.

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The BOT reviews the level of funding required for the retirement fund. Such a review includes the asset-liability matching (ALM) strategy and investment risk management policy. The Parent Company’s ALM objective is to match maturities of the plan assets to the retirement benefit obligation as they fall due. The Parent Company monitors how the duration and expected yield of the investments are matching the expected cash outflows arising from the retirement benefit obligation. The Parent Company expects to contribute P818 to its defined benefit retirement plan in 2018. The BOT approves the percentage of asset to be allocated for fixed income instruments and equities. The retirement plan has set maximum exposure limits for each type of permissible investments in marketable securities and deposit instruments. The BOT may, from time to time, in the exercise of its reasonable discretion and taking into account existing investment opportunities, review and revise such allocation and limits. The retirement plan exposes the Group to actuarial risks such as investment risk, interest rate risk, longevity risk and salary risk as follows: Investment and Interest Risk. The present value of the defined benefit obligation is calculated using a discount rate determined by reference to market yields to government bonds. Generally, a decrease in the interest rate of a reference government bonds will increase the plan obligation. However, this will be partially offset by an increase in the return on the plan’s investments and if the return on plan asset falls below this rate, it will create a deficit in the plan. Due to the long-term nature of plan obligation, a level of continuing equity investments is an appropriate element of the Group’s long-term strategy to manage the plans efficiently. Longevity and Salary Risks. The present value of the defined obligation is calculated by reference to the best estimate of the mortality of the plan participants both during and after their employment and to their future salaries. Consequently, increases in the life expectancy and salary of the plan participants will result in an increase in the plan obligation. The overall expected rate of return is determined based on historical performance of the investments. The principal actuarial assumptions used to determine retirement benefits are as follows: 2017 2016 2015 Discount rate 5.50% to 5.73% 5.38% to 5.53% 4.60% to 5.50% Future salary increases 5.00% to 7.00% 5.00% to 8.00% 6.00% to 8.00%

Assumptions for mortality and disability rates are based on published statistics and mortality and disability tables. The weighted average duration of defined benefit obligation is from 5.90 to 22.50 years and 5.46 to 23.90 years as of December 31, 2017 and 2016, respectively.

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The reasonably possible changes to one of the relevant actuarial assumptions, while holding all other assumptions constant, would have affected the defined benefit assets/liabilities by the amounts below: Defined Benefit Liabilities

2017 1 Percent Increase

1 Percent Decrease

Discount rate (P356) P435 Salary increase rate 366 (322)

Defined Benefit Liabilities

2016 1 Percent Increase

1 Percent Decrease

Discount rate (P375) P435 Salary increase rate 392 (345)

The Parent Company has advances to PCERP amounting to P5,188 and P5,042 as of December 31, 2017 and 2016, respectively, included as part of “Trade and other receivables - net” account in the consolidated statements of financial position (Notes 8 and 28). The advances are subject to interest of 5% in 2017 and 2016 (Note 28). Transactions with the retirement plan are made at normal market prices and terms. Outstanding balances as of December 31, 2017 and 2016 are unsecured and settlements are made in cash. There have been no guarantees provided for any retirement plan receivables. The Parent Company has not recognized any impairment losses relating to the receivables from retirement plan for the years ended December 31, 2017 and 2016.

31. Significant Agreements Supply Agreements. The Parent Company has assigned all its rights and obligations to PSTPL (as Assignee) to have a term contract to purchase the Parent Company’s crude oil requirements from Saudi Arabian Oil Company (Saudi Aramco), based on the latter’s standard Far East selling prices and Kuwait Petroleum Corporation (KPC) to purchase Kuwait Export Crude Oil (KEC) at pricing based on latter’s standard KEC prices. The contract with Saudi Aramco is from November 1, 2013 to December 31, 2014 while the contract with KPC is from January 1, 2015 to December 31, 2015 both with automatic annual extension thereafter unless terminated at the option of either party, upon at least 60 days written notice. PMRMB currently has a long-term supply contract of Tapis crude oil and Terengganu condensate for its Port Dickson Refinery from ExxonMobil Exploration and Production Malaysia Inc. (EMEPMI) and Low Sulphur Waxy Residue Sale/Purchase Agreement with Exxon Trading Asia Pacific, a division of ExxonMobil Asia Pacific Pte. Ltd. On the average, around 65% of crude and condensate volume processed are from EMEPMI with balance of around 35% from spot purchases. Outstanding liabilities of the Group for such purchases are shown as part of “Liabilities for crude oil and petroleum products” account in the consolidated statements of financial position as of December 31, 2017 and 2016 (Note 16).

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Toll Service Agreement with Innospec Limited (Innospec). PFC entered into an agreement with Innospec, a leading global fuel additives supplier, in December 2006. Under the agreement, PFC shall be the exclusive toll blender of Innospec’s fuel additives sold in the Asia-Pacific region consisting of the following territories: South Korea, China, Taiwan, Singapore, Cambodia, Japan and Malaysia. PFC will provide the tolling services which include storage, blending, filing and logistics management. In consideration of these services, Innospec will pay PFC a service fee based on the total volume of products blended at PFC Fuel Additives Blending facility. Tolling services started in 2008 on which PFC recognized revenue amounting to P64 both in 2017 and 2016 and P48 in 2015. Hungry Juan Outlet Development Agreement with San Miguel Foods, Inc. (SMFI) PFC entered into an agreement with SMFI for a period of three years and paid a one-time franchise fee. The agreement expired in November 2017 and was further renewed for another year until November 2018. The store, which started operating in November 2012, is located at Rizal Blvd. cor. Argonaut Highway, Subic Bay Freeport Zone. Lease Agreements with Philippine National Oil Company (PNOC). On September 30, 2009, the Parent Company through NVRC, entered into a 30-year lease with PNOC without rent-free period, covering a property which it shall use as site for its refinery, commencing January 1, 2010 and ending on December 31, 2039. Based on the latest re-appraisal made, the annual rental shall be P138, starting 2012, payable on the 15th day of January each year without the necessity of demand. This non-cancellable lease is subject to renewal options and annual escalation clauses of 3% per annum to be applied starting 2013 until the next re-appraisal is conducted. The leased premises shall be reappraised in 2017 and every fifth year thereafter in which the new rental rate shall be determined equivalent to 5% of the reappraised value, and still subject to annual escalation clause of 3% for the four years following the re-appraisal. Prior to this agreement, Petron had an outstanding lease agreement on the same property from PNOC. Also, as of December 31, 2017 and 2016, Petron leases other parcels of land from PNOC for its bulk plants and service stations (Note 39).

32. Basic and Diluted Earnings Per Share Basic and diluted earnings per share amounts are computed as follows:

2017 2016 2015 Net income attributable to equity holders of

the Parent Company P12,739 P10,100 P5,618 Dividends on preferred shares for the year (646) (646) (646) Distributions to the holders of USCS (4,024) (3,807) (3,607) Net income attributable to common

shareholders of the Parent Company (a) P8,069 P5,647 P1,365

Weighted average number of common shares outstanding (in millions) (b) 9,375 9,375 9,375

Basic/diluted earnings per common share attributable to equity holders of the Parent Company (a/b) P0.86 P0.60 P0.15

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As of December 31, 2017, 2016 and 2015, the Parent Company has no potential dilutive debt or equity instruments.

33. Supplemental Cash Flow Information a. Changes in operating assets and liabilities:

2017 2016 2015 Decrease (increase) in assets:

Trade and other receivables (P6,593) (P230) P18,138 Inventories (12,531) (13,029) 22,875 Other current assets (1,511) 954 (8,136)

Increase (decrease) in liabilities: Liabilities for crude oil and

petroleum products 7,837 11,842 (10,030) Trade and other payables and

others (165) 4,922 (27,934) (12,963) 4,459 (5,087) Additional allowance for

(net reversal of) impairment of receivables, inventory decline and/or obsolescence, goodwill and others (80) 91 (397)

(P13,043) P4,550 (P5,484)

b. Changes in liabilities arising from financing activities:

Dividends

Payable Short-term

Loans Long-term

Debt Total Balance as of January 1,

2017 P218 P90,366 P79,852 P170,436 Changes from financing

cash flows Proceeds from availment

of loans - 223,862 74,807 298,669 Payments of loans - (244,722) (53,477) (298,199) Dividends declared 5,794 - - 5,794 Dividends and

distributions paid (5,773) - - (5,773) Total changes from

financing cash flows 21 (20,860) 21,330 491 Effects of changes in

foreign exchange rates - 77 (297) (220) Amortization of debt

issue costs - - 820 820 Balance at end of year P239 P69,583 P101,705 P171,527

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34. Financial Risk Management Objectives and Policies The Group’s principal financial instruments include cash and cash equivalents, debt and equity securities, bank loans and derivative instruments. The main purpose of bank loans is to finance working capital relating to importation of crude and petroleum products, as well as to partly fund capital expenditures. The Group has other financial assets and liabilities such as trade and other receivables and trade and other payables, which are generated directly from its operations. It is the Group’s policy not to enter into derivative transactions for speculative purposes. The Group uses hedging instruments to protect its margin on its products from potential price volatility of crude oil and products. It also enters into short-term forward currency contracts to hedge its currency exposure on crude oil importations. The main risks arising from the Group’s financial instruments are foreign currency risk, interest rate risk, credit risk, liquidity risk and commodity price risk. The BOD regularly reviews and approves the policies for managing these financial risks. Details of each of these risks are discussed below, together with the related risk management structure. Risk Management Structure The Group follows an enterprise-wide risk management framework for identifying, assessing and addressing the risk factors that affect or may affect its businesses. The Group’s risk management process is a bottom-up approach, with each risk owner mandated to conduct regular assessment of its risk profile and formulate action plans for managing identified risks. As the Group’s operation is an integrated value chain, risks emanate from every process, while some could cut across groups. The results of these activities flow up to the Management Committee and, eventually, the BOD through the Group’s annual business planning process. Oversight and technical assistance is likewise provided by corporate units and committees with special duties. These groups and their functions are: a. The Risk and Insurance Management Group, which is mandated with the overall

coordination and development of the enterprise-wide risk management process. b. The Treasurers Department, which is in charge of foreign currency hedging

transactions. c. The Transaction Management Unit of Controllers Department, which provides

backroom support for all hedging transactions. d. The Corporate Technical and Engineering Services Group, which oversees strict

adherence to safety and environmental mandates across all facilities. e. The Internal Audit Department, which has been tasked with the implementation

of a risk-based auditing. f. The Commodity Risk Management Department (CRMD), which sets new and

updates existing hedging policies by the BOD, provides the strategic targets and recommends corporate hedging strategy to the Commodity Risk Management Committee and Steering Committee.

g. PSTPL executes the hedging transactions involving crude and product imports

on behalf of the Group.

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The BOD also created separate positions and board-level entities with explicit authority and responsibility in managing and monitoring risks, as follows: a. The Audit Committee is responsible for overseeing the Senior Management in

establishing and maintaining an adequate, effective and efficient internal control framework. It ensures that systems and processes are designed to provide assurance in areas including reporting, monitoring compliance with laws, regulations and internal policies, efficiency and effectiveness of operations, and safeguarding of assets. The Internal Audit Department and the External Auditor directly report to the Audit Committee regarding the direction, scope and coordination of audit and any related activities.

b. The Risk Oversight Committee is responsible for the oversight of the enterprise risk management system of the Group to ensure its functionality and effectiveness.

c. The Compliance Officer, who is a senior officer of the Parent Company reports to the BOD chairperson. Among other functions, he monitors compliance with the provisions and requirements of the Corporate Governance Manual and relevant laws and regulations and determines any possible violations and recommends corresponding penalties, subject to review and approval of the BOD. The Compliance Officer identifies and monitors compliance risk. Lastly, the Compliance Officer represents the Group before the SEC regarding matters involving compliance with the Corporate Governance Manual and other relevant rules and regulations of the SEC.

Foreign Currency Risk The Parent Company’s functional currency is the Philippine peso, which is the denomination of the bulk of the Group’s revenues. The Group’s exposures to foreign currency risk arise mainly from US dollar-denominated sales as well as purchases principally of crude oil and petroleum products. As a result of this, the Group maintains a level of US dollar-denominated assets and liabilities during the period. Foreign currency risk occurs due to differences in the levels of US dollar-denominated assets and liabilities. In addition, starting March 31, 2012, the Group’s exposure to foreign currency risks also arise from US dollar-denominated sales and purchases, principally of crude oil and petroleum products, of Petron Malaysia whose transactions are in Malaysian ringgit, which are subsequently converted into US dollar before ultimately translated to equivalent Philippine peso amount using applicable rates for the purpose of consolidation. The Group pursues a policy of mitigating foreign currency risk by entering into hedging transactions or by substituting US dollar-denominated liabilities with peso-based debt. The natural hedge provided by US dollar-denominated assets is also factored in hedging decisions. As a matter of policy, currency hedging is limited to the extent of 100% of the underlying exposure. The Group is allowed to engage in active risk management strategies for a portion of its foreign currency risk exposure. Loss limits are in place, monitored daily and regularly reviewed by management.

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Information on the Group’s US dollar-denominated financial assets and liabilities and their Philippine peso equivalents are as follows: 2017 2016

US dollar

(in millions) Phil. peso

Equivalent US dollar Phil. Peso Equivalent

Assets Cash and cash equivalents 19 952 261 12,989 Trade and other receivables 118 5,891 218 10,808 Other assets 3 126 5 244 140 6,969 484 24,041

Liabilities Short-term loans 1 30 40 1,996 Liabilities for crude oil and

petroleum products 515 25,747 539 26,798 Long-term debts (including

current maturities) 1,000 49,930 651 32,347 Other liabilities 35 1,733 82 4,056 1,551 77,440 1,312 65,197

Net foreign currency-denominated monetary liabilities (1,411) (70,471) (828) (41,156)

The Group incurred net foreign currency gains (losses) amounting to P1,192, (P2,236) and (P4,305) in 2017, 2016 and 2015, respectively (Note 26), which were mainly countered by marked-to-market and realized hedging gains (losses) (Note 26). The foreign currency rates from Philippine peso (PhP) to US dollar (US$) as of December 31 are shown in the following table: PhP to US$ December 31, 2017 49.930 December 31, 2016 49.720 December 31, 2015 47.060

Managing of foreign currency risk is also supplemented by monitoring the sensitivity of financial instruments to various foreign currency exchange rate scenarios. Foreign currency movements affect reported equity through the retained earnings arising from increases or decreases in unrealized and realized foreign currency gains or losses.

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The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, to profit before tax and equity as of December 31, 2017 and 2016:

P1 Decrease in the US dollar Exchange Rate

P1 Increase in the US dollar Exchange Rate

2017

Effect on Income before

Income Tax Effect on

Equity



Equity Cash and cash equivalents (P10) (P144) P10 P144 Trade and other receivables (81) (263) 81 263 Other assets (3) (12) 3 12 (94) (419) 94 419

Short-term loans 1 - (1) - Liabilities for crude oil and

petroleum products 326 789 (326) (789) Long-term debts (including

current maturities) 1,000 700 (1,000) (700) Other liabilities 33 193 (33) (193) 1,360 1,682 (1,360) (1,682)

P1,266 P1,263 (P1,266) (P1,263)

P1 Decrease in the US dollar Exchange Rate

P1 Increase in the US dollar Exchange Rate

2016



Equity



Equity Cash and cash equivalents (P132) (P221) P132 P221 Trade and other receivables (97) (189) 97 189 Other assets - (5) - 5 (229) (415) 229 415

Short-term loans - 40 - (40) Liabilities for crude oil and

petroleum products 294 451 (294) (451) Long-term debts (including

current maturities) 605 470 (605) (470) Other liabilities 14 77 (14) (77) 913 1,038 (913) (1,038)

P684 P623 (P684) (P623)

Exposures to foreign currency rates vary during the year depending on the volume of foreign currency denominated transactions. Nonetheless, the analysis above is considered to be representative of the Group’s currency risk. Interest Rate Risk Interest rate risk is the risk that future cash flows from a financial instrument (cash flow interest rate risk) or its fair value (fair value interest rate risk) will fluctuate because of changes in market interest rates. The Group’s exposure to changes in interest rates relates mainly to long-term borrowings and investment securities. Investments or borrowings issued at fixed rates expose the Group to fair value interest rate risk. On the other hand, investments or borrowings issued at variable rates expose the Group to cash flow interest rate risk.

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The Group manages its interest costs by using a combination of fixed and variable rate debt instruments. Management is responsible for monitoring the prevailing market-based interest rates and ensures that the marked-up rates levied on its borrowings are most favorable and benchmarked against the interest rates charged by other creditor banks. On the other hand, the Group’s investment policy is to maintain an adequate yield to match or reduce the net interest cost from its borrowings prior to deployment of funds to their intended use in operations and working capital management. However, the Group invests only in high-quality securities while maintaining the necessary diversification to avoid concentration risk. In managing interest rate risk, the Group aims to reduce the impact of short-term volatility on earnings. Over the longer term, however, permanent changes in interest rates would have an impact on profit or loss. Managing interest rate risk is also supplemented by monitoring the sensitivity of the Group’s financial instruments to various standard and non-standard interest rate scenarios. Interest rate movements affect reported equity through the retained earnings arising from increases or decreases in interest income or interest expense as well as fair value changes reported in profit or loss, if any. The sensitivity to a reasonably possible 1% increase in the interest rates, with all other variables held constant, would have decreased the Group’s profit before tax (through the impact on floating rate borrowings) and equity by P499 and P323 in 2017 and 2016, respectively. A 1% decrease in the interest rate would have had the equal but opposite effect. Interest Rate Risk Table. As of December 31, 2017 and 2016, the terms and maturity profile of the interest-bearing financial instruments, together with its gross amounts, are shown in the following tables:

2017 <1 Year 1-<2 Years 2-<3 Years 3-<4 Years 4-<5 Years >5 Years Total Fixed Rate Philippine peso

denominated P3,820 P5,672 P5,672 P21,291 P5,643 P10,750 P52,848 Interest rate 5.5% - 7.2% 5.5% - 7.2% 5.5% - 7.2% 4.0% - 7.2% 5.5% - 5.8% 4.5% - 5.5% Floating Rate US$ denominated

(expressed in PhP) - 14,266 14,266 14,266 7,132 - 49,930 Interest rate* 1, 3, 6 mos.

Libor + margin

1, 3, 6 mos. Libor + margin



P3,820 P19,938 P19,938 P35,557 P12,775 P10,750 P102,778

*The Parent Company reprices every month but has been given an option to reprice every 3 or 6 months.

2016 <1 Year 1-<2 Years 2-<3 Years 3-<4 Years 4-<5 Years >5 Years Total Fixed Rate Philippine peso

denominated P20,036 P1,678 P1,029 P1,029 P16,648 P8,000 P48,420 Interest rate 6.3% - 7.2% 5.5% - 7.2% 5.5% - 7.2% 5.5% - 7.2% 4.0% - 7.2% 4.52% -5.5% Floating Rate Malaysian ringgit

denominated (expressed in PhP) 920 920 426 - - - 2,266

Interest rate 1.5%+COF 1.5%+COF 1.5%+COF US$ denominated

(expressed in PhP) - 11,081 11,187 7,813 - - 30,081 Interest rate* 1, 3, 6 mos.

Libor + margin



P20,956 P13,679 P12,642 P8,842 P16,648 P8,000 P80,767

*The Parent Company reprices every month but has been given an option to reprice every 3 or 6 months.

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Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. In effectively managing credit risk, the Group regulates and extends credit only to qualified and credit-worthy customers and counterparties, consistent with established Group credit policies, guidelines and credit verification procedures. Requests for credit facilities from trade customers undergo stages of review by National Sales and Finance Divisions. Approvals, which are based on amounts of credit lines requested, are vested among line managers and top management that include the President and the Chairman. Generally, the maximum credit risk exposure of financial assets is the total carrying amount of the financial assets as shown on the face of the consolidated statements of financial position or in the notes to the consolidated financial statements, as summarized below: Note 2017 2016 Cash in bank and cash equivalents

(net of cash on hand) 5 P14,313 P15,538 Derivative assets 6 165 64 Available-for-sale financial assets 7 531 479 Trade and other receivables - net 8 38,159 31,548 Long-term receivables - net 14 228 205 Noncurrent deposits 14 90 81 P53,486 P47,915

The credit risk for cash and cash equivalents and derivative financial instruments is considered negligible, since the counterparties are reputable entities with high external credit ratings. The credit quality of these financial assets is considered to be high grade. In monitoring trade receivables and credit lines, the Group maintains up-to-date records where daily sales and collection transactions of all customers are recorded in real-time and month-end statements of accounts are forwarded to customers as collection medium. Finance Division’s Credit Department regularly reports to management trade receivables balances (monthly), past due accounts (weekly) and credit utilization efficiency (semi-annually). Collaterals. To the extent practicable, the Group also requires collateral as security for a credit facility to mitigate credit risk in trade receivables (Note 8). Among the collaterals held are letters of credit, bank guarantees, real estate mortgages, cash bonds, cash deposits and corporate guarantees valued at P4,927 and P3,943 as of December 31, 2017 and 2016, respectively. These securities may only be called on or applied upon default of customers. Credit Risk Concentration. The Group’s exposure to credit risk arises from default of counterparty. Generally, the maximum credit risk exposure of trade and other receivables is its carrying amount without considering collaterals or credit enhancements, if any. The Group has no significant concentration of credit risk since the Group deals with a large number of homogenous trade customers. The Group does not execute any credit guarantee in favor of any counterparty.

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The credit risk exposure of the Group based on trade accounts receivable as of December 31, 2017 and 2016 are shown below (Note 8):

Neither Past Due

nor Impaired Past Due but not Impaired Impaired Total

December 31, 2017 Reseller P4,284 P128 P45 P4,457 Lubes 1,412 90 60 1,562 Gasul 894 113 115 1,122 Industrial 9,605 452 468 10,525 Others 9,008 163 88 9,259 P25,203 P946 P776 P26,925

Neither Past Due

nor Impaired Past Due but not Impaired Impaired Total

December 31, 2016 Reseller P3,221 P127 P63 P3,411 Lubes 450 7 11 468 Gasul 529 61 118 708 Industrial 7,316 382 535 8,233 Others 6,162 277 80 6,519 P17,678 P854 P807 P19,339

Credit Quality. In monitoring and controlling credit extended to counterparty, the Group adopts a comprehensive credit rating system based on financial and non-financial assessments of its customers. Financial factors being considered comprised of the financial standing of the customer while the non-financial aspects include but are not limited to the assessment of the customer’s nature of business, management profile, industry background, payment habit and both present and potential business dealings with the Group. Class A “High Grade” are accounts with strong financial capacity and business performance and with the lowest default risk. Class B “Moderate Grade” refers to accounts of satisfactory financial capability and credit standing but with some elements of risks where certain measure of control is necessary in order to mitigate risk of default. Class C “Low Grade” are accounts with high probability of delinquency and default. Below is the credit quality profile of the Group’s trade accounts receivable as of December 31, 2017 and 2016: Trade Accounts Receivables Per Class Class A Class B Class C Total December 31, 2017 Reseller P846 P3,207 P404 P4,457 Lubes 358 1,023 181 1,562 Gasul 533 447 142 1,122 Industrial 5,440 4,093 992 10,525 Others 4,067 4,267 925 9,259 P11,244 P13,037 P2,644 P26,925

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Trade Accounts Receivables Per Class Class A Class B Class C Total December 31, 2016 Reseller P501 P2,775 P135 P3,411 Lubes 366 50 52 468 Gasul 287 258 163 708 Industrial 2,416 4,959 858 8,233 Others 3,273 2,408 838 6,519 P6,843 P10,450 P2,046 P19,339

Liquidity Risk Liquidity risk pertains to the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Group’s objectives in managing its liquidity risk are as follows: a) to ensure that adequate funding is available at all times; b) to meet commitments as they arise without incurring unnecessary costs; c) to be able to access funding when needed at the least possible cost; and d) to maintain an adequate time spread of refinancing maturities. The Group constantly monitors and manages its liquidity position, liquidity gaps or surplus on a daily basis. A committed stand-by credit facility from several local banks is also available to ensure availability of funds when necessary. The Group also uses derivative instruments such as forwards and swaps to manage liquidity. The table below summarizes the maturity profile of the Group’s financial assets and financial liabilities based on contractual undiscounted payments used for liquidity management as of December 31, 2017 and 2016.

2017 Carrying Amount

Contractual Cash Flow

1 Year or Less

>1 Year - 2 Years

>2 Years - 5 Years

Over 5 Years

Financial Assets Cash and cash

equivalents P17,014 P17,014 P17,014 P - P - P - Trade and other

receivables 38,159 38,159 38,159 - - - Derivative assets 165 165 165 - - - Financial assets at FVPL 171 171 171 - - - AFS financial assets 531 577 204 64 309 - Long-term receivables - net 228 228 - - - 228 Noncurrent deposits 90 90 - - 9 81 Financial Liabilities Short-term loans 69,583 69,879 69,879 - - - Liabilities for crude oil and

petroleum products 36,920 36,920 36,920 - - - Trade and other payables* 7,917 7,917 7,917 - - - Derivative liabilities 1,791 1,791 1,791 - - - Long-term debts (including

current maturities) 101,705 117,024 7,812 23,619 74,308 11,285 Cash bonds 400 404 - 385 2 17 Cylinder deposits 577 577 - - - 577 Other noncurrent liabilities** 57 57 - 14 20 23

*excluding specific taxes and other taxes payable, retirement benefits liability, deferred income and others **excluding cash bonds and cylinder deposits

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2016 Carrying Amount

Contractual Cash Flow

1 Year or Less

>1 Year - 2 Years

>2 Years - 5 Years

Over 5 Years

Financial Assets Cash and cash

equivalents P17,332 P17,332 P17,332 P - P - P - Trade and other

receivables 31,548 31,548 31,548 - - - Derivative assets 64 64 64 - - - Financial assets at FVPL 157 157 157 - - - AFS financial assets 479 522 96 208 172 46 Long-term receivables - net 205 205 - - 205 - Noncurrent deposits 81 81 - 13 68 - Financial Liabilities Short-term loans 90,366 90,882 90,882 - - - Liabilities for crude oil and

petroleum products 29,966 29,966 29,966 - - - Trade and other payables* 12,065 12,065 12,065 - - - Derivative liabilities 778 778 778 - - - Long-term debts (including

current maturities) 79,852 91,103 24,673 15,711 42,050 8,669 Cash bonds 387 393 - 372 4 17 Cylinder deposits 499 499 - - - 499 Other noncurrent liabilities** 73 73 - 14 34 25

*excluding specific taxes and other taxes payable, retirement benefits liability, deferred income and others **excluding cash bonds and cylinder deposits Commodity Price Risk Commodity price risk is the risk that future cash flows from a financial instrument will fluctuate because of changes in market prices. The Group enters into various commodity derivatives to manage its price risks on strategic commodities. Commodity hedging allows stability in prices, thus offsetting the risk of volatile market fluctuations. Through hedging, prices of commodities are fixed at levels acceptable to the Group, thus protecting raw material cost and preserving margins. For consumer (buy) hedging transactions, if prices go down, hedge positions may show marked-to-market losses; however, any loss in the marked-to-market position is offset by the resulting lower physical raw material cost. While for producer (sell) hedges, if prices go down, hedge positions may show marked-to-market gains; however, any gain in the marked-to-market position is offset by the resulting lower selling price. To minimize the Group’s risk of potential losses due to volatility of international crude and product prices, the Group implemented commodity hedging for crude and petroleum products. The hedges are intended to protect crude inventories from risks of downward price and squeezed margins. Hedging policy (including the use of commodity price swaps, time-spreads, put options, collars and 3-way options) developed by the CRMD is in place. Decisions are guided by the conditions set and approved by the Group’s management. Other Market Price Risk The Group’s market price risk arises from its investments carried at fair value (FVPL and AFS financial assets). The Group manages its risk arising from changes in market price by monitoring the changes in the market price of the investments. Capital Management The Group’s capital management policies and programs aim to provide an optimal capital structure that would ensure the Group’s ability to continue as a going concern while at the same time provide adequate returns to the shareholders. As such, it considers the best trade-off between risks associated with debt financing and relatively higher cost of equity funds.

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An enterprise resource planning system is used to monitor and forecast the Group’s overall financial position. The Group regularly updates its near-term and long-term financial projections to consider the latest available market data in order to preserve the desired capital structure. The Group may adjust the amount of dividends paid to shareholders, issue new shares as well as increase or decrease assets and/or liabilities, depending on the prevailing internal and external business conditions. The Group monitors capital via carrying amount of equity as shown in the consolidated statements of financial position. The Group’s capital for the covered reporting period is summarized below: 2017 2016 Total assets P338,030 P318,893 Total liabilities 238,411 230,073 Total equity 99,619 88,820 Debt to equity ratio 2.4:1 2.6:1 Assets to equity ratio 3.4:1 3.6:1

There were no changes in the Group’s approach to capital management during the year. The Group is not subject to externally-imposed capital requirements.

35. Financial Assets and Financial Liabilities The table below presents a comparison by category of carrying amounts and fair values of the Group’s financial instruments as of December 31: 2017 2016

Note Carrying Amount

Fair Value

Carrying Amount

Fair Value

Financial assets (FA): Cash and cash equivalents 5 P17,014 P17,014 P17,332 P17,332 Trade and other receivables 8 38,159 38,159 31,548 31,548 Long-term receivables - net 14 228 228 205 205 Noncurrent deposits 14 90 90 81 81 Loans and receivables 55,491 55,491 49,166 49,166

AFS financial assets 7 531 531 479 479 Financial assets at FVPL 6 171 171 157 157 Derivative assets 6 165 165 64 64 FA at FVPL 336 336 221 221

Total financial assets P56,358 P56,358 P49,866 P49,866

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2017 2016

Note Carrying Amount

Fair Value

Carrying Amount

Fair Value

Financial liabilities (FL): Short-term loans 15 P69,583 P69,583 P90,366 P90,366 Liabilities for crude oil and

petroleum products 16 36,920 36,920 29,966 29,966 Trade and other payables* 17 7,917 7,917 12,065 12,065 Long-term debt including

current portion 18 101,705 101,705 79,852 79,852 Cash bonds 20 400 400 387 387 Cylinder deposits 20 577 577 499 499 Other noncurrent liabilities** 20 57 57 73 73 FL at amortized cost 217,159 217,159 213,208 213,208 Derivative liabilities 1,791 1,791 778 778

Total financial liabilities P218,950 P218,950 P213,986 P213,986 *excluding specific taxes and other taxes payable, retirement benefits liability, deferred income and others **excluding cash bonds and cylinder deposits The following methods and assumptions are used to estimate the fair value of each class of financial instruments: Cash and Cash Equivalents, Trade and Other Receivables, Long-term Receivables and Noncurrent Deposits. The carrying amount of cash and cash equivalents and trade and other receivables approximates fair value primarily due to the relatively short-term maturities of these financial instruments. In the case of long-term receivables and noncurrent deposits, the fair value is based on the present value of expected future cash flows using the applicable discount rates based on current market rates of identical or similar quoted instruments. Derivatives. The fair values of freestanding and bifurcated forward currency transactions are calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Marked-to-market valuation of commodity hedges are based on forecasted crude and product prices by third parties. Financial Assets at FVPL and AFS Financial Assets. The fair values of publicly traded instruments and similar investments are based on published market prices. For debt instruments with no quoted market prices, a reasonable estimate of their fair values is calculated based on the expected cash flows from the instruments discounted using the applicable discount rates of comparable instruments quoted in active markets. Unquoted equity securities are carried at cost less impairment. Long-term Debt - Floating Rate. The carrying amounts of floating rate loans with quarterly interest rate repricing approximate their fair values. Cash Bonds, Cylinder Deposits and Other Noncurrent Liabilities. Fair value is estimated as the present value of all future cash flows discounted using the applicable market rates for similar types of instruments as of reporting date. Effective rates used in 2017 and 2016 are 5.82% and 4.99%, respectively. Short-term Loans, Liabilities for Crude Oil and Petroleum Products and Trade and Other Payables. The carrying amount of short-term loans, liabilities for crude oil and petroleum products and trade and other payables approximates fair value primarily due to the relatively short-term maturities of these financial instruments.

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Derivative Financial Instruments The Group’s derivative financial instruments according to the type of financial risk being managed and the details of freestanding and embedded derivative financial instruments are discussed below. The Group enters into various currency and commodity derivative contracts to manage its exposure on foreign currency and commodity price risk. The portfolio is a mixture of instruments including forwards, swaps and options. These include freestanding and embedded derivatives found in host contracts, which are not designated as accounting hedges. Changes in fair value of these instruments are recognized directly in profit or loss. Freestanding Derivatives Freestanding derivatives consist of commodity and currency entered into by the Group. Currency Forwards. As of December 31, 2017 and 2016, the Group has outstanding foreign currency forward contracts with aggregate notional amount of US$1,283 million and US$875 million, respectively, and with various maturities in 2018 and 2017. As of December 31, 2017 and 2016, the net negative fair value of these currency forwards amounted to P445 and P38, respectively. Commodity Swaps. The Group has outstanding swap agreements covering its oil requirements, with various maturities in 2018 and 2017. Under the agreements, payment is made either by the Group or its counterparty for the difference between the hedged fixed price and the relevant monthly average index price. Total outstanding equivalent notional quantity covered by the commodity swaps were 42.6 million barrels and 26.3 million barrels for 2017 and 2016, respectively. The estimated net payouts for these transactions amounted to P1,181 and P676 as of December 31, 2017 and 2016, respectively. Commodity Options. As of December 31, 2017 and 2016, the Group has no outstanding 3-way options designated as hedge of forecasted purchases of crude oil. The call and put options can be exercised at various calculation dates with specified quantities on each calculation date. Embedded Derivatives Embedded foreign currency derivatives exist in certain US dollar-denominated sales and purchases contracts for various fuel products of the Parent Company. Under the sales and purchase contracts, the peso equivalent is determined using the average Philippine Dealing System rate on the month preceding the month of delivery. As of December 31, 2017 and 2016, the total outstanding notional amount of currency forwards embedded in non-financial contracts is minimal. These non-financial contracts consist mainly of foreign currency-denominated service contracts, purchase orders and sales agreements. The embedded forwards are not clearly and closely related to their respective host contracts. As of December 31, 2017 and 2016, the net positive fair value of these embedded currency forwards is minimal. For the years ended December 31, 2017, 2016 and 2015, the Group recognized marked-to-market gains (losses) from freestanding and embedded derivatives amounting to (P1,692), P824 and P936, respectively (Note 26).

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Fair Value Changes on Derivatives The net movements in the fair value of all derivative transactions in 2017 and 2016 are as follows: Note 2017 2016 Fair value at beginning of year (P714) (P241) Net changes in fair value during the year 26 (1,692) 824 Fair value of settled instruments 780 (1,297) Fair value at end of year (P1,626) (P714)

Fair Value Hierarchy Financial assets and liabilities measured at fair value in the consolidated statements of financial position are categorized in accordance with the fair value hierarchy. This hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and liabilities. The table below analyzes financial instruments carried at fair value, by valuation method as of December 31, 2017 and 2016. The different levels have been defined as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or

liabilities; Level 2: inputs other than quoted prices included within Level 1 that are

observable for the asset or liability, either directly or indirectly; and Level 3: inputs for the asset or liability are not based on observable market

data. 2017 Level 1 Level 2 Total Financial Assets:

FVPL P - P171 P171 Derivative assets - 165 165 AFS financial assets 201 330 531

Financial Liabilities: Derivative liabilities - (1,791) (1,791)

2016 Level 1 Level 2 Total Financial Assets:

FVPL P - P157 P157 Derivative assets - 64 64 AFS financial assets 141 338 479

Financial Liabilities: Derivative liabilities - (778) (778)

The Group has no financial instruments valued based on Level 3 as of December 31, 2017 and 2016. During the year, there were no transfers between and into and out of Level 1 and Level 2 fair value measurements.

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36. Registration with the Board of Investments (BOI) Benzene, Toluene and Propylene Recovery Units On October 20, 2005, the Parent Company registered with the BOI under the Omnibus Investments Code of 1987 (Executive Order 226) as: (1) a pioneer, new export producer status of Benzene and Toluene; and (2) a pioneer, new domestic producer status of Propylene. Under the terms of its registration, the Parent Company is subject to certain requirements principally that of exporting at least 50% of the combined production of Benzene and Toluene. As a registered enterprise, the Parent Company is entitled to certain benefits on its production of petroleum products used as petrochemical feedstock, mainly, among others, Income Tax Holiday (ITH): (1) for six years from May 2008 or actual start of commercial operations, whichever is earlier, but in no case earlier than the date of registration for Benzene and Toluene; and (2) for six years from December 2007 or actual start of commercial operations, whichever is earlier, but in no case earlier than the date of registration for Propylene. The BOI extended the Parent Company’s ITH incentive for its propylene sales from December 2013 to November 2014 and for its benzene and toluene sales from May 2014 to April 2015. RMP-2 Project On June 3, 2011, the BOI approved the Parent Company’s application under RA 8479 as an Existing Industry Participant with New Investment in Modernization/Conversion of Bataan Refinery’s RMP-2. The BOI is extending the following major incentives: a. ITH for five years without extension or bonus year from July 2015 or actual start

of commercial operations, whichever is earlier, but in no case earlier than the date of registration based on the formula of the ITH rate of exemption.

b. Minimum duty of three percent and VAT on imported capital equipment and

accompanying spare parts. c. Importation of consigned equipment for a period of five years from date of

registration subject to posting of the appropriate re-export bond; provided that such consigned equipment shall be for the exclusive use of the registered activity.

d. Tax credit on domestic capital equipment shall be granted on locally fabricated

capital equipment which is equivalent to the difference between the tariff rate and the three percent duty imposed on the imported counterpart.

e. Exemption from real property tax on production equipment or machinery. f. Exemption from contractor’s tax. The RMP-2 Project commenced its commercial operation on January 1, 2016 and the Parent Company availed of the ITH in 2016 and 2017. On August 11, 2017, the BOI approved the Parent Company’s application for the ITH incentive. The approval also covers the claim for income tax exemption in the Parent Company’s 2016 Income Tax Return, subject to adjustment, if any, after the completion of the audit by the BIR.

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Yearly certificates of entitlement have been timely obtained by the Parent Company to support its ITH credits in 2017 and 2016.

37. Segment Information Management identifies segments based on business and geographic locations. These operating segments are monitored and strategic decisions are made on the basis of adjusted segment operating results. The CEO (the chief operating decision maker) reviews management reports on a regular basis. The Group’s major sources of revenues are as follows: a. Sales of petroleum and other related products which include gasoline, diesel and

kerosene offered to motorists and public transport operators through its service station network around the country.

b. Insurance premiums from the business and operation of all kinds of insurance

and reinsurance, on sea as well as on land, of properties, goods and merchandise, of transportation or conveyance, against fire, earthquake, marine perils, accidents and all others forms and lines of insurance authorized by law, except life insurance.

c. Lease of acquired real estate properties for petroleum, refining, storage and

distribution facilities, gasoline service stations and other related structures. d. Sales on wholesale or retail and operation of service stations, retail outlets,

restaurants, convenience stores and the like. e. Export sales of various petroleum and non-fuel products to other Asian countries

such as China, Vietnam, Taiwan, Cambodia, Malaysia, Thailand, Indonesia, South Korea and Singapore.

f. Sale of polypropylene resins to domestic plastic converters of yarn, film and

injection molding grade plastic products. Segment Assets and Liabilities Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables, inventories and property, plant and equipment, net of allowances and impairment. Segment liabilities include all operating liabilities and consist principally of accounts payable, wages, taxes currently payable and accrued liabilities. Segment assets and liabilities do not include deferred taxes. Inter-segment Transactions Segment revenues, expenses and performance include sales and purchases between operating segments. Transfer prices between operating segments are set on an arm’s length basis in a manner similar to transactions with third parties. Such transfers are eliminated in consolidation. Major Customer The Group does not have a single external customer from which sales revenue generated amounted to 10% or more of the total revenue of the Group.

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The following tables present revenue and income information and certain asset and liability information regarding the business segments as of and for the years ended December 31, 2017, 2016 and 2015.

Petroleum Insurance Leasing Marketing Elimination/

Others Total 2017 Revenue:

External sales P433,879 P - P - P745 P - P434,624 Inter-segment sales 199,117 83 584 - (199,784) -

Operating income 26,895 59 295 16 373 27,638 Net income 16,263 118 141 44 (2,479) 14,087 Assets and liabilities:

Segment assets* 382,313 1,319 5,871 636 (52,316) 337,823 Segment liabilities* 248,118 291 4,439 108 (21,942) 231,014

Other segment information: Property, plant and

equipment 172,212 - - 134 5,344 177,690 Depreciation and

amortization 10,952 - 9 18 - 10,979 Interest expense 8,487 - 164 - (164) 8,487 Interest income 666 26 2 5 (164) 535 Income tax expense 4,648 16 27 3 61 4,755

*excluding deferred tax assets and liabilities



External sales P341,979 P - P76 P1,823 (P38) P343,840 Inter-segment sales 161,982 132 517 32 (162,663) -

Operating income 23,208 104 271 48 166 23,797 Net income 10,495 125 96 63 43 10,822 Assets and liabilities:




amortization 9,289 - 2 41 173 9,505 Interest expense 7,557 - 173 - (173) 7,557 Interest income 651 22 2 5 (173) 507 Income tax expense 1,832 15 23 11 1,675 3,556




External sales P357,908 P - P33 P2,270 (P33) P360,178 Inter-segment sales 158,171 107 509 55 (158,842) -

Operating income 17,048 78 256 83 669 18,134 Net income 9,349 103 97 87 (3,366) 6,270 Assets and liabilities:




amortization 6,164 - 2 39 67 6,272 Interest expense 5,533 - 183 - (183) 5,533 Interest income 846 15 1 7 (183) 686 Income tax expense 3,479 11 35 21 109 3,655


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Inter-segment sales transactions amounted to P199,784, P162,663 and P158,842 for the years ended December 31, 2017, 2016 and 2015, respectively. The following table presents additional information on the petroleum business segment of the Group as of and for the years ended December 31, 2017, 2017 and 2016:

Reseller Lube Gasul Industrial Others Total 2017 Revenue P212,840 P5,307 P22,850 P101,333 P91,549 P433,879 Property, plant and

equipment 20,648 86 435 153 150,890 172,212 Capital expenditures 2,473 1 100 49 4,821 7,444 2016 Revenue 161,415 4,445 17,922 83,650 74,547 341,979 Property, plant and

equipment 18,557 110 384 210 152,069 171,330 Capital expenditures 3,214 1 89 110 21,920 25,334 2015 Revenue 169,179 4,052 18,119 81,587 84,971 357,908 Property, plant and

equipment 18,682 138 360 200 136,939 156,319 Capital expenditures 1,909 1 61 99 114,515 116,585

Geographical Segments The following table presents segment assets of the Group as of December 31, 2017 and 2016. 2017 2016 Local P271,883 P261,761 International 65,940 56,938 P337,823 P318,699

The following table presents revenue information regarding the geographical segments of the Group for the years ended December 31, 2017, 2016 and 2015.


Others Total 2017

Local P271,117 P29 P584 P745 (P1,156) P271,319 Export/international 361,879 54 - - (198,628) 163,305

2016 Local 204,585 64 593 1,855 (1,686) 205,411 Export/international 299,375 68 - - (161,014) 138,429

2015 Local 212,724 57 542 2,325 (2,014) 213,634 Export/international 303,355 50 - - (156,861) 146,544

38. Events After the Reporting Date a. On January 8, 2018, the Parent Company announced a tender offer to holders of

its US$750 million USCS with expiration deadline on January 16, 2018. Tenders amounted to US$402 million and were settled by the Parent Company on January 22, 2018. The USCS redeemed pursuant to the Tender Offer were cancelled. Distributions and premiums paid related to the redemption amounted to US$13.901 million (P1,010) and US$12.059 million (P876), respectively.

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On February 5, 2018, the Parent Company paid distributions amounting to US$13.051 million (P963) to the holders of the remaining US$348 million USCS.

b. On January 19, 2018, the Parent Company issued US$500 million Senior Perpetual Capital Securities (the “SPCS”) with an issue price of 100% to partially refinance the Parent Company’s existing US$750 million USCS, for the repayment of indebtedness and for general corporate purposes, including capital expenditures. The SPCS were listed with the Singapore Exchange Securities Trading Ltd. on January 22, 2018.

c. On March 13, 2018, the BOD of the Parent Company approved the declaration of cash dividends for common and series 2 preferred shareholders with the following details:

Type Per Share Record Date Payment Date Common P0.15000 March 27, 2018 April 18, 2018 Series 2A 15.75000 April 12, 2018 May 3, 2018 Series 2B 17.14575 April 12, 2018 May 3, 2018 Series 2A 15.75000 July 16, 2018 August 3, 2018 Series 2B 17.14575 July 16, 2018 August 3, 2018

39. Other Matters a. Lease Agreements with PNOC

On October 20, 2017, the Parent Company filed with the Regional Trial Court (RTC) of Mandaluyong City a complaint against the PNOC for Resolution and Reconveyance, and Damages, with Verified Ex-Parte Application for 72-hour Temporary Restraining Order and Verified Applications for 20-day Temporary Restraining Order and Writ of Preliminary Injunction. In its complaint, the Parent Company seeks the reconveyance of the various landholdings it conveyed to PNOC in 1993 as a result of the government-mandated privatization of the Parent Company. These landholdings consist of the refinery lots in Limay, Bataan, 23 bulk plant sites and 66 service station lots located in different parts of the country. The Deeds of Conveyance covering the landholdings provide that the transfer of these lots to PNOC was without prejudice to the continued long-term use by the Parent Company of the conveyed lots for its business operation. Thus, PNOC and the Parent Company executed three lease agreements covering the refinery lots, the bulk plants, and the service station sites, all with an initial lease term of 25 years to expire in August 2018, with a provision for automatic renewal for another 25 years. In 2009, the Parent Company, through its realty subsidiary, NVRC, had an early renewal of the lease agreement for the refinery lots with an initial lease term of 30 years, renewable for another 25 years. The complaint stemmed from PNOC’s refusal to honor both the automatic renewal clause in the lease agreements for the bulk plants and the service station sites and the renewed lease agreement for the refinery lots on the alleged ground that all such lease agreements were grossly disadvantageous to PNOC, a government-owned-and-controlled corporation. The Parent Company alleged that by unilaterally setting aside the renewal clauses of the lease agreements and by categorically declaring its refusal to honor them, PNOC committed a fundamental breach of such lease agreements with the Parent Company.

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On December 11, 2017, the trial court granted the Parent Company’s prayer for a writ of preliminary injunction, enjoining PNOC from committing any act aimed at ousting the Parent Company from possession of the subject properties until the case is decided. On December 29, 2017, the trial court mandated the conduct of mediation proceedings on February 5, 2018 before the Philippine Mediation Center. The case was still pending as of December 31, 2017. The court-mandated mediation conference held at the Philippine Mediation Center in Mandaluyong City on February 5, 2018 was terminated without any agreement between the parties. In an Order dated February 28, 2018, upon motion of the Parent Company, the trial court directed that the case be returned to the Office of the Clerk of Court for re-raffle for the judicial dispute resolution proceeding. As of March 13, 2018, the Parent Company is awaiting the notice on the date for the re-raffle.

b. Tax Credit Certificates Related Cases In 1998, the BIR issued a deficiency excise tax assessment against the Parent Company relating to its use of P659,000 worth of Tax Credit Certificate (TCCs) to pay certain excise tax obligations from 1993 to 1997. The TCCs were transferred to the Parent Company by suppliers as payment for fuel purchases. The Parent Company contested the BIR’s assessment before the Court of Tax Appeals (CTA). In July 1999, the CTA ruled that as a fuel supplier of BOI-registered companies, the Parent Company was a qualified transferee of the TCCs and that the collection of the BIR of the alleged deficiency excise taxes was contrary to law. On March 21, 2012, the Court of Appeals (CA) promulgated a decision in favor of the Parent Company and against the BIR affirming the ruling of the CTA striking down the assessment issued by the BIR to the Parent Company. On April 19, 2012, a motion for reconsideration was filed by the BIR, which was denied by the CA in its resolution dated October 10, 2012. The BIR elevated the case to the Supreme Court through a petition for review on certiorari dated December 5, 2012. On June 17, 2013, the Parent Company filed its comment on the petition for review filed by the BIR. The petition was still pending as of December 31, 2017.

c. Pandacan Terminal Operations In November 2001, the City of Manila enacted Ordinance No. 8027 reclassifying the areas occupied by the oil terminals of the Parent Company, Pilipinas Shell Petroleum Corporation (Shell) and Chevron Philippines Inc. (Chevron) from industrial to commercial. This reclassification made the operation of the oil terminals in Pandacan, Manila illegal. In December 2002, the Social Justice Society (SJS) filed a petition with the Supreme Court against the Mayor of Manila asking that the latter be ordered to enforce Ordinance 8027. In April 2003, the Parent Company filed a petition with the RTC to annul Ordinance No. 8027 and enjoin its implementation. On the basis of a status quo order issued by the RTC, Mayor of Manila ceased implementation of Ordinance No. 8027. The City of Manila subsequently issued the Comprehensive Land Use Plan and Zoning Ordinance, which applied to the entire City of Manila. Ordinance No. 8119 allowed the Parent Company (and other non-conforming establishments) a seven-year grace period to vacate. As a result of the passage of Ordinance No. 8119, which was thought to effectively repeal Ordinance No. 8027, in April 2007, the RTC dismissed the petition filed by the Parent Company questioning Ordinance No. 8027.

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However, on March 7, 2007, in the case filed by SJS, the Supreme Court rendered a decision (the “March 7 Decision”) directing the Mayor of Manila to immediately enforce Ordinance No. 8027. On March 12, 2007, the Parent Company, together with Shell and Chevron, filed motions with the Supreme Court seeking intervention and reconsideration of the March 7 Decision. In the same year, the Parent Company also filed a petition before the RTC of Manila praying for the nullification of Ordinance No. 8119 on the grounds that the reclassification of the oil terminals was arbitrary, oppressive and confiscatory, and thus unconstitutional, and that the said Ordinance contravened the provisions of the Presidential Decree No. 1067, Water Code of the Philippines. On February 13, 2008, the Parent Company, Shell and Chevron were allowed by the Supreme Court to intervene in the case filed by SJS but their motions for reconsideration were denied. The Supreme Court declared Ordinance No. 8027 valid and dissolved all existing injunctions against the implementation of the Ordinance No. 8027. In May 2009, Manila City Mayor Alfredo Lim approved Ordinance No. 8187, which amended Ordinance No. 8027 and Ordinance No. 8119 and permitted the continued operations of the oil terminals in Pandacan. On August 24, 2012 (the “August 24 Decision”), the RTC of Manila ruled that Section 23 of Ordinance No. 8119 relating to the reclassification of subject oil terminals had already been repealed by Ordinance No. 8187; hence any issue pertaining thereto had become moot and academic. The RTC of Manila also declared Section 55 of Ordinance No. 8119 null and void for being in conflict with the Water Code. Nonetheless, the RTC upheld the validity of all other provisions of Ordinance No. 8119. The Parent Company filed with the RTC a Notice of Appeal to the Court of Appeals on January 23, 2013. In a decision dated September 19, 2017, the CA denied the appeal of the Parent Company, finding that Manila’s Comprehensive Land Use Plan was valid, except for Section 55 of Ordinance No. 8119. Section 55, which imposed an easement of 10 meters from the riverbank to serve as a linear park, was struck down as invalid because it violated the Water Code which required only a three-meter easement. The Parent Company no longer filed a motion for reconsideration or elevated the matter to the Supreme Court since the issue has already become moot following the cessation by the Parent Company of the operations of its petroleum storage facilities in Pandacan in August 2015. With regard to Ordinance No. 8187, petitions were filed before the Supreme Court, seeking for its nullification and the enjoinment of its implementation. The Parent Company filed a manifestation on November 30, 2010 informing the Supreme Court that, without prejudice to its position in the cases, it had decided to cease operation of its petroleum product storage facilities in Pandacan within five (5) years or not later than January 2016 due to the many unfounded environmental issues being raised that tarnish the image of the Parent Company and the various amendments being made to the zoning ordinances of the City of Manila when the composition of the local government changes that prevented the Parent Company from making long-term plans. In a letter dated July 6, 2012 (with copies to the offices of the Vice Mayor and the City Council of Manila), the Parent Company reiterated its commitment to cease the operation of its petroleum product storage facilities and transfer them to another location by January 2016.

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On November 25, 2014, the Supreme Court issued a Decision (the “November 25 Decision”) declaring Ordinance No. 8187 unconstitutional and invalid with respect to the continued stay of the oil terminals in Pandacan. The Parent Company, Shell and Chevron were given 45 days from receipt of the November 25 Decision to submit a comprehensive plan and relocation schedule to the RTC of Manila and implement full relocation of their fuel storage facilities within six (6) months from the submission of the required documents. On March 10, 2015, acting on a Motion for Reconsideration filed by Shell, a Motion for Clarification filed by Chevron, and a Manifestation filed by the Parent Company, the Supreme Court denied Shell’s motion with finality and clarified that relocation and transfer necessarily included removal of the facilities in the Pandacan terminals and should be part of the required comprehensive plan and relocation schedule. On May 14, 2015, the Parent Company filed its submission in compliance with the November 25 Decision.

d. Oil Spill Incident in Guimaras

On August 11, 2006, MT Solar I, a third party vessel contracted by the Parent Company to transport approximately two million liters of industrial fuel oil, sank 13 nautical miles southwest of Guimaras, an island province in the Western Visayas region of the Philippines. In separate investigations by the Philippine Department of Justice (DOJ) and the Special Board of Marine Inquiry (SBMI), both agencies found the owners of MT Solar I liable. The DOJ found the Parent Company not criminally liable, but the SBMI found the Parent Company to have overloaded the vessel. The Parent Company has appealed the findings of the SBMI to the Philippine Department of Transportation and Communication (DOTC) and is awaiting its resolution. The Parent Company believes that SBMI can impose administrative penalties on vessel owners and crew, but has no authority to penalize other parties, such as the Parent Company, which are charterers. Other complaints for non-payment of compensation for the clean-up operations during the oil spill were filed by a total of 1,063 plaintiffs who allegedly did not receive any payment of their claims for damages arising from the oil spill. The total claims amount to P292. The cases were pending as of December 31, 2017.

e. Other Proceedings The Group is also a party to certain other proceedings arising out of the ordinary course of its business, including legal proceedings with respect to tax, regulatory and other matters. While the results of litigation cannot be predicted with certainty, management believes that the final outcome of these other proceedings will not have a material adverse effect on the Group’s business financial condition or results of operations.

f. The Group has unused letters of credit totaling approximately P19,515 and

P21,638 as of December 31, 2017 and 2016, respectively.

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